Filed electronically with the Securities and Exchange Commission
on December 23, 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. 13
--- / X /
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 15
--- / X /
Scudder Mutual Funds, Inc.
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(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
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Thomas F. McDonough
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ X / On March 1, 1999 pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485.
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
SCUDDER GOLD FUND
PROSPECTUS
MARCH 1, 1999
Seeking maximum return consistent with investing primarily in a portfolio of
gold-related equity securities and gold.
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
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No Sales Charges
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PURE NO-LOAD(TM)
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CONTENTS
FUND DESCRIPTION.............................................................3
Investment objective......................................................3
Investment strategies.....................................................3
Other investments.........................................................3
Risk management strategies................................................4
Main risks................................................................4
ABOUT THE FUND...............................................................5
Additional information you should know about the fund
Past performance..........................................................5
Fee and Expense information...............................................6
A Message from the President..............................................8
Investment adviser........................................................8
Distributions and taxes...................................................9
Financial highlights.....................................................10
ABOUT YOUR INVESTMENT.......................................................10
Information about managing your fund account
Transaction information..................................................10
Buying and selling shares................................................12
Purchases................................................................12
Exchanges and redemptions................................................13
Investment products and services.........................................14
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FUND DESCRIPTION
INVESTMENT OBJECTIVE
The fund seeks maximum return consistent with investing primarily in a portfolio
of gold-related equity securities and gold. The fund's investment objective and
policies may be changed without a vote of shareholders.
INVESTMENT STRATEGIES
The fund pursues its objective by investing primarily in equity securities of
companies engaged in gold and other precious metals exploration, mining,
fabrication, processing or distribution.
Under normal market conditions, the fund will invest at least 65% of its assets
in:
o equity securities of U.S. and foreign companies primarily engaged in gold
operations,
o gold bullion, and
o gold coins.
The remaining 35% of the fund's assets may be invested in:
o equity securities of companies engaged in activities primarily related to
precious metals (other than gold),
o investment-grade debt securities of companies engaged in gold or other
precious metals and minerals operations,
o precious metals other than gold, and
o debt securities, a portion of the return on which is linked to the price
of precious metals.
In making investments for the fund, the Adviser may consider the ore quality of
metals mined by a company, a company's mining, processing and fabricating costs
and techniques, the quantity of a company's unmined reserves, quality of
management and marketability of a company's equity or debt securities. The
Adviser will emphasize the potential for growth of the proposed investment,
although it may also consider an investment's income generating capacity as
well.
This fund may be appropriate for the aggressive portion of an investor's
portfolio. It should not be viewed as a complete investment program.
OTHER INVESTMENTS
Although not currently doing so, the fund may invest up to 35% of its assets in
gold, silver, platinum and other precious metals.
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The fund may make limited use of certain derivatives (investments whose value is
based on indices or other securities). The use of derivatives could magnify
gains or losses.
The fund may also invest in cash and cash equivalents, short-term bonds,
repurchase agreements and convertible bonds.
RISK MANAGEMENT STRATEGIES
When deemed appropriate by the Adviser, the fund may temporarily invest up to
30% of its assets to maintain liquidity. The fund may also invest up to 35% of
its assets in bonds with credit ratings Aaa/AAA through Baa/BBB.
Because of conditions in the securities markets or other economic or political
conditions, the fund may invest up to 100% of its assets in cash or cash
equivalents, U.S. government securities, and domestic repurchase agreements for
temporary defensive purposes. To the extent the Fund uses these defensive
strategies, the fund may not achieve its investment objective.
MAIN RISKS
GOLD AND PRECIOUS METALS. The primary risk affecting this fund's performance is
that the markets for gold and other precious metals related securities are
linked to the price of gold. Prices of gold and other precious metals can be
influenced by a variety of global economic, financial and political factors and
may fluctuate substantially over short periods of time and be more volatile than
other types of investments. Economic, political, or other conditions affecting
one of the major sources of gold could have a substantial effect on the world's
gold supply in countries throughout the world. Precious metals mining by its
nature involves significant risks and hazards. Even when a gold mineralisation
is discovered, there is no guarantee that the actual reserves of a mine will
increase. Exploratory mining can last over a number of years, incur substantial
costs, and not lead to any new commercial mining. Precious metals mining runs
the risk of increased environmental, labor or other costs in mining due to
environmental hazards, industrial accidents, labor disputes, discharge of toxic
chemicals, fire, drought, flooding and other natural acts. Changes in laws
relating to mining or gold production or sales could also substantially effect
precious metal values.
EQUITY INVESTING RISK. An investment in the common stock of a company represents
a proportionate ownership interest in that company. Therefore, the fund
participates in the success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered a greater potential for
gain on investment. However, the market value of common stocks can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors'
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perceptions of the company or the overall stock market and general economic or
financial market movements.
The value of the securities of a company may be affected by factors that affect
the company alone, the industry, or the entire country in which it is located.
CONCENTRATION RISK. The fund concentrates (at least 25% of its assets will be
invested in these holdings at all times) in gold and other precious metals
related securities. As a result, the fund may be subject to greater market
fluctuation than a fund with a broader range of investment alternatives.
NON-DIVERSIFICATION RISK. The fund is non-diversified under the 1940 Act and may
invest an unlimited amount of its assets in the securities 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.
FOREIGN SECURITIES. A substantial part of the fund's assets is generally
invested outside the U. S. Foreign investments carry added risks due to
inadequate or inaccurate financial information about companies, potential
political disturbances and fluctuations in currency exchange rates. In addition,
investments in emerging markets carry additional risks resulting from thinly
traded securities which are harder to value or sell at a fair price, delays or
difficulties in securities transaction settlements, government control on
securities transactions, and, in recent years, high rates of inflation.
DEBT SECURITIES RISK. The fund's bond investments are affected by interest
rates. When interest rates rise, the prices of bonds typically fall in
proportion to their duration.
More information about the fund's investments and strategies and accompanying
risks is provided in the Statement of Additional Information. Of course, there
can be no guarantee that by following these strategies, the fund will achieve
its objective.
ABOUT THE FUND
PAST PERFORMANCE
The chart and table below provide some indication of the risks of investing in
the fund by illustrating how the fund has performed, and comparing this
information to a broad measure of market performance. Of course, past
performance is not necessarily an indication of future performance.
Total returns for years ended December 31 [Bar Graphics To Be Inserted]
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Total
Return:
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Year: 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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For the periods included in the bar chart, the fund's highest return for a
calendar quarter was ______ % (the __ quarter of 19__), and the fund's lowest
return for a calendar quarter was _______% (the __ quarter of 19__).
The fund's year-to-date total return as of December 31, 1998 was [______ %].
Year-to-date total return includes a return of ___% for the quarter ending ____,
1998.
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Average annual total returns
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For periods ended December Fund Standard and Poor's
31, 1998 500 Index
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One Year xx.xx% xx.xx%
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Five Years xx.xx% xx.xx%
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Ten Years xx.xx% xx.xx%
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Since Inception (8/22/88) xx.xx% xx.xx%
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* Index comparisons begin ____, 1988.
The S&P 500 Stock Index is a commonly recognized unmanaged measure of 500 widely
held common stocks. Index returns assume reinvestment of dividends and, unlike
the fund's returns, do not reflect any fees or expenses.
FEE AND EXPENSE INFORMATION
Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the costs of investing in
the fund.
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Shareholder fees: Fees paid directly from your investment.
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Maximum sales charge (load) imposed on purchases (as % of NONE
offering price)
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Maximum deferred sales charge (load) NONE
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Maximum sales charge (load) imposed on reinvested NONE
dividends/distributions
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Redemption fee (as % of amount redeemed, if applicable) NONE*
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Exchange fee NONE
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Annual fund operating expenses (expenses that are deducted from fund assets):
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Management fee 1.00%
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Distribution (12b-1) fees NONE
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Other expenses x.xx%
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Total annual fund operating expenses x.xx%
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* You may redeem by writing or calling the fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "About Your Investment -- Exchanges
and Redemptions."
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Example
This example is to help you compare the cost investing in the fund with the cost
of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The expenses
would be the same whether you sold your shares at the end of each period or
continued to hold them.
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One Year $___
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Three Years $___
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Five Years $___
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Ten Years $___
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Actual fund expenses and return vary from year to year, and may be higher or
lower than those shown.
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. We manage 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.
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 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: IRAs, 401(k)s,
Keoghs and other retirement plans are also available.
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.
The Scudder Family of Funds is offered without charges to purchase or redeem
shares or to exchange from one fund to another. There are no distribution
(12b-1) fees either, which many other funds now charge to support their
marketing efforts. All of your
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investment goes to work for you. We look forward to welcoming you as a
shareholder.
Edmond D. Villani
President and CEO
Scudder Kemper Investments, Inc.
INVESTMENT ADVISER
The fund retains the investment management firm of Scudder Kemper Investments,
Inc. (the "Adviser"), 345 Park Avenue, New York, NY, to manage the fund's daily
investment and business affairs subject to the policies established by the Board
of Directors. The Adviser actively manages your investment in the fund.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities.
For the fiscal year ended October 31, 1998, the Adviser received an investment
management fee of 1.00% of the fund's average daily net assets
Portfolio Management
The fund is managed by a team of investment professionals, who each 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. The Adviser believes its team
approach benefits fund investors by bringing together many disciplines and
leveraging its extensive resources.
The following investment professionals are associated with the fund as
indicated:
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Name and Title Joined the Fund Responsibilities and Background
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Clay L. Hoes 1996 Joined Scudder Kemper Investments in
Lead Manager 1996 as a mining equity research
analyst and portfolio manager. Prior to
joining the Adviser, Mr. Hoes worked as
a metals and mining analyst since
1993. He began his investment career
in 1986.
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TO BE UPDATED
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Year 2000 Readiness
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 other
service providers,
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are unable to correctly process date-related information on and after January 1,
2000. The 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, such as problems with
calculating net asset value and difficulties in implementing the fund's purchase
and redemption procedures. The Adviser has commenced a review of the Year 2000
issue as it may affect the funds 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 issuers whose
securities are held by the fund or on global markets or economies generally.
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
The fund intends to distribute dividends from its net investment income
annually, in December. The fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in December. An
additional distribution may be made at a later date, if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such 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.
A shareholder may choose to receive distributions in cash or have them
reinvested in additional shares of a 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. Distributions are generally taxable,
whether received in cash or reinvested.
Taxes
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have owned shares. Short-term capital gains and any other taxable
income distributions are taxable as ordinary income. A portion of dividends from
ordinary income may qualify for the dividends-received deduction for
corporations.
Unless your investment is in a tax-deferred account, you may want to avoid
investing a large amount close to the date of a distribution because you may
receive part of your investment back as a taxable distribution.
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A sale or exchange of shares is a taxable event and may result in a capital gain
or loss which may be long-term or short-term, generally depending on how long
you owned the shares.
The fund sends detailed tax information to its shareholders about the amount and
type of its distributions by January 31 of the following year.
The fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Any such withheld amounts may be credited against the
shareholder's U.S. federal income tax liability.
Shareholders may be subject to state, local and foreign taxes on fund
distributions and dispositions of fund shares. You should consult your tax
adviser regarding the particular consequences of an investment in the fund.
FINANCIAL HIGHLIGHTS
The table below is intended to help you understand the fund's financial
performance for the past five years. Certain information reflects financial
results for a single fund share. The total return figures represent the rate
that an investor would have earned (or lost) on an investment in the fund
assuming reinvestment of all dividends and distributions. This information has
been audited by PricewaterhouseCoopers LLP whose report, along with the fund's
financial statements, is included in the annual report, which is available upon
request by calling Scudder Investor Relations at 1-800-225-2470 or, for existing
investors, call the Scudder Automated Information Line (SAIL) at 1-800-343-2890.
[TO BE UPDATED]
ABOUT YOUR INVESTMENT
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the fund as of the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. eastern time, on each day the NYSE is open for trading.
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. Market
prices are used to
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determine the value of the fund's assets, but when no reliable market quotations
are available, the fund may use valuation procedures established by its Board.
To the extent that the fund invests in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the fund does not price
its shares. As a result, the net asset value per share of the fund may change at
a time when shareholders are not able to purchase or redeem their shares.
Processing time
All purchase and redemption requests received in good order by the fund's
transfer agent by the close of regular trading on the NYSE are executed at the
net asset value per share calculated at the close of trading that day. All other
requests that are in good order will be executed the following business day.
Signature guarantees
A signature guarantee is required for redemptions over $100,000. You can obtain
one from most brokerage houses and financial institutions, although not from a
notary public. The fund will normally send you the 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). For more information,
please call 1-800-225-5163.
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
there is evidence of a pattern of frequent purchases and sales made in response
to short-term fluctuations in the fund's share price.
Minimum balances
Generally, shareholders who maintain a non-fiduciary account balance of less
than $2,500 in the fund and have not established an automatic investment plan
will be assessed, an annual $10.00 per fund charge; this fee is paid to the
fund. The fund reserves the right, following 60 days written notice to
shareholders, to redeem all shares in accounts that have a value below $1,000
where such a reduction in value has occurred due to a redemption, exchange or
transfer out of the account.
Third party transactions
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than Scudder Investor Services,
Inc.), that member may charge a fee for that service.
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Redemption-in-kind
The fund reserves the right to honor requests for redemption or repurchase by
making payment in whole or in part in readily marketable securities ("redemption
in kind") if the amount of such a request is large enough to affect operations
(for example, if the request is greater than $250,000 or 1% of the fund's
assets). These securities will be chosen by the fund and valued as they are for
purposes of computing the fund's net asset value. A shareholder may incur
transaction expenses in converting these securities to cash.
BUYING AND SELLING SHARES
Please refer to the following charts for information on how to buy and sell fund
shares. Additional information, including special investment features, may be
found in the Shareholder Services Guide. For information about No-Fee IRAs, Roth
IRAs and other retirement options, call Scudder Investor Relations at
1-800-225-2470. For information on establishing 401(k) and 403(b) plans, call
Scudder Defined Contribution Services at 1-800-323-6105.
PURCHASES
To open an account
The minimum initial investment is $2,500; $1,000 for IRAs. Group retirement
plans (401(k), 403(b), etc.) have similar or lower minimums -- see appropriate
plan literature. Make checks payable to "The Scudder Funds."
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By Mail Send your completed and signed application and check
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
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By Wire Call 1-800-225-5163 for instructions.
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In Person Visit one of our Investor Centers to complete your
application with the help of a Scudder representative. Investor
Centers are located in Boca Raton, Boston, Chicago, New York and
San Francisco.
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To buy additional shares
The minimum additional investment is $100; $50 for IRAs. Group retirement plans
(401(k), 403(b), etc.) have similar or lower minimums -- see appropriate plan
literature. Make checks payable to "The Scudder Funds."
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By Mail Send a check with a Scudder investment slip, or with a
letter of instruction including your account number and the
complete fund name, to the appropriate address listed above.
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By Wire Call 1-800-225-5163 for instructions.
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In Person Visit one of our Investor Centers to make an additional investment
in your Scudder fund account. Investor Center locations are listed
above.
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By Phone Call 1-800-225-5163 for instructions.
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By Automatic You may arrange to make investments of $50 or more on a regular basis
Investment through automatic deductions from your bank checking account.
Plan Please call 1-800-225-5163 for more information and an enrollment form.
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EXCHANGES AND REDEMPTIONS
To exchange shares
The minimum investments are $2,500 to establish a new account and $100 to
exchange among existing accounts.
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By Telephone To speak with a service representative, call 1-800-225-5163 from 8
a.m. to 8 p.m. eastern time. To access SAILTM, The Scudder Automated
Information Line, call 1-800-343-2890 (24 hours a day).
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By Mail or Fax Print or type your instructions and include:
- 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 or by express, registered, or by fax to:
by regular mail 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
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To sell shares
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By Telephone To speak with a service representative, call 1-800-225-5163 from 8
a.m. to 8 p.m. eastern time. To access SAILTM, The Scudder
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.
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By Mail or Fax Send your instructions for redemption to the appropriate address or
fax number 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.
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By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Plan Call 1-800-225-5163 for more information and an enrollment form.
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INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds+
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Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder S&P 500 Index Fund
Premium Shares* Scudder Real Estate Investment Fund
Managed Shares*
Scudder Government Money Market U.S. Growth
Series -- Managed Shares* Value
Scudder Large Company Value Fund
Tax Free Money Market+ Scudder Value Fund***
Scudder Tax Free Money Fund Scudder Small Company Value Fund
Scudder Tax Free Money Market Series-- Scudder Micro Cap Fund
Managed Shares* Growth
Scudder California Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder New York Tax Free Money Fund** Scudder Large Company Growth Fund
Scudder Development Fund
Tax Free+ Scudder 21st Century Growth Fund
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund Global Equity
Scudder Managed Municipal Bonds Worldwide
Scudder High Yield Tax Free Fund Scudder Global Fund
Scudder California Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Limited Term Tax Free Fund** Scudder International Growth and Income Fund
Scudder Massachusetts Tax Free Fund** Scudder International Fund++
Scudder New York Tax Free Fund** Scudder International Growth Fund
Scudder Ohio Tax Free Fund** Scudder Global Discovery Fund***
Scudder Pennsylvania Tax Free Fund** Scudder Emerging Markets Growth Fund
Scudder Gold Fund
U.S. Income Regional
Scudder Short Term Bond Fund Scudder Greater Europe Growth Fund
Scudder Zero Coupon 2000 Fund Scudder Pacific Opportunities Fund
Scudder GNMA Fund Scudder Latin America Fund
Scudder Income Fund The Japan Fund, Inc.
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund Industry Sector Funds
Choice Series
Global Income Scudder Financial Services Fund
Scudder Global Bond Fund Scudder Health Care Fund
Scudder International Bond Fund Scudder Technology Fund
Scudder Emerging Markets Income Fund
Preferred Series
Asset Allocation Scudder Tax Managed Growth Fund
Scudder Pathway Conservative Portfolio Scudder Tax Managed Small Company Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
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Retirement Programs and Education accounts
Traditional IRA Scudder Horizon Plan **++(a variable annuity)
Roth IRA Education IRA
SEP-IRA UGMA/UTMA
Keogh Plan
401(k), 403(b) Plans
Closed-end funds#
The Argentina Fund, Inc. Scudder Global High Income Fund, Inc.
The Brazil Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Spain and Portugal Fund, Inc.
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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.
15
<PAGE>
Additional information about the fund may be found in the Statement of
Additional Information, the Shareholder Services Guide and in shareholder
reports. Shareholder inquiries may be made by calling the toll-free number
listed below. The Statement of Additional Information contains more information
on fund investments and operations. The Shareholder Service Guide contains more
information about purchases and sales of fund shares. The semiannual and annual
shareholder reports contain a discussion of the market conditions and the
investment strategies that significantly affected the fund's performance during
the last fiscal year, as well as a listing of portfolio holdings and financial
statements. These and other fund documents may be obtained without charge from
the following sources:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
By phone: In person:
- ------------------------------------------------------------------------------------------------
Call Scudder Investor Relations at 1-800-225-2470 Public Reference Room
or Securities and Exchange Commission,
For existing Scudder investors, call the Scudder Washington, D.C.
Automated Information Line (SAIL) at (Call 1-800-SEC-0330
1-800-343-2890 (24 hours a day). for more information).
- ------------------------------------------------------------------------------------------------
By mail: By internet:
- ------------------------------------------------------------------------------------------------
Scudder Investor Services, Inc. http://www.sec.gov
Two International Place Boston, MA 02110-4103 http://www.scudder.com
or
Public Reference Section Securities and Exchange
Commission, Washington, D.C. 20549-6009
(a duplication fee is charged)
- ------------------------------------------------------------------------------------------------
</TABLE>
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number: 811-5565
Printed with SOYINK Printed on recycled paper
16
<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
March 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of Scudder Gold Fund dated March 1, 1999, 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
Page
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES...........................1
General Investment Objective and Policies........................1
Master/feeder Structure..........................................2
Investment Restrictions.........................................16
PURCHASES.............................................................17
Additional Information About Opening An Account.................17
Minimum balances................................................18
Additional Information About Making Subsequent Investments......18
Additional Information About Making Subsequent Investments by
QuickBuy.....................................................18
Checks..........................................................19
Wire Transfer of Federal Funds..................................19
Share Price.....................................................19
Share Certificates..............................................20
Other Information...............................................20
EXCHANGES AND REDEMPTIONS.............................................20
Exchanges.......................................................20
Redemption by Telephone.........................................21
Redemption by QuickSell.........................................22
Redemption-In-Kind..............................................22
Other Information...............................................23
FEATURES AND SERVICES OFFERED BY THE FUND.............................23
The Pure No-Load(TM) Concept....................................23
Internet access.................................................24
Dividends and Capital Gains Distribution Options................25
Scudder Investor Centers........................................25
Reports to Shareholders.........................................25
Transaction Summaries...........................................25
THE SCUDDER FAMILY OF FUNDS...........................................26
SPECIAL PLAN ACCOUNTS.................................................31
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed
Individuals..................................................31
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.............................................33
Automatic Withdrawal Plan.......................................33
Group or Salary Deduction Plan..................................33
Automatic Investment Plan.......................................34
Uniform Transfers/Gifts to Minors Act...........................34
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.............................34
PERFORMANCE INFORMATION...............................................34
Average Annual Total Return.....................................34
Cumulative Total Return.........................................35
Total Return....................................................36
Comparison of Fund Performance..................................36
Taking a Global Approach........................................40
Scudder's 30% Solution..........................................40
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
FUND ORGANIZATION.....................................................40
INVESTMENT ADVISER....................................................41
Personal Investments By Employees Of The Adviser................44
DIRECTORS AND OFFICERS................................................44
REMUNERATION..........................................................46
Responsibilities of the Board -- Board and Committee Meetings...46
Compensation of Officers and Directors..........................47
DISTRIBUTOR...........................................................48
TAXES.................................................................48
PORTFOLIO TRANSACTIONS................................................51
Brokerage Commissions...........................................51
Portfolio Turnover..............................................52
NET ASSET VALUE.......................................................52
ADDITIONAL INFORMATION................................................54
Experts.........................................................54
Other Information...............................................54
FINANCIAL STATEMENTS..................................................55
DESCRIPTION OF S&P AND MOODY'S RATINGS................................56
ii
<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").
<PAGE>
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.
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
2
<PAGE>
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, Inc.
(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 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.
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.
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
3
<PAGE>
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 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.
4
<PAGE>
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.")
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.
Precious metals. The Fund "concentrates" (for the 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
5
<PAGE>
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 deposity 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 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.
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.
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.
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.
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 up to 35% of its assets 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. Zero coupon bonds (which
do not pay interest until maturity) and pay-in-kind securities which pay
interest in the form of additional
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securities, may be more speculative than securities which pay income
periodically and in cash. The Fund may invest in certain debt securities, a
portion of the return on which is indexed to the price of precious metals and
money market instruments (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 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.
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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. 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 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 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.
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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 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
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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.
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.
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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.
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
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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.
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.
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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.
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.
Euro Conversion. The planned introduction of a new European currency, the Euro,
may result in uncertainties for European securities in the markets in which they
trade and with respect to the operation of the fund's portfolio. Currently, the
Euro is expected to be introduced on January 1, 1999 by eleven European
countries that are members of the European Economic and Monetary Union (EMU).
The introduction of the Euro will require the redenomination of
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European debt and equity securities over a period of time, which may result in
various accounting differences and/or tax treatments that otherwise would not
likely occur. Additional questions are raised by the fact that certain other EMU
members, including the United Kingdom, will not officially be implementing the
Euro on January 1, 1999. If the introduction of the Euro does not take place as
planned, there could be negative effects, such as severe currency fluctuations
and market disruptions.
The Adviser is actively working to address Euro-related issues and understands
that other key service providers are taking similar steps. At this time,
however, no one knows precisely what the degree of impact will be. To the extent
that the market impact or effect on a portfolio holding is negative, it could
hurt the portfolio's performance.
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 or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or
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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.
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.")
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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.
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 except as permitted under the 1940 Act, as amended,and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time;
(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 1940 Act, 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 1940 Act, 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.
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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 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 the Adviser 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 of Fund
shares 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
17
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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 taxpayer identification or
Social Security number, address and telephone number. The investor must then
call the bank to arrange a wire transfer to The Scudder Funds, State Street Bank
and Trust Company, Boston, MA 02110, ABA Number 011000028, DDA Account Number:
9903-5552. The investor must give the Scudder fund name, account name and the
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.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500 ($1,000
for fiduciary accounts such as IRAs, and custodial accounts such as Uniform Gift
to Minor Act, and Uniform Trust to Minor Act accounts), which amount may be
changed by the Board of Directors. A shareholder may open an account with at
least $1,000 ($500 for fiduciary/custodial accounts), if an automatic investment
plan (AIP) of $100/month ($50/month for fiduciary/custodial accounts) is
established. Scudder group 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/non-custodial account without an automatic
investment plan (AIP) in place and a balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a reduction in value
has occurred due to a redemption, exchange or transfer out of the account.
The Fund will mail the proceeds of the redeemed account to the
shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Corporation shall have the authority, as agent
of the shareholder, to redeem shares in the account in order to reimburse 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.
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
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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
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.
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
Trust 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 in order 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 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 Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge for
the service. Presently, the Distributor pays a fee for receipt by State Street
Bank and Trust 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
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value next
computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will
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receive the next business day's net asset value. If the order has been placed by
a member of the NASD, other than the Distributor, it is the responsibility of
that member broker, rather than the Fund, to forward the purchase order to
Scudder Service Corporation (the "Transfer Agent") by the close of regular
trading on the Exchange.
Share Certificates
Due to the desire of the Corporation'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 Board of Directors and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of shares of the Fund at
any time for any reasons.
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 organizations, certification of exempt status) will be
returned to the investor. The Fund 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.
The Corporation may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
(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
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guarantee as described under "Transaction Information -- Redeeming shares -- By
mail or fax" in the Fund's prospectus.
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.
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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.
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
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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 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.
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 Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
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
23
<PAGE>
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.
================================================================================
Scudder 8.50% No-Load Fund
YEARS Pure No-Load(TM) Load Load Fund with with 0.25%
Fund Fund 0.75% 12b-1 Fee 12b-1 Fee
- --------------------------------------------------------------------------------
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
================================================================================
Investors are encouraged to review the fee and expense tables and the
consolidated financial highlights of the Fund's prospectus for more specific
information about the rates at which management fees and other expenses are
assessed.
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.
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<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 MeTM 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.
26
<PAGE>
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.
- ----------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
27
<PAGE>
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.
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.
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<PAGE>
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.
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 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.
- ----------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
29
<PAGE>
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.
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.
- ----------
** Only the Scudder Shares are part of the Scudder Family of Funds.
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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 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
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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.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- -------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------
Contributions 5% 10% 15%
- -------------------------------------------------------------------------
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
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
- -------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------
Contributions 5% 10% 15%
- -------------------------------------------------------------------------
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
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.
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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.
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.
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<PAGE>
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.
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
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<PAGE>
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).
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%
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<PAGE>
(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.
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
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<PAGE>
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:
o The Europe/Australia/Far East (EAFE) Index
o International Finance Corporation's Latin America Investable
Total Return Index
o Morgan Stanley Capital International World Index
o J.P. Morgan Global Traded Bond Index
o Salomon Brothers World Government Bond Index
o Nasdaq Composite Index
o 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 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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.
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<PAGE>
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.
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.
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<PAGE>
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 "ABOUT THE FUND -- 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.
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
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<PAGE>
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.
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 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 was
approved at a special shareholder meeting held on December 15,1998.
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
42
<PAGE>
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 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
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<PAGE>
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.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Date of Birth Principal Scudder Investor
And Address Position with Fund Occupation** Services, Inc.
- ----------- ------------------ ------------ --------------
<S> <C> <C> <C>
Daniel Pierce (64)*@# President and Director Managing Director of Vice President and
Scudder Kemper Assistant Treasurer
Investments, Inc.
Paul Bancroft III (68) Director Venture Capitalist --
79 Pine Lane and Consultant;
Box 6639 Retired, President,
Snowmass Village, CO 81615 Chief Executive
Officer and
Director, Bessemer
Securities
Corporation
Sheryle J. Bolton (52) Director CEO, Scientific --
Scientific Learning Corporation Learning
1995 University Ave Corporation, Former
Suite 400 President and Chief
San Francisco, CA 94704 Operating Officer,
Physicians Online,
Inc. (electronic
transmission of
clinical information
for physicians
(1994-1995); Member,
Senior Management
Team, Rockefeller &
Co. (1990-1993)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Date of Birth Principal Scudder Investor
And Address Position with Fund Occupation** Services, Inc.
- ----------- ------------------ ------------ --------------
<S> <C> <C> <C>
William T. Burgin (55) Director General Partner, --
83 Walnut Street Bessemer Venture
Wellesley, MA 02181 Partners; General
Partner, Deer &
Company; Director,
James River Corp.;
Director, Galile
Corp., Director of
various privately
held companies
Keith R. Fox (44) Director President, Exeter --
10 East 53rd Street Capital Management
New York, NY 10022 Corporation
William H. Luers (69) Director President, The --
The Metropolitan Metropolitan Museum
Museum of Art of Art (1986 to
1000 Fifth Avenue present)
New York, NY 10028
Kathryn L. Quirk (45)*+# Director, Vice Managing Director of Senior Vice
President and Scudder Kemper President, Chief
Assistant Secretary Investments, Inc. Legal Officer and
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)
Robert G. Stone, Jr. (75) Honorary Director Chairman Emeritus --
405 Lexington Avenue and Director, Kirby
39th Floor Corporation (inland
New York, NY 10174 and offshore marine
transportation and
diesel repairs)
Clay L. Hoes(42)+ Vice President Vice President of --
Scudder Kemper
Investments, Inc.
Ann M. McCreary Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
Thomas W. Joseph (59)@ Vice President Senior Vice Vice President,
President of Scudder Treasurer and
Kemper Investments, Assistant Clerk
Inc.
Thomas F. McDonough (51)@ Vice President and Senior Vice Clerk
Secretary President of Scudder
Kemper Investments,
Inc.
John R. Hebble (40)@ Treasurer Senior Vice --
President of Scudder
Kemper Investments,
Inc.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Date of Birth Principal Scudder Investor
And Address Position with Fund Occupation** Services, Inc.
- ----------- ------------------ ------------ --------------
<S> <C> <C> <C>
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.
TO BE UPDATED
As of January 31, 1999, 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 January 31, 1999, _________shares in the aggregate, _____% 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 BE UPDATED
To the knowledge of the Corporation, as of January 31, 1999, no person
owned beneficially more than 5% of the Fund's outstanding shares except as
stated above.
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
46
<PAGE>
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 1998 from the Corporation and from all of the Scudder funds as a group.
TO BE UPDATED
Scudder Mutual Funds, Inc.* All Scudder Funds
--------------------------- -----------------
Paid by Paid by
the the Paid by Paid by
Name Corporation Adviser(1) the Funds the Adviser(1)
---- ----------- ---------- --------- --------------
Paul Bancroft III,
Director
Sheryle J. Bolton,
Director
William T. Burgin,
Director
Keith R. Fox,
Director
William H. Luers,
Director
(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.
47
<PAGE>
Members of the Board of Directors who are employees of the Adviser or its
affiliates receive no direct compensation from the Corporation, although they
are compensated as employees of the Adviser, or its affiliates, as a result of
which they may be deemed to participate in fees paid by 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.
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
48
<PAGE>
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.
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.
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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.
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
50
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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.
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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 the Exchange on each day the Exchange is open for trading
(the "Value Time") The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Net asset value per share is
determined by dividing the value of the total assets of the Fund, less all
liabilities, by the total number of shares outstanding.
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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 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.
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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.
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.
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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.
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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.
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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 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.
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SCUDDER MUTUAL FUNDS, INC.
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
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<S> <C> <C>
(a) (1) Articles of Incorporation dated March 17, 1988.
(Incorporated by reference to Exhibit 1(a) to Post-Effective Amendment No.
10 to the Registration Statement.)
(2) Articles of Amendment dated April 29, 1988 is filed herein.
(3) Articles of Amendment dated October 12, 1990.
(Incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No.
10 to the Registration Statement.)
(4) Articles of Amendment and Restatement dated September 4, 1996 is filed
herein.
(5) Articles of Amendment dated December 23, 1997 are filed herein.
(b) (1) By-Laws dated March 18, 1988.
(Incorporated by reference to Exhibit No. 2(a) to Post-Effective Amendment
No. 10 to the Registration Statement.)
(2) By-Laws as adopted March 18, 1988 and amended September 16, 1988 is filed
herein.
(3) Amendment to the By-Laws dated September 20, 1991 is filed herein.
(4) Amendment to the By-Laws dated December 12, 1991.
(Incorporated by reference to Exhibit 2(b) to Post-Effective Amendment No.
10 to the Registration Statement.
(5) Amendment to the By-Laws dated March 5, 1996 is filed herein.
(6) Amendment to By-Laws dated June 4, 1996.
(Incorporated by reference to Exhibit 2(c) to Post-Effective Amendment No. 9
to the Registration Statement.)
(7) Amendment to By-Laws dated September 4, 1996.
(Incorporated by reference to Exhibit 2(d) to Post-Effective Amendment No. 9
to the Registration Statement.)
(8) Amendment to the By-Laws dated December 3, 1997 is filed herein.
(c) Inapplicable.
(d) (1) Investment Management Agreement between the Registrant (on behalf of Scudder
Gold Fund) and Scudder Kemper Investments, Inc. dated September 7, 1998 is
filed herein.
(e) (1) Underwriting Agreement between the Registrant and Scudder Investor Services,
Part C - Page 1
<PAGE>
Inc. dated September 7, 1998 is filed herein.
(f) Inapplicable.
(g) (1) Custodian Agreement between the Registrant and The First National Bank of
Boston dated August 22, 1988.
(Incorporated by reference to Exhibit 8(a)(1) to Post-Effective Amendment
No. 10 to the Registration Statement.)
(2) Custodian Agreement between the Registrant and State Street Bank and Trust
Company ("State Street Bank") dated August 23, 1991 is filed herein.
(2)(a) Fee schedule to Exhibit (g)(2).
(Incorporated by reference to Exhibit 8(a)(2) to Post-Effective Amendment
No. 10 to the Registration Statement.)
(3) Custodian Agreement between the Registrant and Brown Brothers Harriman & Co.
dated April 30, 1998.
(Incorporated by reference to Exhibit 8(b)(1) to Post-Effective Amendment
No. 11 to the Registration Statement.)
(3)(a) Fee schedule for Exhibit (g)(2)
(Incorporated by reference to Exhibit (8)(b)(2) to Post-Effective Amendment
No. 11 to the Registration Statement.)
(h) (1) Transfer Agency and Service Agreement between the Registrant and Scudder
Service Corporation dated October 2, 1989.
(Incorporated by reference to Exhibit 9(a)(1) to Post-Effective Amendment
No. 10 to the Registration Statement.)
(1)(a) Fee schedule for Exhibit (h)(1).
(Incorporated by reference to Exhibit 9(a)(2) to Post-Effective Amendment
No. 10 to the Registration Statement.)
(2) 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 Exhibit (9)(a)(3) to Post-Effective Amendment
No. 10 to the Registration Statement.)
(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 the Registration Statement.)
(4) Fund Accounting Services Agreement between the Registrant and The First
National Bank of Boston dated August 22, 1988.
(Incorporated by reference to Exhibit (9)(c)(1)to Post-Effective Amendment
No. 10 to the Registration Statement.)
(4)(a) Pricing Authorization Form (Exhibit B) for Exhibit (h)(4) (a) dated January
10, 1991.
(Incorporated by reference to Exhibit (9)(c)(2) to Post-Effective Amendment
No. 10 to the Registration Statement.)
Part C - Page 2
<PAGE>
(5) Fund Accounting Services Agreement between the Registrant and Scudder Fund
Accounting Corporation dated March 28, 1995.
(Incorporated by reference to Exhibit (9)(c)(3) to Post-Effective Amendment
No. 10 to the Registration Statement.)
(i) Inapplicable.
(j) Consent of Independent Accountants.
(To be filed by Amendment.)
(k) Inapplicable.
(l) Letter of Investment Intent Purchase Agreement (on behalf of Scudder Mutual
Funds, Inc.)
(Incorporated by reference to Exhibit 13 to Post-Effective Amendment No. 10
to the Registration Statement.)
(m) Inapplicable.
(n) Article 6 Financial Data Schedules.
(To be filed by Amendment.)
(o) Inapplicable.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. 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 trustees and
officers and others against liability arising by reason of an
alleged breach of duty caused by any negligent act, error or
accidental omission in the scope of their duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration of
Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the
acts, obligations or affairs of the Trust. No Trustee, officer,
employee or agent of the Trust shall be subject to any personal
liability whatsoever to any Person, other than to the Trust or
its Shareholders, in connection with Trust Property or the
affairs of the Trust, save only that arising from bad faith,
willful misfeasance, gross negligence or reckless disregard of
his duties with respect to such Person; and all such Persons
shall look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee, officer, employee, or
agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability of the Trust, he shall
not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and
against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal
and other expenses reasonably incurred by him in connection with
any such
Part C - Page 3
<PAGE>
claim or liability. The indemnification and reimbursement
required by the preceding sentence shall be made only out of the
assets of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder at
the time the act or event occurred which gave rise to the claim
against or liability of said Shareholder. The rights accruing to
a Shareholder under this Section 4.1 shall not impair any other
right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee,
or agent thereof for any action or failure to act (including
without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer
of the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having
been a Trustee or officer and against amounts paid or incurred by
him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, administrative or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee
or officer:
(i) against any liability to the Trust, a Series thereof, or
the Shareholders by reason of a final adjudication by a court or
other body before which a proceeding was brought that he engaged
in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or
(b)(ii) resulting in a payment by a Trustee or officer, unless
there has been a determination that such Trustee or officer did
not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving
the settlement or other disposition; or
(B) based upon a review of readily
available facts (as opposed to a full trial-type inquiry) by
(x) vote of a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter) or (y) written
opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any
Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or
officer and shall insure to the benefit of the heirs,
executors, administrators
Part C - Page 4
<PAGE>
and assigns of such a person. Nothing contained herein shall
affect any rights to indemnification to which personnel of
the Trust other than Trustees and officers may be entitled
by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described
in paragraph (a) of this Section 4.3 may be advanced by the
Trust prior to final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay such
amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or some
other appropriate security provided by the recipient, or the
Trust shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
act on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that there is
reason to believe that the recipient ultimately will be found
entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is
one who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person" by
any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
Item 26. 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 26.
<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.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Part C - Page 5
<PAGE>
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
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 Corporation oo
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
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
</TABLE>
* 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
Part C - Page 6
<PAGE>
### 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
Item 27. 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 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <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
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Part C - Page 7
<PAGE>
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
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
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Part C - Page 8
<PAGE>
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
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
(c)
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 28. 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, MA 02110-4103.
Records relating to the duties of the Registrant's custodian are
maintained by State Street Bank and Trust Company, Heritage
Drive, North Quincy, Massachusetts. Records relating to the
duties of the Registrant's transfer agent are maintained by
Scudder Service Corporation, Two International Place, Boston,
Massachusetts.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
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(a) 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 21st day of December, 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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce
- ---------------------------------------
Daniel Pierce* President (Principal Executive December 21, 1998
Officer) and Director
/s/Paul Bancroft III
- ---------------------------------------
Paul Bancroft III* Director December 21, 1998
/s/Sheryle J. Bolton
- ---------------------------------------
Sheryle J. Bolton* Director December 21, 1998
/s/William T. Burgin
- ---------------------------------------
William T. Burgin* Director December 21, 1998
/s/Keith R. Fox
- ---------------------------------------
Keith R. Fox* Director December 21, 1998
/s/William H. Luers
- ---------------------------------------
William H. Luers* Director December 21, 1998
/s/Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk* Director, Vice President and Assistant December 21, 1998
Secretary
/s/Joan E. Spero
- ---------------------------------------
Joan E. Spero* Director December 21, 1998
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John R. Hebble
- ---------------------------------------
John R. Hebble* Treasurer (Chief Financial and December 21, 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 the 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 contained in the signature page of Post-Effective Amendment
No. 12 filed October 26, 1998.
2
<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. 13
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 15
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER MUTUAL FUNDS, INC.
<PAGE>
SCUDDER MUTUAL FUNDS, INC.
Exhibit Index
(a)(2)
(a)(4)
(a)(5)
(b)(2)
(b)(3)
(b)(5)
(b)(8)
(d)(4)
(e)(2)
(g)(2)
Exhibit (a)(2)
SCUDDER MUTUAL FUNDS, INC.
ARTICLES OF AMENDMENT
Scudder Mutual Funds, Inc. (the "Corporation"), a Maryland corporation
having its principal office in the State of Maryland in Baltimore City, Maryland
21202, hereby certifies that:
FIRST: The charter of the Corporation is amended by striking Article V,
Section 1, and substituting the following:
"(1) The Corporation shall have the authority to issue three billion
(3,000,000,000) shares of capital stock of the par value of one cent ($.01)
per share (the "Shares") and having an aggregate value of thirty million
dollars ($30,000,000)."
SECOND: Prior to the effectiveness of these Articles of Amendment, the
authorized par value of the Corporation was three billion (3,000,000,000)
shares, of the par value of one tenth of one cent (.001) per share and of the
aggregate par value of three million dollars ($3,000,000). Upon effectiveness of
these Articles of Amendment, the authorized capital is three billion
(3,000,000,000) shares, of the par value of one cent (.01) per share and of the
aggregate par value of thirty million dollars ($30,000,000). The effect of these
Articles of Amendment is to increase the aggregate par value of the Corporation.
THIRD: The amendment to the Articles of Incorporation as set forth has been
approved by a majority of the entire Board of Directors when no stock of the
Corporation was outstanding or subscribed for.
<PAGE>
IN WITNESS WHEREOF, SCUDDER MUTUAL FUNDS, INC. has caused these presents to
be signed in its name and on its behalf by its President and attested by its
Assistant Secretary on this 29th day of April, 1988, and its President
acknowledges that these Articles of Amendment are the act and deed of SCUDDER
MUTUAL FUNDS, INC. and, under the penalties of perjury, states that the matters
and facts set forth herein with respect to authorization and approval are true
in all material respects to the best of his knowledge, information and belief.
SCUDDER MUTUAL FUNDS, INC.
By: /s/Daniel Pierce
--------------------
Daniel Pierce
President
ATTEST:
/s/Kathryn L. Quirk
- -------------------
Kathryn L. Quirk
Assistant Secretary
Exhibit (a)(4)
SCUDDER MUTUAL FUNDS, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
(Under Section 2-609 of Corporations and Associations Article)
Scudder Mutual Funds, Inc., a Maryland corporation having its principal
office in New York, New York and having The Corporation Trust Incorporated as
its resident agent located at 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
1. The Corporation desires to amend and restate as hereinafter provided its
Charter as currently in effect. The provisions set forth in these Articles of
Amendment and Restatement are all the provisions of the Charter of the
Corporation as currently in effect.
2. The Charter of the Corporation is hereby amended, by striking Articles II,
III, IV, V, VI, VII, VII and IX in their entirety and substituting in lieu
thereof the following:
"Second: Name.
The name of the Corporation is SCUDDER MUTUAL FUNDS, INC.
"Third: Corporate Purposes.
The purpose or purposes for which the Corporation is formed is to act as an
investment company under the federal Investment Company Act of 1940, and to
exercise and enjoy all the powers, rights and privileges granted to, or
conferred upon, corporations by the Maryland General Corporation Law. The
Corporation shall exercise and enjoy all such powers, rights and privileges to
the extent not inconsistent with these Articles of Amendment and Restatement.
"Fourth: Address and Resident Agent.
The post office address of the principal office of the Corporation in the
State of Maryland is:
c/o The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
The name and post office address of the resident agent of the Corporation in the
State of Maryland is:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
Such resident agent is a Maryland corporation.
"Fifth: Capital Stock.
(1) Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is three billion (3,000,000,000)
shares, par value of one cent ($0.01) per share, such shares having an aggregate
par value of thirty million dollars ($30,000,000).
(2) Authorization of Stock Issuance. The Board of Directors may authorize
the issuance and sale of capital stock of this Corporation, including stock of
any class or series, from time to time in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration as
the Board of Directors shall determine, subject to any limits required by then
applicable law. All shares shall be issued on a fully paid and non-assessable
basis.
All persons who shall acquire shares of capital stock in the Corporation
shall acquire the same subject to the provisions of these Articles of Amendment
and Restatement and the By-Laws of the Corporation, as each may be amended,
supplemented and/or restated from time to time.
<PAGE>
(3) Fractional Shares. The Corporation may issue fractional shares. Any
fractional share shall carry proportionately the rights of a whole share,
including without limitation the right to vote and the right to receive
dividends.
(4) Power to Classify. The Board of Directors may classify and reclassify
any unissued shares of capital stock into one or more additional or other
classes or series as may be established from time to time by setting or changing
in any one or more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemptions of such shares of stock. Pursuant to such
classification or reclassification, the Board of Directors may increase or
decrease the number of authorized shares of stock, or shares of any existing
class or series of stock. Except as otherwise provided herein, all references
herein to capital stock shall apply without discrimination to the shares of each
class or series of stock. Pursuant to such power, there is hereby established
and classified a series comprised of one hundred million (100,000,000) shares to
be known as "Scudder Gold Fund".
(5) Series-General. The relative preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of each class or series of stock of the
Corporation, including Scudder Gold Fund, shall be as follows, unless otherwise
provided in Articles Supplementary hereto:
(a) Assets Belonging to Class. All consideration received by the
Corporation for the issue or sale of stock of a particular class or series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to that class or series for all purposes,
subject only to the rights of creditors and shall be so recorded on the books of
account of the Corporation. Any assets, income, earnings, profits or proceeds
thereof, funds or payments which are not readily attributable to a particular
class or series shall be allocated to and among any one or more series or
classes in such manner and on such basis as the Board of Directors, in its sole
discretion, shall deem fair and equitable, and items so allocated to a
particular series or class shall belong to that series or class. Each such
allocation shall be conclusive and binding upon the stockholders of all classes
and series for all purposes.
The shares of any subsidiary purchased with the assets of a particular
series or class shall be deemed to be an asset belonging to that series or class
and all income, earnings, profits and proceeds of such subsidiaries, including
all proceeds derived from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall irrevocably belong to such series or class for all
purposes and shall be so recorded on the books of account of the Corporation,
subject only to the rights of creditors.
(b) Liabilities Belonging to Class. The assets belonging to each class or
series shall be charged with the liabilities of the Corporation in respect of
that class or series and with all expenses, costs, charges and reserves
attributable to that class or series and shall be so recorded on the books of
account of the Corporation. Any general liabilities, expenses, costs, charges or
reserves of the Corporation which are not readily identifiable as belonging to
any particular class or series shall be allocated and charges to and among any
one or more of the classes or series in such manner and on such basis as the
Board of Directors in its sole discretion deems fair and equitable, and any
items so allocated to a particular class or series shall be charged to, and
shall be a liability belonging to, that class or series. Each such allocation
shall be conclusive and binding upon the stockholders of all classes and series
for all purposes.
(c) Income. The Board of Directors shall have full discretion, to the
extent not inconsistent with the Maryland General Corporation Law and the
Investment Company Act of 1940, to determine which items shall be treated as
income and which items shall be treated as capital. Each such determination
shall be conclusive and binding. "Income belonging to" a class or series
includes all income, earnings and profits derived from assets belonging to that
class or series, less any expenses, costs, charges or reserves belonging to that
class or series, for the relevant time period.
(d) Dividends and Distributions. Dividends and distributions on shares of a
particular class or series may be declared and paid with such frequency, in such
form and in such amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a
2
<PAGE>
standing resolution or resolutions adopted only once or with such frequency as
the Board of Directors may determine, after providing for actual and accrued
liabilities belonging to that class or series.
All dividends on shares of a particular class or series shall be paid only
out of the income belonging to that class or series and capital gains
distributions on shares of the class or series shall be only out of the capital
gains belonging to the class or series. All dividends and distributions on
shares of a particular class or series shall be distributed pro rata to the
shareholders of that class or series held by such shareholders at the date and
time of record established for the payment of such dividends or distributions,
except that in connection with any dividend or distribution program or procedure
the Board of Directors may determine that no dividend or distribution shall be
payable on shares as to which the shareholders' purchase order and/or payment
have not been received by the time or times established by the Board of
Directors under such program or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends, including dividends designated in
whole or in part as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the corporation or the class or
series to qualify as a regulated investment company under the Internal Revenue
Code of 1986, as amended, or any successor or comparable statute thereto, and
regulations promulgated thereunder, and to reduce or eliminate liability of the
Corporation or the class or series for taxes, including federal income and
excise taxes, but nothing in the foregoing shall limit the authority of the
Board of Directors to make distributions greater than or less than the amount
necessary to qualify as a regulated investment company or to reduce or eliminate
liability of the Corporation or the class or series for any such taxes.
Dividends and distributions may be paid in cash, property or shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time.
(e) Tax Elections. The Board of Directors shall have the power, in its
discretion, to make such elections as to the tax status of the Corporation or
any series or class of the Corporation as may be permitted or required by the
Internal Revenue code of 1986, as amended, without the vote of stockholders of
the Corporation or any series or class.
(f) Liquidation. At any time there are no shares outstanding for a
particular class or series, the Board of Directors may liquidate such class or
series in accordance with applicable law. In the event of the liquidation or
dissolution of the Corporation, or of a class or series thereof when there are
shares outstanding of the Corporation or of such class or series, as applicable,
the stockholders of such, or of each, class or series, as applicable, shall be
entitled to receive, when and as declared by the Board of Directors, the excess
of the assets of that class or series over the liabilities of that class or
series, determined as provided herein and including assets and liabilities
allocated pursuant to sections (5)(a) and (5)(b) of this Article Fifth. Any such
excess amounts will be distributed to each stockholder of the applicable class
or series in proportion to the number of outstanding shares of that class or
series held by that stockholder and recorded on the books of the Corporation.
Subject to the requirements of applicable law, dissolution of a class or series
may be accomplished by distribution of assets to stockholders of that class or
series as provided herein, by the transfer of assets of that class or series to
another class or series of the Corporation, by the exchange of shares of that
class or series for shares of another class or series of the Corporation, or in
any other legal manner.
(g) Voting Rights. On each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each full share, and a fractional vote for each fractional share of
stock standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of all classes and
series shall vote together as a single class, provided that (a) when the
Maryland General Corporation Law or the Investment Company Act of 1940 requires
that a class or series vote separately with respect to a given matter, the
separate voting requirements of the applicable law shall govern with respect to
the affected classes or series and other classes or series shall vote as a
single class and (b) unless otherwise required by those laws, no class or series
shall vote on any matter which does not affect the interest of that class or
series.
(h) Quorum. The presence in person or by proxy of the holders of
one-third of the shares of stock of the Corporation entitled to vote thereat,
without regard to class, shall constitute a quorum at any meeting of the
stockholders, except with respect to any matter which, under applicable statutes
or
3
<PAGE>
regulatory requirements, required approval by a separate vote of one or more
classes of stock, in which case the presence in person or by proxy of the
holders of one-third of the shares of stock of each class required to vote as a
class on the matter shall constitute a quorum. If at any meeting of the
stockholders there shall be less than a quorum present the stockholders present
at such meeting may, without further notice, adjourn the same from time to time
until a quorum shall be present.
(6) Notwithstanding any provision of the Maryland General Corporation Law
requiring for any purpose a proportion greater than a majority of the votes of
all classes or series, the affirmative vote of the holders of a majority of the
total number of shares of the Corporation, or of a series of the Corporation, as
applicable, outstanding and entitled to vote under such circumstances pursuant
to these Articles of Amendment and Restatement and the By-Laws of the
Corporation shall be effective for such purpose, except to the extent otherwise
required by the Investment Company Act of 1940 and rules thereunder.
(7) No stockholder of the Corporation shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any shares of any classes or
series, or any other securities of the Corporation which the Corporation
proposes to issue or sell; and any or all of such shares or securities of the
Corporation, whether new or hereafter authorized or created, may be issued, or
may be reissued or transferred if the same have been required, and sold to such
persons, firms, corporations and associations, and for such lawful
consideration, and on such terms as the Board of Directors in its discretion may
determine, without first offering the same, or any thereof, to any said
stockholder.
"Sixth. Transfers of Capital Stock.
(1) Issue of Shares.
(a) The Board of Directors may from time to time issue, reissue, sell
or cause to be reissued and sold any of the Corporation's authorized shares
of capital stock, including any additional shares hereafter authorized and
any shares redeemed or repurchased by the Corporation.
(b) Subject to the requirements of the Maryland General Corporation
Law, the Board of Directors may authorize the issuance of some or all of
the shares of any or all classes or series without certificates and may
establish such conditions as it may determine in connection with the
issuance of certificates.
(c) For any corporate purpose, such as in connection with the
acquisition of all or substantially all the assets or stock of another
investment company or investment trust, the Board of Directors may issue or
cause to be issued shares of capital stock of the Corporation and accept in
payment therefor, in lieu of cash, assets or other property, either with or
without adjustment for contingent costs or liabilities, provided such
assets or other property are of the character in which the Corporation is
permitted to invest.
(2) Redemption of Shares.
(a) The Board of Directors shall authorize the Corporation to the
extent it has funds or other property legally available therefore and subject to
such reasonable conditions as the Board of Directors may determine, to permit
each holder of shares of capital stock of the Corporation to redeem all or any
part of the shares standing in the name of such holder on the books of the
Corporation, at the applicable redemption price of such shares, determined in
accordance with procedures established by the Board of Directors of the
Corporation from time to time in accordance with applicable law.
(b) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the extent
permitted by and in accordance with the conditions of applicable law, to redeem
stock owned by any stockholder under circumstances deemed appropriate by the
Board of Directors in its sole discretion from time to time, such circumstances
including but not limited to (1) failure to provide the Corporation with a tax
identification number, (2) failure to maintain ownership of a specified minimum
number or value of shares of any class or series of stock of the Corporation,
and (3) if necessary, in the opinion of the Board of Directors of the
Corporation, in order to prevent the Corporation from being deemed a "personal
holding company" within the meaning of the Internal Revenue Code of 1986, as
amended, such redemption to be effected at such a price, at such time and
subject to such conditions as may be required or permitted by applicable law.
4
<PAGE>
(c) Payment for redeemed stock shall be made in cash unless, in the opinion
of the Board of Directors, which shall be conclusive, conditions exist which
make it advisable for the Corporation to make payment wholly or partially in
securities or other property or assets. Payment made wholly or partially in
securities or other property or assets may be delayed to such reasonable extent,
not inconsistent with applicable law, as is reasonably necessary under the
circumstances. No stockholder shall have the right, except as determined by the
Board of Directors, to have his shares redeemed in such securities, property or
other assets.
(d) All rights of a stockholder with respect to a share redeemed, including
the right to receive dividends and distributions with respect to such share,
shall cease as of the time at which the redemption price is to be paid, except
the right of such stockholder to receive payment of such shares as provided
herein.
(e) Notwithstanding any other provisions of this Article, the Board of
Directors may suspend the right of stockholders of any or all classes or series
of shares to require the Corporation to redeem shares held by them for such
periods and to the extent permitted by, or in accordance with, the Investment
Company Act of 1940, and the rules, regulations and orders issued thereunder.
The Board of Directors may, in the absence of a ruling by a responsible
regulatory official, terminate such suspension at such time as the Board of
Directors, in its discretion, shall deem reasonable, such determination to be
conclusive.
(f) Shares of any class or series which have been redeemed shall constitute
authorized but unissued shares subject to classification and reclassification as
provided in these Articles of Amendment and Restatement.
(3) Repurchase of Shares. The Board may by resolution from time to time
authorize the Corporation to purchase or otherwise acquire, directly or through
an agent, shares of any class or series of its outstanding stock upon such terms
and conditions and for such consideration as permitted by applicable law and
determined to be reasonable by the Board of Directors and to take all other
steps deemed necessary in connection therewith. Shares so purchased or acquired
shall have the status of authorized but unissued shares.
(4) Conversion and Exchange. Subject to compliance with the requirements of
the Investment Company Act of 1940, the Board of Directors shall have the
authority to provide that holders of shares of any class or series shall have
the right to convert or exchange said shares into shares of one or more other
classes or series of shares in accordance with such requirements and procedures
as may be established by the Board of Directors.
"Seventh: Board of Directors.
The number of directors of the Corporation shall be five, or such other
number as may from time to time be fixed in the manner provided in the By-laws
of the Corporation, provided that the number of directors shall not be less than
the minimum number required under the Maryland General Corporation Law. The
By-laws may authorize a majority of the directors to increase or decrease the
number of directors within the limits set by these Articles and to fill
vacancies created by an increase in the number of directors. Except as provided
in the By-laws, the election of directors may be conducted in any way approved
at the meeting (whether of stockholders or directors) at which the election is
held, provided that such election shall be by ballot whenever requested by any
person entitled to vote. The names of the directors who are in office and who
shall act as such until their successors are duly elected and qualify are as
follows:
Thomas J. Devine
Keith R. Fox
Dudley H. Ladd
Daniel Pierce
Gordon Shillinglaw
(1) Removal of Directors. Subject to the limits of the Investment Company Act
of 1940 and unless otherwise provided by the By-laws, a director may be removed
with or without cause, by the affirmative
5
<PAGE>
vote of a majority of (a) the Board of Directors, (b) a committee of the Board
of Directors appointed for such purpose, or (c) the stockholders by vote of a
majority of the outstanding shares of the Corporation.
(2) Powers of Directors. In addition to any powers conferred herein or in the
By-laws, the Board of Directors may, subject to any express limitations
contained in these Articles or in the By-laws, exercise the full extent of
powers conferred by the Maryland General Corporation Law or other applicable law
upon corporations or directors thereof, and the enumeration and definition of
particular powers herein or in the By-laws shall in no way be deemed to restrict
or otherwise limit those lawfully conferred powers. In furtherance and without
limitation of the foregoing, the Board of Directors shall have power.
(a) to make, alter, amend or repeal from time to time the By-laws of the
Corporation except as otherwise provided by the By-laws, or required by the
Investment Company Act of 1940.
(b) subject to requirements of the Investment Company Act of 1940, to
authorize the Corporation to enter into contracts. Such contracts may be for any
lawful purpose, whether or not such purpose involves delegating functions
normally performed by the Board of Directors, including, but not limited to, the
provisions of investment management for the Corporation's investment portfolio,
the distribution of securities issued by the Corporation, the administration of
the Corporation's affairs, the provisions of transfer agent services with
respect to the Corporation's shares of capital stock, and the custody of the
Corporation's assets. Any party (including its associates) may be retained in
multiple capacities pursuant to one or more contracts and may also perform
services, including similar or identical services, for others, including other
investment companies. Subject to the requirements of applicable law, such
contracts may provide for compensation to be paid by the Corporation in such
amounts, including payments of multiple amounts for parties (including their
affiliates) acting in multiple capacities, as the Board of Directors shall
determine in its discretion to be proper and reasonable.
(c) to authorize from time to time the payment of compensation to the
Directors for services to the Corporation, including fees for attendance at
meetings of the Board of Directors and committees thereof.
(d) subject to the requirements of applicable law, to establish, in its
absolute discretion, the basis or method, timing and frequency for determining
the value of assets belonging to each class or series and for determining the
net asset value of each share of each class or series for purposes of sales,
redemptions, repurchases or otherwise.
Without limiting the foregoing, the Board of Directors may determine that
the net asset value per share of any class or series should be maintained at a
designated constant value and may adopt procedures, not inconsistent with
applicable law, to accomplish that result. Such procedures may include a
requirement, in the event of a net loss with respect to the particular class or
series from time to time, for automatic pro rata capital contributions from each
stockholder of that class or series in amounts sufficient to maintain the
designated constant share value.
(e) to determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings, surplus or net
assets in excess of capital, and to determine what accounting periods shall be
used by the Corporation for any purpose; to set apart any funds of the
Corporation reserves for such purposes as it shall determine and to abolish the
same; to declare and pay any dividends and distributions in cash, securities or
other property from surplus or any funds legally available therefor, at such
intervals as it shall determine; to establish payment dates for dividends or any
other distributions on any basis, including dates occurring less frequently than
the effectiveness of declarations thereof.
(f) to make such elections, in its discretion, as to the tax status of the
Corporation or any series or class of the Corporation's capital stock as may be
permitted or required by the Internal Revenue Code of 1986, as amended.
(3) Determination by Board of Directors. Any determination made in good faith
and, in the case of accounting matters, in accordance with generally accepted
accounting principles, by or pursuant to the direction of the Board of Directors
shall be final and shall be binding upon the Corporation and upon all
stockholders, past, present and future, of each class and series.
6
<PAGE>
"Eighth: Reservation of Right to Amend.
The Corporation reserves the right to amend or repeal any provision contained
in these Articles of Amendment and Restatement from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Maryland
and all rights herein conferred upon stockholders are granted subject to such
reservation.
"Ninth: Contracts.
The Corporation may enter into any contract with any corporation, firm,
partnership, trust or association, although one or more of the Directors,
officers or shareholders of the Corporation may be an officer, director,
partner, trustee, shareholder or member of, or have an interest in, such other
party to the contracts, and no such contract shall be invalidated or rendered
voidable by reason of the existence of any such relationship or interest, nor
shall any person holding such relationship be liable merely by reason of such
relationship or interest for any loss or expense to the Corporation under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair to the Corporation.
"Tenth: Liability and Indemnification.
To the fullest extent permitted by the Maryland General Corporation Law and
the Investment Company Act of 1940, no director or officer of the Corporation
shall be liable to the Corporation or to its stockholders for damages. The
limitation on liability applies to events occurring at the time a person serves
as a director or officer of the Corporation, whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted. No amendment to these Articles of Amendment and Restatement or repeal
of any of its provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal.
The Corporation, including its successors and assigns, shall indemnify its
directors and officers and make advance payment of related expenses to the
fullest extent permitted, and in accordance with the procedures required by
Maryland law, including Section 2-418 of the Maryland General Corporation Law,
as may be amended from time to time, and the Investment company Act of 1940. The
By-laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another foreign or domestic corporations,
partnership, joint venture, trust or other enterprise or employee benefit plan
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such liability.
The rights provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to have relied upon
such rights in serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Amendment and Restatement shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
Nothing in these Articles of Amendment and Restatement shall be deemed 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, or of any valid
rule, regulation or order of the Securities and Exchange Commission under those
Acts or (ii) protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of his or her duties or by reason of his or her reckless disregard
of his or her obligations and duties hereunder.
7
<PAGE>
"Eleventh: Stockholders.
(1) Meetings of Stockholders. Unless an election of directors is required
by the Investment Company Act of 1940, the Corporation shall not be required to
hold an annual meeting of stockholders in any year.
(2) Inspection of Records. Stockholders of the Corporation shall have only
such rights to inspect and copy the records, documents, accounts and books of
the Corporation and to request statements regarding its affairs as are provided
by the Maryland General Corporation Law, subject to such reasonable regulation,
not contrary to the General Laws of the State of Maryland, as the Board of
Directors may from time to time adopt regarding the conditions and limits of
such rights.
(3) No Liability. The stockholders of the Corporation shall not be liable
for, and their private property shall not be subject to, claim, levy or other
encumbrance on account of the debts or liabilities of the Corporation, to any
extent whatsoever.
(4) Owner of Record. The Corporation shall be entitled to treat the person
in whose name any share of the capital stock of the Corporation is registered as
the owner thereof for purposes of dividends and other distributions in the
course of business or in the course of recapitalization, sale of the property
and assets of the Corporation, or otherwise, and for the purpose of votes,
approvals and consents by stockholders and for the purpose of notices to
stockholder, and for all other purposes whatsoever; and the Corporation shall
not be bound to recognize any equitable or other claim to or interest in such
share, on the part of any other person, whether or not the Corporation shall
have notice thereof, save as expressly required by law."
3. The number of directors of the Corporation is five, and the names of the
directors are set forth above in Article Seventh.
4. The Board of Directors of the Corporation, at a meeting duly convened and
held on June 4, 1996, adopted a resolution in which was set forth the foregoing
amendment and restatement of the Charter, declaring that said amendment and
restatement of the Charter was advisable, and directing that it be submitted for
consideration at a special meeting of the stockholders of the Corporation.
5. The amendment and restatement of the Charter as hereinabove set forth was
duly approved by the stockholders of the Corporation at a special meeting held
on September 4, 1996.
6. The Articles of Amendment and Restatement shall become effective upon filing
with the State Department of Assessments and Taxation of Maryland.
IN WITNESS WHEREOF, SCUDDER MUTUAL FUNDS, INC. has caused these present to be
signed in its name and on its behalf by its President and witnessed by its Vice
President and Secretary on September 4, 1996.
Scudder Mutual Funds, Inc.
By: /s/David S. Lee
----------------------------
David S. Lee, Vice President
Witness:
/s/Thomas F. McDonough
- ---------------------------------------
Thomas F. McDonough, Vice President and Secretary
8
<PAGE>
Verification
- ------------
I, Thomas F. McDonough, Secretary of Scudder Mutual Funds, Inc. (the
"Corporation") do hereby verify that I have executed these Articles of Amendment
and Restatement and acknowledge the same to be my act; that adoption of these
Articles of Amendment and Restatement by the Corporation was a valid corporate
act; that, to the best of my knowledge, information and belief, the matters and
facts set forth herein are true in all material respects; and that this
statement is made under the penalties of perjury.
/s/Thomas F. McDonough
-------------------
Thomas F. McDonough
Secretary
SEAL
9
Exhibit (a)(5)
ARTICLES OF AMENDMENT
of
SCUDDER MUTUAL FUNDS, INC.
SCUDDER MUTUAL FUNDS, INC., a Maryland corporation (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Charter of the Corporation is hereby amended to include Article
TWELFTH as follows:
"TWELFTH: Master Feeder Structure.
------------------------
The Corporation shall be empowered to transfer some or all of its
assets to any entity or entities of which all of the equity interests are
owned by the Corporation at the time of transfer for the purpose of
creating a master-feeder or similar structure in accordance with the
Investment Company Act of 1940, as amended, the precise structure of such
transfer of assets to be determined by action of the Corporation's Board of
Directors as constituted at the time such Board of Directors deems any such
transfer to be advisable"
SECOND: The Board of Directors of the Corporation on August 6, 1997,
unanimously adopted a resolution in which was set forth the foregoing amendment
to the Charter, declaring that such amendment as proposed was advisable and
directing that it be submitted for action thereon at the next Special Meeting of
stockholders of the Corporation.
THIRD: Said amendment was submitted for the approval of the stockholders of
the Corporation at the Special Meeting of stockholders of the Corporation held
on October 27, 1997. Item 3, relating to the Articles of Amendment as outlined
herein, was adjourned until November 10, 1997. The November 10, 1997 adjourned
meeting was further adjourned until December 2, 1997, at which time said
amendment was approved by the holders of a majority of the outstanding shares of
the Corporation entitled to vote thereon.
FOURTH: The amendment of the charter of the Corporation as hereinabove set
forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation.
IN WITNESS WHEREOF, The Corporation has caused these presents to be signed
in its name and on its behalf by its President and attested by its Secretary
this 23rd day of December, 1997.
<PAGE>
SCUDDER MUTUAL FUNDS, INC.
By /s/Daniel Pierce
-------------------
Daniel Pierce
President
Attest:
/s/Thomas F. McDonough
- -----------------------
Thomas F. McDonough
Secretary
The undersigned, President of Scudder Mutual Funds, Inc., who executed on
behalf of said Corporation the foregoing Articles of Amendment, of which this
certificate is made part, hereby acknowledges, in the name and on behalf of the
said Corporation, the foregoing Articles of Amendment to the corporate act of
said Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and fact set forth therein with respect to
the approval thereof are true in all material respects, under the penalty of
perjury.
/s/Daniel Pierce
---------------------
Daniel Pierce
President
2
Exhibit (b)(2)
0927U
BY-LAWS
OF
SCUDDER MUTUAL FUNDS, INC.
A Maryland Corporation
As adopted March 18, 1988
and amended September 16, 1988
<PAGE>
0927U
BY-LAWS
OF
SCUDDER MUTUAL FUNDS, INC.
A Maryland Corporation
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1. Annual Meetings. If a meeting of the stockholders of the
Corporation is required by the Investment Company Act of 1940, as amended, to
take action on (1) the election of directors, (2) approval of the investment
advisory agreement, (3) ratification of the selection of independent public
accountants, or (4) approval of a distribution agreement, then there shall be
submitted to the stockholders at such meeting the question of the election of
directors, and a special meeting called for any of the foregoing purposes may be
deemed the annual meeting of stockholders for that year. In other years in which
no action by stockholders is required for any of the foregoing purposes, no
annual meeting need be held.
SECTION 2. Special Meetings. Special meetings of the stockholders of a
Portfolio for any purpose or purposes, unless otherwise prescribed by statute or
by the Corporation's Articles of Incorporation, may be held at any place within
the United States, and may be called at any time by the Board of Directors or by
the President, and shall be called by the President or Secretary at the request
in writing of a majority of the Board of Directors or at the request in writing
of stockholders entitled to cast at least 25 (twenty-five) percent (at least 10
(ten) percent for the purpose of removing a director) of the votes entitled to
be cast at the meeting. Notwithstanding the foregoing, unless requested by
stockholders of a Portfolio entitled to cast a majority of the votes entitled to
be cast at the meeting, a special meeting of such stockholders need not be
called at the request of stockholders to consider any matter which is
substantially the same as a matter voted on at any special meeting of the
stockholders of the Portfolio held during the preceding 12 (twelve) months. A
written request shall state the purpose or purposes of the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the purpose
or purposes and of the time and place of every meeting of the stockholders of
the Corporation or a Portfolio shall be given by the Secretary of the
Corporation to each stockholder of record entitled to vote at the meeting, by
placing the notice in the mail at least 10 (ten) days, but not more than 90
(ninety) days, prior to the date designated for the meeting addressed to each
stockholder entitled to vote at his address appearing on the books of the
Corporation or supplied by the stockholder to the Corporation for the purpose of
notice. The notice of any meeting of stockholders may be
<PAGE>
0927U
accompanied by a form of proxy approved by the Board of Directors in favor of
the actions or persons as the Board of Directors may select. Notice of any
meeting of stockholders of the Corporation or a Portfolio shall be deemed waived
by any stockholder of the Corporation or the Portfolio who attends the meeting
in person or by proxy, or who before or after the meeting submits a signed
waiver of notice that is filed with the records of the meeting.
SECTION 4. Quorum. Except as otherwise provided by statute or by the
Corporation's Articles of Incorporation, the presence in person or by proxy of
stockholders of the Corporation or the Portfolio, as the case may be, entitled
to cast at least one third of the votes entitled to be cast shall constitute a
quorum at each meeting of such stockholders and all questions shall be decided
by majority vote of the shares so represented in person or by proxy at the
meeting and entitled to vote. In the absence of a quorum, the stockholders
entitled to vote present in person or by proxy, by majority vote and without
notice other than by announcement, may adjourn the meeting from time to time as
provided in Section 5 of this Article I until a quorum shall attend. The
stockholders entitled to vote present at any duly organized meeting may continue
to do business for which the particular meeting was called until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. The absence from any meeting in person or by proxy of holders of the
number of shares of stock of the Corporation or a Portfolio, as the case may be,
required for action upon any given matter shall not prevent action at the
meeting on any other matter or matters that may properly come before the
meeting, so long as there are present, in person or by proxy, holders of the
number of shares of stock of the Corporation or the Portfolio, as the case may
be, required for action upon the other matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which the adjournment is taken. At any adjourned meeting at which a
quorum shall be present any action may be taken that could have been taken at
the meeting originally called. A meeting of the stockholders may not be
adjourned to a date more than 120 (one hundred twenty) days after the original
record date.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President, or
in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the Vice
Presidents, a chairman chosen by the stockholders, shall act as Chairman of the
meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
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SECTION 8. Voting. Except as otherwise provided by statute or the
Corporation's Articles of Incorporation, each holder of record of shares of
stock of a Portfolio having voting power shall be entitled to one vote for every
full share of stock standing in his name on the records of the Corporation as of
the record date determined pursuant to Section 9 of this Article I and
proportionate, fractional votes for fractional shares held. All shares of each
Portfolio shall vote as a separate class except as to voting for directors of
the Corporation and as otherwise required by the Investment Company Act of 1940,
as amended. As to any matter that does not affect the interest of a particular
Portfolio, only the holders of shares of the one or more affected Portfolios
shall be entitled to vote.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases in which the proxy states that it is
irrevocable and in which an irrevocable proxy is permitted by law.
SECTION 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The record date for a particular meeting shall be
not more than 90 (ninety) nor fewer than 10 (ten) days before the date of the
meeting. All persons who were holders of record of shares of the Portfolio or
Portfolios to which the meeting relates as of the record date of a meeting, and
no others, shall be entitled to vote at such meeting and any adjournment
thereof.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting or
at any adjournment of the meeting. If the inspectors shall not be so appointed
or if any of them shall fail to appear or act, the chairman of the meeting may,
and on the request of any stockholder entitled to vote at the meeting shall,
appoint inspectors. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath to execute faithfully the duties of
inspector at the meeting with strict impartiality and according to the best of
his ability. The inspectors shall determine the number of shares outstanding and
the voting power of each share, the number of shares represented at the meeting,
the existence of a quorum and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director
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or candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders of the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Corporation's Articles of Incorporation,
any action required to be taken at any meeting of stockholders, or any action
that may be taken at any meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders' meetings: (i) a unanimous written consent that
sets forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at the
meeting.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholders by law, by the
Corporation's Articles of Incorporation or by these By-Laws.
SECTION 2. Number of Directors. The number of directors may be changed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be fewer than one nor more than fifteen. Any vacancy created
by an increase in Directors may be filled in accordance with Section 6 of this
Article II. No reduction in the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless the
director is specifically removed pursuant to Section 5 of this Article II at the
time of the decrease. A director need not be a stockholder of the Corporation, a
citizen of the United States or a resident of the State of Maryland.
SECTION 3. Election and Term of Directors. The term of office of each
director shall be from the time of his election and qualification until his
successor shall have been elected and shall have qualified, or until his death,
or until he shall have resigned or have been removed as provided in these
By-laws, or as otherwise provided by statute or the Corporation's Articles of
Incorporation.
SECTION 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the Secretary of the
Corporation. Any resignation shall take effect at the time specified in it or,
should the time when it is to become effective not be specified in it,
immediately upon its
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receipt. Acceptance of a resignation shall not be necessary to make it effective
unless the resignation states otherwise.
SECTION 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders with or without cause at any time by a vote of a
majority of the votes entitled to be cast for the election of directors.
SECTION 6. Vacancies. Subject to the provisions of the Investment
Company Act of 1940, as amended, any vacancies in the Board of Directors,
whether arising from death, resignation, removal or any other cause except an
increase in the number of directors, shall be filled by a vote of the majority
of the remaining directors even though that majority is less than a quorum,
provided that no vacancy or vacancies shall be filled by action of the remaining
directors if, after the filling of the vacancy or vacancies, fewer than
two-thirds of the directors then holding office shall have been elected by the
stockholders of the Corporation. A majority of the entire Board may fill a
vacancy which results from an increase in the number of directors. In the event
that at any time a vacancy exists in any office of a director that may not be
filled by the remaining directors, a special meeting of the stockholders shall
be held as promptly as possible and in any event within 60 (sixty) days, for the
purpose of filling the vacancy or vacancies. Any director elected or appointed
to fill a vacancy shall hold office until a successor has been chosen and
qualifies or until his earlier resignation or removal.
SECTION 7. Place of Meetings. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 8. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at the time and place determined by the Board of
Directors.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
may be called by two or more directors of the Corporation or by the Chairman of
the Board or the President.
SECTION 10. Notice of Special Meetings. Notice of each special meeting
of the Board of Directors shall be given by the Secretary as hereinafter
provided. Each notice shall state the time and place of the meeting and shall be
delivered to each director, either personally or by telephone or other standard
form of telecommunication, at least 24 (twenty-four) hours before the time at
which the meeting is to be held, or by first-class mail, postage prepaid,
addressed to the director at his residence or usual place of business, and
mailed at least 3 (three) days before the day on which the meeting is to be
held.
SECTION 11. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice that is
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filed with the records of the meeting or who shall attend the meeting.
SECTION 12. Quorum and Voting. One-third (but not fewer than 2 (two))
of the members of the entire Board of Directors shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at the meeting, and except as otherwise expressly required by statute,
the Corporation's Articles of Incorporation, these By-Laws, the Investment
Company Act of 1940, as amended, or any other applicable statute, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. In the absence of a quorum at any meeting of the
Board, a majority of the directors present may adjourn the meeting to another
time and place until a quorum shall be present. Notice of the time and place of
any adjourned meeting shall be given to the directors who were not present at
the time of the adjournment and, unless the time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally called.
SECTION 13. Organization. The Board of Directors may designate a
Chairman of the Board, who shall preside at each meeting of the Board and who
shall have such other duties as the Board of Directors shall determine. In the
absence or inability of the Chairman of the Board to act another director chosen
by a majority of the directors present, shall act as chairman of the meeting and
preside at the meeting. The Secretary, or, in his absence or inability to act,
any person appointed by the chairman, shall act as secretary of the meeting and
keep the minutes thereof.
SECTION 14. Committees. The Board of Directors may designate one or
more committees of the Board of Directors, each consisting of 2 (two) or more
directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation and
may authorize the seal of the Corporation to be affixed to all papers that may
require it. Any committee or committees shall have the name or names determined
from time to time by resolution adopted by the Board of Directors. Each
committee shall keep regular minutes of its meetings and report the same to the
Board of Directors when required. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a director to act
in the place of an absent member.
SECTION 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee of the Board may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
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SECTION 16. Telephone Conference. Members of the Board of Directors or
any committee of the Board may participate in any Board or committee meeting by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in person at the
meeting.
SECTION 17. Compensation. Each director shall be entitled to receive
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
Corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.
ARTICLE III
-----------
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint any other officers, agents and
employees it deems necessary or proper. Any two or more offices may be held by
the same person, except the offices of President and Vice President, but no
officer shall, in more than one capacity, execute, acknowledge or verify any
instrument required to be executed, acknowledged or verified by more than one
officer. Officers shall be elected by the Board of Directors in accordance with
the provisions of the Maryland General Corporation Law and shall serve until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned or have been removed, as provided in
these By-Laws. The Board of Directors may from time to time elect, or designate
to the President the power to appoint, such officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors,
the Chairman of the Board, the President or the Secretary. Any resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. Acceptance of
a resignation shall not be necessary to make it effective unless the resignation
states otherwise.
SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the
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Board of Directors with or without cause at any time, and the Board may delegate
the power of removal as to agents and employees not elected or appointed by the
Board of Directors. Removal shall be without prejudice to the person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office whether arising from
death, resignation, removal or any other cause, may be filled in the manner
prescribed in these By-Laws for the regular election or appointment to the
office.
SECTION 5, Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in an amount and with any
surety or sureties as the Board may require.
SECTION 7. President. The President shall be the chief executive
officer of the Corporation. In the absence or inability of the Chairman of the
Board (or if there is none) to act, the President shall preside at all meetings
of the stockholders and, if also a director, of the Board of Directors. The
President shall have, subject to the control of the Board of Directors, general
charge of the business and affairs of the Corporation, and may employ and
discharge employees and agents of the Corporation, except those elected or
appointed by the Board, and he may delegate these powers.
SECTION 8. Vice President. Each Vice President shall have the powers
and perform the duties that the Board of Directors or the President may from
time to time prescribe.
SECTION 9. Treasurer. Subject to the provisions of any contract that
may be entered into with any custodian pursuant to authority granted by the
Board of Directors, the Treasurer shall have charge of all receipts and
disbursements of the Corporation and shall have or provide for the custody of
the Corporation's funds and securities; he shall have full authority to receive
and give receipts for all money due and payable to the Corporation, and to
endorse checks, drafts and warrants, in its name and on its behalf and to give
full discharge for the same; he shall deposit all funds of the Corporation,
except those that may be required for current use, in such banks or other places
of deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident to the office of Treasurer and
such other duties as may from time to time be assigned to him by the Board of
Directors or the President.
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SECTION 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the committees
of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
SECTION 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE IV
----------
STOCK
-----
SECTION 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon specific written request to such person as may be
designated by the Corporation to have a certificate or certificates, in a form
approved by the Board, representing the number of shares of stock of the
Corporation owned by him; provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the President
or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation.
Any or all of the signatures or the seal on the certificate may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate shall be
issued, it may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still in office at the date of issue.
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SECTION 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder of a
Portfolio, in accordance with Maryland law, a record containing the number of
shares of stock of the Portfolio issued during a specified period not to exceed
12 (twelve) months and the consideration received by the Corporation for each
such share.
SECTION 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
SECTION 4. Regulations. The Board of Directors may make any additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
SECTION 5. Stolen, Lost, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of a Portfolio shall
immediately notify the Corporation of its theft, loss, destruction or mutilation
and the Corporation may issue a new certificate of stock of the Portfolio in the
place of any certificate issued by it that has been alleged to have been stolen,
lost or destroyed or that shall have been mutilated. The Board may, in its
discretion, require the owner (or his legal representative) of a stolen, lost,
destroyed or mutilated certificate: to give to the Corporation a bond in a sum,
limited or unlimited, and in a form and with any surety or sureties, as the
Board in its absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged theft,
loss or destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board of Directors, in its
absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Maryland.
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SECTION 6. Fixing of Record Date for Dividends, Distributions, etc. The
Board may fix, in advance, a date not more than 90 (ninety) days preceding the
date fixed for the payment of any dividend or the making of any distribution
with respect to, or the allotment of rights to subscribe for securities of, a
Portfolio, or for the delivery of evidences of rights or evidences of interests
in the Portfolio arising out of any change, conversion or exchange of common
stock or other securities, as the record date for the determination of the
stockholders of the Portfolio entitled to receive any such dividend,
distribution, allotment, rights or interests, and in such case only the
stockholders of record of the Portfolio at the time so fixed shall be entitled
to receive such dividend, distribution, allotment, rights or interests.
SECTION 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders meeting, annual statements of the affairs of the Portfolio or
Portfolios of which he is a holder and voting trust agreements with respect to
such Portfolio or Portfolios on file at its principal office.
ARTICLE V
---------
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 1. Indemnification of Directors and officers. Any person who
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is a current or former
director or officer of the Corporation, or is or was serving while a director or
officer of the Corporation at the request of the Corporation as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the fullest extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, as such statutes
are now or hereafter in force, except that such indemnity shall not protect any
such person against any liability to the Corporation or any stockholder thereof
to which such person 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 ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the fullest extent permissible under the Maryland General
Corporation
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Law, the Securities Act of 1933 and the Investment Company Act of 1940, as such
statutes are now or hereafter in force; provided however, that the person
seeking indemnification shall provide to the Corporation a written affirmation
of his good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written undertaking by or
on behalf of the director to repay any such advance if it is ultimately
determined that he is not entitled to indemnification, and provided further that
at least one of the following additional conditions is met: (1) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Corporation for his undertaking; (2) the Corporation is insured against
losses arising by reason of the advance; or (3) a majority of a quorum of
directors of the Corporation who are neither "interested persons" as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties
to the proceeding ("disinterested non-party directors") or independent legal
counsel, in a written opinion, shall determine, based on a review of facts
readily available to the Corporation at the time the advance is proposed to be
made, that there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
SECTION 3. Procedure. At the request of any current or former director
or officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the Investment Company Act of 1940, as such statutes are now or hereafter in
force, whether the standards required by this Article V have been met; provided,
however, that indemnification shall be made only following: (1) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling conduct
or (2) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct, by (a) the vote of a majority of a quorum of
disinterested non-party directors or (b) an independent legal counsel in a
written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the Investment Company Act of 1940, the Securities Act of 1933
and the Maryland General Corporation Law, as such statutes are now or hereafter
in force, and to such further extent, consistent with the foregoing, as may be
provided by action of the Board of Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
directors or
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otherwise, both as to action by a director or officer of the Corporation in his
official capacity and as to action by such person in another capacity while
holding such office or position, and shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 6. Insurance. To the extent not otherwise prohibited by
applicable law, the Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who, while a director, officer, employee or agent
of the Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, enterprise or employee benefit
plan, against any liability asserted against and incurred by him in any such
capacity, or arising out of his status as such, provided that no insurance may
be obtained by the Corporation for liabilities against which it would not have
the power to indemnify him against liability under this Article V or applicable
law.
SECTION 7. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under this Article V with respect to
the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
ARTICLE VI
----------
SEAL
----
The seal of the Corporation shall be circular in form and shall bear
the name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.
-13-
<PAGE>
0927U
ARTICLE VII
-----------
FISCAL YEAR
-----------
The Corporation's fiscal year shall be fixed by the Board of Directors.
ARTICLE VIII
------------
AMENDMENTS
----------
These By-Laws may be amended or repealed by the Board of Directors at
any regular or special meeting of the Board of Directors, subject to the
requirements of the Investment Company Act of 1940, as amended.
-14-
Exhibit (b)(3)
SCUDDER MUTUAL FUNDS, INC.
--------------------------
On September 20, 1991, the Board of Directors of Scudder Mutual Funds, Inc.
amended Article II, Section 7 of the By-Laws of the Corporation to read as
follows:
Place and Manner of Meetings. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that
is specified in the notice of the meeting. Meetings of the Board can be
held in conjunction with meetings of other investment companies having the
same investment adviser or an affiliated investment adviser.
-2-
Exhibit (b)(5)
SCUDDER MUTUAL FUNDS, INC.
On March 5, 1996 the Board of Directors of Scudder Mutual Funds, Inc.
amended the By-Laws of the Corporation by the addition of the following Article
IIIA:
ARTICLE IIIA
HONORARY DIRECTORS
Section 3A.0l. Number; Qualification; Term: The Board of
Directors may from time to time designate and appoint one or more
qualified persons to the position of "honorary director". Each honorary
director shall serve for such term as shall be specified in the
resolution of the Board of Directors appointing him or until his
earlier resignation or removal. An honorary director may be removed
from such position with or without cause by the vote of a majority of
the Board of Directors given at any regular meeting or special meeting.
Section 3A.02. Duties; Remuneration: An honorary director
shall be invited to attend all meetings of the Board of Directors but
shall not be present at any portion of a meeting from which the
honorary director shall have been excluded by vote of the directors. An
honorary director shall not be a "Director" or "officer" within the
meaning of the Corporation's Certificate of Incorporation or of these
By-laws, shall not be deemed to be a member of an "advisory board"
within the meaning of the Investment Company Act of 1940, as amended
from time to time, shall not hold himself out as any of the foregoing,
and shall not be liable to any person for any act of the Corporation.
Notice of special meetings may be given to an honorary director but the
failure to give such notice shall not affect the validity of any
meeting or the action taken thereat. An honorary director shall not
have the powers of a Director, may not vote at meetings of the Board of
Directors and shall not take part in the operation or governance of the
Corporation. An honorary director shall not receive any compensation
but may, in the discretion of the Board of Directors, be reimbursed for
expenses incurred in attending meetings of the Board of Directors or
otherwise.
Exhibit (b)(8)
SCUDDER MUTUAL FUNDS, INC.
On December 3, 1997, the Board of Directors of Scudder Mutual Funds,
Inc. adopted the following amending the By-Laws of the corporation to read as
follows:
RESOLVED, that the first sentence of Article I, Section 14 of
the Fund's By-Laws shall be amended to read as follows
(additions are underlined, and deletions are struckout):
By resolution adopted by the Board of Directors, the
Board may designate one or more committees, including
an Executive Committee, each composed of one two or
more Directors.
Exhibit (d)(1)
Scudder Mutual Funds, Inc.
345 Park Avenue
New York, New York 10154
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Scudder Gold Fund
Ladies and Gentlemen:
Scudder Mutual Funds, Inc. (the "Corporation") has been established as a
Maryland corporation to engage in the business of an investment company.
Pursuant to the Corporation's Articles of Incorporation, as amended from
time-to-time (the "Articles"), the Board of Directors may divided the
Corporation's shares of capital stock, par value $0.01 per share, (the "Shares")
into separate series, or funds, including Scudder Gold Fund (the "Fund"). Series
may be abolished and dissolved, and additional series established, from time to
time by action of the Directors.
The Corporation, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, a more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Corporation on behalf of the
Fund agrees with you as follows:
1. Delivery of Documents. The Corporation engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Corporation's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Corporation under the Investment Company
Act of 1940, as amended, (the "1940 Act") and the Securities Act of 1933, as
amended. Copies of the documents referred to in the preceding sentence have been
furnished to you by the Corporation. The Corporation has also furnished you with
copies properly certified or authenticated of each of the following additional
documents related to the Corporation and the Fund:
(a) The Articles dated September 5, 1996, as amended to date.
(b) By-Laws of the Corporation as in effect on the date hereof (the "By-Laws").
<PAGE>
(c) Resolutions of the Directors of the Corporation and the shareholders of the
Fund selecting you as investment manager and approving the form of this
Agreement.
The Corporation will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAT and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of the
rights to use and sublicense the use of the "Scudder," "Scudder Kemper
Investments, Inc." and "Scudder, Stevens & Clark, Inc." trademarks (together,
the "Scudder Marks"), you hereby grant the Corporation a nonexclusive right and
sublicense to use (i) the "Scudder" name and mark as part of the Corporation's
name (the "Fund Name"), and (ii) the Scudder Marks in connection with the
Corporation's investment products and services, in each case only for so long as
this Agreement, any other investment management agreement between you or any
organization which shall have succeeded to your business as investment manager
("your Successor") and the Corporation, or any extension, renewal or amendment
hereof or thereof remains in effect, and only for so long as you are a licensee
of the Scudder Marks, provided however, that you agree to use your best efforts
to maintain your license to use and sublicense the Scudder Marks. The
Corporation agrees that it shall have no right to sublicense or assign rights to
use the Scudder Marks, shall acquire no interest in the Scudder Marks other than
the rights granted herein, that all of the Corporation's uses of the Scudder
Marks shall inure to the benefit of Scudder Trust Company as owner and licensor
of the Scudder Marks (the "Trademark Owner"), and that the Corporation shall not
challenge the validity of the Scudder Marks or the Trademark Owner's ownership
thereof. The Corporation further agrees that all services and products it offers
in connection with the Scudder Marks shall meet commercially reasonable
standards of duality, as may be determined by you or the Trademark Owner from
time to time, provided that you acknowledge that the services and products the
Corporation rendered during the one-year period preceding the date of this
Agreement are acceptable. At your reasonable request, the Corporation shall
cooperate with you and the Trademark Owner and shall execute and deliver any and
all documents necessary to maintain and protect (including but not limited to in
connection with any trademark infringement action) the Scudder Marks and/or
enter the Corporation as a registered user thereof. At such time as this
Agreement or any other investment management agreement shall no longer be in
effect between you (or your Successor) and the Corporation, or you no longer are
a licensee of the Scudder Marks, the Corporation shall (to the extent that, and
as soon as, it lawfully can) cease to use the Fund Name or any other name
indicating that it is advised by, managed by or otherwise connected with you (or
your Successor) or the Trademark Owner. In no event shall the Corporation use
the Scudder Marks or any other name or mark confusingly similar thereto
(including, but not limited to, any name or mark that includes the name
"Scudder") if this Agreement or any other investment advisory agreement between
you (or your Successor) and the Fund is terminated.
3. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Corporation's Board
of Directors. In connection therewith, you shall use reasonable efforts to
manage the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Corporation or
counsel to you. You shall also make available to the Corporation
2
<PAGE>
promptly upon request all of the Fund's investment records and ledgers as are
necessary to assist the Corporation in complying with the requirements of the
1940 Act and other applicable laws. To the extent required by law, you shall
furnish to regulatory authorities having the requisite authority any information
or reports in connection with the services provided pursuant to this Agreement
which may be requested in order to ascertain whether the operations of the
Corporation are being conducted in a manner consistent with applicable laws and
regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Corporation's Board of Directors periodic reports
on the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Corporation's officers or Board of Directors
shall reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Corporation administrative
services on behalf of the Fund necessary for operating as an open-end investment
company and not provided by persons not parties to this Agreement including, but
not limited to, preparing reports to and meeting materials for the Corporation's
Board of Directors and reports and notices to Fund shareholders; supervising,
negotiating contractual arrangements with, to the extent appropriate, and
monitoring the performance of, accounting agents, custodians, depositories,
transfer agents and pricing agents, accountants, attorneys, printers,
underwriters, brokers and dealers, insurers and other persons in any capacity
deemed to be necessary or desirable to Fund operations; preparing and making
filings with the Securities and Exchange Commission (the "SEC") and other
regulatory and self-regulatory organizations, including, but not limited to,
preliminary and definitive proxy materials, post-effective amendments to the
Registration Statement, semi-annual reports on Form N-SAR and notices pursuant
to Rule 24f-2 under the 1940 Act; overseeing the tabulation of proxies by the
Fund's transfer agent; 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 return pursuant to Section 4982 of the Code; providing assistance
with investor and public relations matters; monitoring the valuation of
portfolio securities and the calculation of net asset value; monitoring the
registration of Shares of the Fund under applicable federal and state securities
laws; maintaining or causing to be maintained for the Fund all books, records
and reports and any other information required under the 1940 Act, to the extent
that such books, records and reports and other information are not maintained by
the Fund's custodian or other agents of the Fund; assisting in establishing the
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting with
the Fund's independent accountants, legal counsel and the Fund's other agents as
necessary in connection therewith; establishing and monitoring the Fund's
operating expense budgets; reviewing the Fund's bills; processing the payment of
bills that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and
3
<PAGE>
distributions; and otherwise assisting the Corporation as it may reasonably
request in the conduct of the Fund's business, subject to the direction and
control of the Corporation's Board of Directors. Nothing in this Agreement shall
be deemed to shift to you or to diminish the obligations of any agent of the
Fund or any other person not a party to this Agreement which is obligated to
provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Directors, officers and executive employees of the Corporation (including the
Fund's share of payroll taxes) who are affiliated persons of you, and you shall
make available, without expense to the Fund, the services of such of your
directors, officers and employees as may duly be elected officers of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law. You shall provide at your expense the portfolio management
services described in section 3 hereof and the administrative services described
in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 5. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Directors and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Corporation; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Corporation business) of Directors,
officers and employees of the Corporation who are not affiliated persons of you;
brokerage commissions or other costs of acquiring or disposing of any portfolio
securities of the Fund; expenses of printing and distributing reports, notices
and dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Directors and officers of the Corporation; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Directors and officers of the Corporation who are directors,
officers or employees of you to the extent that such expenses relate to
attendance at meetings of the Board of Directors of the Corporation or any
committees thereof or advisors thereto held outside of Boston, Massachusetts or
New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Corporation on behalf of the Fund shall have adopted a
plan in conformity with Rule 12b-1 under the 1940 Act providing that the Fund
(or some other party) shall assume some or all of such expenses. You shall be
required to pay such of the foregoing sales expenses as are not required to be
paid
4
<PAGE>
by the principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Corporation on behalf of the Fund shall pay you in United States Dollars on the
last day of each month the unpaid balance of a fee equal to the excess of 1/12
of 1 percent of the average daily net assets as defined below of the Fund for
such month over any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75 percent of the amount of your fee then accrued on the
books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Articles and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 6.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Corporation. Whenever the Fund
and one or more other accounts or investment companies advised by the Manager
have available funds for investment, investments suitable and appropriate for
each shall be allocated in accordance with procedures believed by the Manager to
be equitable to each entity. Similarly, opportunities to sell securities shall
be allocated in a manner believed by the Manager to be equitable.
5
<PAGE>
The Fund recognizes that in some cases this procedure may adversely affect the
size of the position that may be acquired or disposed of for the Fund.
8. Limitation of Liability of Manager. As an inducement to your undertaking
to render services pursuant to this Agreement, the Corporation agrees that you
shall not be liable under this Agreement for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall be deemed
to protect or purport to protect you against any liability to the Corporation,
the Fund or its shareholders to which you would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of your
duties, or by reason of your reckless disregard of your obligations and duties
hereunder. Any person, even though also employed by you, who may be or become an
employee of and paid by the Fund shall be deemed, when acting within the scope
of his or her employment by the Fund, to be acting in such employment solely for
the Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall remain
in force until September 30, 1999, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Directors who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Directors of the Corporation, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Corporation's Board of Directors on 60
days' written notice to you, or by you on 60 days' written notice to the
Corporation. This Agreement shall terminate automatically in the event of its
assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
6
<PAGE>
This Agreement shall be construed in accordance with the laws of the State
of Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, or in a manner which would cause the Fund to
fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Corporation on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Corporation, whereupon this letter shall become a binding
contract effective as of the date of this Agreement.
Yours very truly,
SCUDDER MUTUAL FUNDS, INC., on
behalf of Scudder Gold Fund
By: /s/Thomas F. McDonough
------------------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Daniel Pierce
--------------------
Managing Director
Exhibit (e)(1)
SCUDDER MUTUAL FUNDS, INC.
345 Park Avenue
New York, New York 10154
September 7, 1998
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Underwriting Agreement
----------------------
Dear Ladies and Gentlemen:
Scudder Mutual Funds, Inc. (hereinafter called the "Fund") is a
Corporation organized under the laws of Maryland and is engaged in the business
of an investment company. The authorized capital of the Fund consists of shares
of capital stock, with par value of $0.01 per share ("Shares"), currently
divided into one active series ("Series"). The Series and, if applicable, the
classes thereof to which this Agreement applies are included under Schedule A.
Shares may be divided into additional Series of the Fund and the Series may be
terminated from time to time. The Fund has selected you to act as principal
underwriter (as such term is defined in Section 2(a)(29) of the Investment
Company Act of 1940, as amended (the "1940 Act")) of the Shares and you are
willing to act as such principal underwriter and to perform the duties and
functions of underwriter in the manner and on the terms and conditions
hereinafter set forth. Accordingly, the Fund hereby agrees with you as follows:
1. Delivery of Documents. The Fund has furnished you with copies properly
certified or authenticated of each of the following:
(a) Articles of Amendment and Restatement of the Fund, dated September 5,
1996, as amended to date.
(b) By-Laws of the Fund as in effect on the date hereof.
<PAGE>
(c) Resolutions of the Board of Directors of the Fund selecting you as
principal underwriter and approving this form of Agreement.
The Fund will furnish you from time to time with copies, properly certified
or authenticated, of all amendments of or supplements to the foregoing, if any.
The Fund will furnish you promptly with properly certified or authenticated
copies of any registration statement filed by it with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, (the "1933
Act") or the 1940 Act, together with any financial statements and exhibits
included therein, and all amendments or supplements thereto hereafter filed.
2. Registration and Sale of Additional Shares. The Fund will from time to
time use its best efforts to register under the 1933 Act such number of Shares
not already so registered as you may reasonably be expected to sell on behalf of
the Fund. You and the Fund will cooperate in taking such action as may be
necessary from time to time to comply with requirements applicable to the sale
of Shares by you or the Fund in any states mutually agreeable to you and the
Fund, and to maintain such compliance. This Agreement relates to the issue and
sale of Shares that are duly authorized and registered under the 1933 Act and
available for sale by the Fund, including redeemed or repurchased Shares if and
to the extent that they may be legally sold and if, but only if, the Fund sees
fit to sell them.
3. Sale of Shares. Subject to the provisions of paragraphs 5 and 7 hereof
and to such minimum purchase requirements as may from time to time be currently
indicated in the Fund's prospectus or statement of additional information, you
are authorized to sell as agent on behalf of the Fund Shares authorized for
issue and registered under the 1933 Act. You may also purchase as principal
Shares for resale to the public. Such sales will be made by you on behalf of the
Fund by accepting unconditional orders to purchase Shares placed with you by
investors and such purchases will be made by you only after acceptance by you of
such orders. The sales price to the public of Shares shall be the public
offering price as defined in paragraph 6 hereof.
4. Solicitation of Orders. You will use your best efforts (but only in
states in which you may lawfully do so) to obtain from investors unconditional
orders for Shares authorized for issue by
2
<PAGE>
the Funds and registered under the 1933 Act, provided that you may in your
discretion refuse to accept orders for Shares from any particular applicant.
5. Sale of Shares by the Fund. Unless you are otherwise notified by the
Fund, any right granted to you to accept orders for Shares or to make sales on
behalf of the Fund or to purchase Shares for resale will not apply to (i) Shares
issued in connection with the merger or consolidation of any other investment
company with the Fund or its acquisition, by purchase or otherwise, of all or
substantially all of the assets of any investment company or substantially all
the outstanding shares of any such company, and (ii) to Shares that may be
offered by the Fund to shareholders of the Fund by virtue of their being such
shareholders.
6. Public Offering Price. All Shares sold to investors by you will be sold
at the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per Share, determined, in the manner
provided in the Fund's registration statements as from time to time in effect
under the 1933 Act and the 1940 Act, next after the order is accepted by you.
7. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be accepted by you except unconditional orders placed with you
before you had knowledge of the suspension. In addition, the Fund reserves the
right to suspend sales and your authority to accept orders for Shares on behalf
of the Fund if, in the judgment of a majority of the Board of Directors or a
majority of the Executive Committee of such Board, if such body exists, it is in
the best interests of the Fund to do so, such suspension to continue for such
period as may be determined by such majority; and in that event, no Shares will
be sold by you on behalf of the Fund while such suspension remains in effect
except for Shares necessary to cover unconditional orders accepted by you before
you had knowledge of the suspension.
8. Portfolio Securities. Portfolio securities of any Series of the Fund may
be bought or sold by or through you and you may participate directly or
indirectly in brokerage commissions or "spread" in respect of transactions in
portfolio securities of any Series of the Fund; provided, however, that all sums
of money received by you as a result of such purchases and sales or as a result
3
<PAGE>
of such participation must, after reimbursement of your actual expenses in
connection with such activity, be paid over by you to or for the benefit of the
Fund.
9. Expenses. (a) The Fund will pay (or will enter into arrangements
providing that others than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing of any
registration statement (including a prospectus and statement of
additional information) under the 1933 Act or the 1940 Act, or both,
and any amendments or supplements thereto that may be made from time
to time;
(2) in connection with the registration and qualification of Shares for
sale, or compliance with other conditions applicable to the sale of
Shares in the various jurisdictions in which the Fund shall determine
it advisable to sell such Shares (including registering the Fund as a
broker or dealer or any officer of the Fund or other person as agent
or salesman of the Fund in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any notice, proxy
statement, report, prospectus or other communication to shareholders
of the Fund in their capacity as such;
(4) of preparing, setting in type, printing and mailing prospectuses
annually, and any supplements thereto, to existing shareholders;
(5) in connection with the issue and transfer of Shares resulting from the
acceptance by you of orders to purchase Shares placed with you by
investors, including the expenses of printing and mailing
confirmations of such purchase orders and the expenses of printing and
mailing a prospectus included with the confirmation of such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion
allocated to you in this paragraph 9;
4
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(8) of wiring funds in payment of Share purchases or in satisfaction of
redemption or repurchase requests, unless such expenses are paid for
by the investor or shareholder who initiates the transaction;
(9) of the cost of printing and postage of business reply envelopes sent
to Fund shareholders;
(10) of one or more CRT terminals connected with the computer facilities of
the transfer agent other than the portion allocated to you in this
paragraph 9;
(11) permitted to be paid or assumed by the Fund pursuant to a plan ("12b-1
Plan"), if any, adopted by the Fund in conformity with the
requirements of Rule 12b-1 under the 1940 Act ("Rule 12b-1") or any
successor rule, notwithstanding any other provision to the contrary
herein;
(12) of the expense of setting in type, printing and postage of the
periodic newsletter to shareholders other than the portion allocated
to you in this paragraph 9; and
(13) of the salaries and overhead of persons employed by you as shareholder
representatives other than the portion allocated to you in this
paragraph 9.
b) You shall pay or arrange for the payment of all fees and expenses:
(1) of printing and distributing any prospectuses or reports prepared for
your use in connection with the offering of Shares to the public;
(2) of preparing, setting in type, printing and mailing any other
literature used by you in connection with the offering of Shares to
the public;
(3) of advertising in connection with the offering of Shares to the
public;
(4) incurred in connection with your registration as a broker or dealer or
the registration or qualification of your officers, directors, agents
or representatives under Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines, allocated to
you on the basis of use by investors (but not shareholders) who
request information or prospectuses;
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(6) of that portion of the expenses of setting in type, printing and
postage of the periodic newsletter to shareholders attributable to
promotional material included in such newsletter at your request
concerning investment companies other than the Fund or concerning the
Fund to the extent you are required to assume the expense thereof
pursuant to paragraph 9(b)(8), except such material which is limited
to information, such as listings of other investment companies and
their investment objectives, given in connection with the exchange
privilege as from time to time described in the Fund's prospectus;
(7) of that portion of the salaries and overhead of persons employed by
you as shareholder representatives attributable to the time spent by
such persons in responding to requests from prospective investors and
shareholders for information about the Fund;
(8) of any activity which is primarily intended to result in the sale of
Shares, unless a 12b-1 Plan shall be in effect which provides that the
Fund shall bear some or all of such expenses, in which case the Fund
shall bear such expenses in accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with the
computer facilities of the transfer agent attributable to your use of
such terminal(s) to gain access to such of the transfer agent's
records as also serve as your records.
Expenses which are to be allocated between you and the Fund shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent practicable
reflect studies of relevant empirical data.
10. Conformity with Law. You agree that in selling Shares you will duly
conform in all respects with the laws of the United States and any state in
which Shares may be offered for sale by you pursuant to this Agreement and to
the rules and regulations of the National Association of Securities Dealers,
Inc., of which you are a member.
11. Independent Contractor. You shall be an independent contractor and
neither you nor any of your officers or employees is or shall be an employee of
the Fund in the performance of your
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duties hereunder. You shall be responsible for your own conduct and the
employment, control and conduct of your agents and employees and for injury to
such agents or employees or to others through your agents or employees. You
assume full responsibility for your agents and employees under applicable
statutes and agree to pay all employee taxes thereunder.
12. Indemnification. You agree to indemnify and hold harmless the Fund and
each of its Director and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act, against any and all losses,
claims, damages, liabilities or litigation (including legal and other expenses)
to which the Fund or such Directors, officers, or controlling person may become
subject under such Act, under any other statute, at common law or otherwise,
arising out of the acquisition of any Shares by any person which (i) may be
based upon any wrongful act by you or any of your employees or representatives,
or (ii) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement (including a prospectus or
statement of additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in reliance upon
information furnished to the Fund by you, or (iii) may be incurred or arise by
reason of your acting as the Fund's agent instead of purchasing and reselling
Shares as principal in distributing the Shares to the public, provided, however,
that in no case (i) is your indemnity in favor of a Director or officer or any
other person deemed to protect such Director or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) are you to be liable under your indemnity agreement
contained in this paragraph with respect to any claim made against the Fund or
any person indemnified unless the Fund or such person, as the case may be, shall
have notified you in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claims shall have
been served upon the Fund or upon such person (or after the Fund or such person
shall have received notice of such service on any designated agent), but
7
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failure to notify you of any such claim shall not relieve you from any liability
which you may have to the Fund or any person against whom such action is brought
otherwise than on account of your indemnity agreement contained in this
paragraph. You shall be entitled to participate, at your own expense, in the
defense, or, if you so elect, to assume the defense of any suit brought to
enforce any such liability, but if you elect to assume the defense, such defense
shall be conducted by counsel chosen by you and satisfactory to the Fund, to its
officers and Directors, or to any controlling person or persons, defendant or
defendants in the suit. In the event that you elect to assume the defense of any
such suit and retain such counsel, the Fund, such officers and Directors or
controlling person or persons, defendant or defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them, but, in case
you do not elect to assume the defense of any such suit, you will reimburse the
Fund, such officers and Directors or controlling person or persons, defendant or
defendants in such suit for the reasonable fees and expenses of any counsel
retained by them. You agree promptly to notify the Fund of the commencement of
any litigation or proceedings against it in connection with the issue and sale
of any Shares.
The Fund agrees to indemnify and hold harmless you and each of your
directors and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
you or such directors, officers or controlling person may become subject under
such Act, under any other statute, at common law or otherwise, arising out of
the acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Fund or any of its employees or representatives, or (ii) may
be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement (including a prospectus or statement
of additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to you by the Fund; provided, however, that in no case (i)
is the Fund's indemnity in favor of you, a director or officer or any other
person deemed to protect you, such
8
<PAGE>
director or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) is the
Fund to be liable under its indemnity agreement contained in this paragraph with
respect to any claims made against you or any such director, officer or
controlling person unless you or such director, officer or controlling person,
as the case may be, shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon you or upon such director,
officer or controlling person (or after you or such director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to you, your
directors, officers, or controlling person or persons, defendant or defendants
in the suit. In the event that the Fund elects to assume the defense of any such
suit and retain such counsel, you, your directors, officers or controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse you or such
directors, officers or controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
The Fund agrees promptly to notify you of the commencement of any litigation or
proceedings against it or any of its officers or directors in connection with
the issuance or sale of any Shares.
13. Authorized Representations. The Fund is not authorized to give any
information or to make any representations on behalf of you other than the
information and representations contained in a registration statement (including
a prospectus or statement of additional information) covering
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<PAGE>
Shares, as such registration statement and prospectus may be amended or
supplemented from time to time.
You are not authorized to give any information or to make any
representations on behalf of the Fund or in connection with the sale of Shares
other than the information and representations contained in a registration
statement (including a prospectus or statement of additional information)
covering Shares, as such registration statement may be amended or supplemented
from time to time. No person other than you is authorized to act as principal
underwriter (as such term is defined in the 1940 Act) for the Fund.
14. Duration and Termination of this Agreement. This Agreement shall become
effective upon the date first written above and will remain in effect until
September 30, 1999 and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Directors who are not interested persons of you or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval, and by
vote of the Board of Directors or of a majority of the outstanding voting
securities of the Fund. This Agreement may, on 60 days' written notice, be
terminated at any time without the payment of any penalty, by the Board of
Directors of the Fund, by a vote of a majority of the outstanding voting
securities of the Fund, or by you. This Agreement will automatically terminate
in the event of its assignment. In interpreting the provisions of this paragraph
14, the definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "interested person", "assignment" and "majority of the
outstanding voting securities"), as modified by any applicable order of the
Securities and Exchange Commission, shall be applied.
15. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. If the Fund should at any time deem it
necessary or advisable in the best interests of the Fund that any amendment of
this Agreement be made in order to comply with the recommendations or
requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage
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<PAGE>
under state or federal tax laws and should notify you of the form of such
amendment, and the reasons therefor, and if you should decline to assent to such
amendment, the Fund may terminate this Agreement forthwith. If you should at any
time request that a change be made in the Fund's Articles of Incorporation or
By-laws or in its methods of doing business, in order to comply with any
requirements of federal law or regulations of the Securities and Exchange
Commission or of a national securities association of which you are or may be a
member relating to the sale of shares of the Fund, and the Fund should not make
such necessary change within a reasonable time, you may terminate this Agreement
forthwith.
16. Termination of Prior Agreements. This Agreement upon its effectiveness
terminates and supersedes all prior underwriting contracts between the parties.
17. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
The name "Scudder Mutual Funds, Inc." is the designation of the Directors
for the time being under Articles of Amendment and Restatement of the Fund dated
September 5, 1996, as amended from time to time, and all persons dealing with
the Fund must look solely to the property of the Fund for the enforcement of any
claims against the Fund, as neither the Directors, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding contract.
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Very truly yours,
SCUDDER MUTUAL FUNDS, INC.
By: /s/Thomas F. McDonough
--------------------------
Thomas F. McDonough
Vice President
The foregoing agreement is hereby accepted as of the foregoing date
thereof.
SCUDDER INVESTOR SERVICES, INC.
By: /s/Daniel Pierce
--------------------------
Daniel Pierce
Vice President
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Schedule A
Scudder Gold Fund
13
Exhibit (g)(2)
CUSTODIAN CONTRACT
This Contract between Scudder Mutual Funds, Inc. (the "Fund"), a
Maryland corporation organized under Articles of Incorporation dated March 17,
1988, as the same may be amended from time to time (the "Charter"), and State
Street Bank and Trust Company (the "Custodian"),
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
I. Employment of Custodian and Property to be Held by It; Application of
Contract
The Fund hereby employs the Custodian as the Custodian of its assets,
including securities intended to be held within the United States ("domestic
securities") and securities intended to be held outside the United States
("foreign securities"), pursuant to the provisions of the Charter and the
By-Laws of the Fund. The Fund agrees to deliver to the Custodian all securities
and cash owned by it, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities owned by the
Fund from time to time, and the cash consideration received by it for such new
or treasury shares of capital stock, with $.01 par value, ("Shares") of all
series whenever created (each a "Portfolio") of the Fund as may be issued or
sold from time to time. The Custodian shall not be responsible for any property
of the Fund held or received by the Fund and not delivered to the Custodian.
The Custodian may from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote by
the Board of Directors of the Fund, and provided that the Custodian shall have
no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodians
for the Fund's securities and other assets the foreign banking institutions and
foreign securities depositories designated in Schedule "A" hereto, but only in
accordance with the provisions of Section Q or Article II hereof.
The Fund may from time to time employ a special custodian in connection
with certain repurchase agreements entered into by the Fund, with the terms of
such employment to be governed by a special custodian agreement between the Fund
the special custodian. However, the Fund agrees not to employ any such special
custodian until the Fund and the Custodian have entered into a master repurchase
agreement or other agreement which sets forth the terms governing the
relationship, including the method of transfer of securities and cash, between
the Custodian and such special custodian.
<PAGE>
State Street acknowledges that additional Portfolios may be established
and that Portfolios may be terminated, from time to time by action of the Board
of Directors of the Fund. If the context requires and unless otherwise
specifically provided herein, the term "Fund" as used in this Contract shall
mean in addition each subsequently created separate Portfolio.
II. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian
"Holding Securities. The Custodian shall hold and physically segregate
in a separate account for each series ("Portfolio") of the Fund all non-cash
property allocated to each portfolio, including all securities owned by the Fund
and allocated to each Portfolio except that (a) securities which are maintained
pursuant to Section II.L. in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department of
Treasury, collectively referred to herein as "Securities System", shall be
identified as belonging to a specified Portfolio and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section II.L.1., shall be identified as
belonging to a specified Portfolio."
Delivery of Securities. The Custodian shall release and deliver
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt
of Proper instructions, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section L hereof;
4) In the case of a sale effected through the Direct Paper System
in accordance with the provisions of Section L.1 hereof;
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5) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
6) To the Issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
7) To the Issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section K of Article II hereof or into
the name or nominee name of any sub-custodian appointed
pursuant to Article I hereof; or for exchange for a different
number of bonds, certificates or other evidence representing
the same aggregate face amount or number of units; provided
that, in any such case, the new securities are to be delivered
to the Custodian;
8) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
9) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the Issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
10) In the case of warrants, rights or similar securities, for the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
11) For delivery in connection with any loans of securities made
by the Fund, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the
Fund, which may be in the form of cash or obligations issued
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by the United States government, its agencies or
instrumentalities; except that in connection with any loans
for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S.
Department of the Treasury, the Custodian may deliver
securities prior to the credit of such collateral, provided
that the Custodian shall promptly notify the Fund if such
collateral is not credited;
12) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Fund, but only
against receipt of amounts borrowed;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") and a member of the National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with
the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund;
14) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, and a futures
commission merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transactions by the Fund;
15) Upon receipt of instructions from the transfer agent for the
Fund (the "Transfer Agent"), for delivery to the Transfer
Agent or to holders of shares in connection with distributions
in kind, as may be described from time to time in the Fund's
currently effective prospectus, in satisfaction of requests by
holders of Shares for repurchase or redemption; and
16) For any other proper corporate purposes, but only upon receipt
of, in addition to proper instructions, a certified copy of a
resolution of the Directors or of the Executive Committee
signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, specifying the securities
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purposes to be proper
corporate purposes, and naming the person or persons to whom
delivery of such securities shall be made.
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C. Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section K of Article II hereof or in
the name or nominee name of any sub-custodian or special custodian
appointed pursuant to Article I hereof. All securities accepted by the
Custodian on behalf of the Fund under the terms of this Contract shall
be in "street" or other good delivery form.
D. Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940, as amended. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940, as amended, and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall be
approved by vote of a majority of the Directors of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
E. Payments for Shares. The Custodian shall receive from the distributor
of the Fund's Shares or from the Transfer Agent and deposit into the
Fund's account such payments as are received for Shares of the Fund
issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund and the Transfer Agent of any
receipt by it of payments for Shares of the Fund.
F. Investment and Availability of Federal Funds. Upon mutual agreement
between the Fund and the Custodian, the Custodian shall, upon the
receipt of proper instructions, which may be continuing instructions
when deemed appropriate by the parties,
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1) invest in such instruments as may be set forth in
such instructions on the same day as received all
federal funds received after a time agreed upon
between the Custodian and the Fund; and
2) make federal funds available to the Fund as of
specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks
received in payment for Shares of the Fund which are
deposited into the Fund's account.
G) Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled either by
law or pursuant to custom in the securities business, and shall collect
on a timely basis all income and other payments with respect to United
States bearer securities if, on the date of payment by the Issuer, such
securities are held by the Custodian or agent thereof and shall credit
such income, as collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder.
Income due the Fund on United State securities loaned
pursuant to the provisions of Section B (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith except as set forth in the
preceding paragraph, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging
for the timely delivery to the Custodian of the income to which the
Fund is properly entitled.
H. Payment of Fund Monies. Upon receipt of proper instructions,
which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall pay out monies of the Fund
in the following cases only:
1) Upon the purchase of securities, options, futures
contracts or options on futures contracts for the
account of the Fund but only (a) against the delivery
of such securities, or evidence of title to such
options, futures contracts or options on futures
contracts, to the Custodian (or any bank, banking
firm or trust company doing business in the United
States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as
a custodian and has been designated by the Custodian
6
<PAGE>
as its agent for this purpose) registered in the name
of the Fund or in the name of a nominee of the
Custodian referred to in Section II.C hereof or in
proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in
accordance with the conditions set forth in Section
II.L. hereof; (c) in the case of a purchase involving
the Direct Paper System, in accordance with the
conditions set forth in Section II.L.1; or (d) in the
case of repurchase agreements entered into between
the Fund and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against
delivery of the securities either in certificate form
or through an entry crediting the Custodian's account
in which it holds securities as a fiduciary,
custodian or otherwise for customers at the Federal
Reserve Bank with such securities or (ii) in the case
of purchase by the Fund of securities owned by State
Street Bank and Trust Company ("State Street") for
its own account, against (A) delivery of the receipt
evidencing purchase by the Fund, (B) earmarking
certificates for such securities to show ownership by
the Fund or transfer of such securities from State
Street's proprietary account at the Federal Reserve
Bank to its account described in (i) above, unless
the securities are already held in the latter
account, (C) the entry on the records of State Street
showing that such securities are held by the Fund,
and (D) delivery of written evidence of the agreement
of State Street to repurchase such securities from
the Fund; provided that, upon receipt of Proper
Instructions, the Custodian shall transfer to another
bank or trust company qualified to act as a custodian
under the Investment Company Act of 1940, as amended,
securities held in a Securities System and purchased
from State Street subject to State Street's agreement
to repurchase such securities;
2) In connection with conversion, exchange or surrender
of securities owned by the Fund as set forth in
Section B of Article II hereof;
3) For the redemption or repurchase of Shares issued by
the Fund as set forth in Section J of Article II
hereof;
4) For the payment of any expense or liability incurred
by the Fund, including but not limited to the
following payments for the account of the Fund:
interest, taxes, management, accounting, transfer
7
<PAGE>
agent and legal fees, and operating expenses of the
Fund whether or not such expenses are to be in whole
or part capitalized or treated as deferred expenses;
5) For the payment of any dividends declared pursuant to
the governing documents of the Fund;
6) For the payment of the amount of dividends received
in respect of securities sold short;
7) For any other proper purposes, but only upon receipt
of, in addition to proper instructions, a certified
copy of a resolution of the Board of Directors or of
the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or
an Assistant Secretary, specifying the amount of such
payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to
whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities
for the account of the Fund is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific written
instructions from the Fund to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as
if the securities had been received by the Custodian, except that in
the case of repurchase agreements entered into by the Fund with a bank
which is a member of the Federal Reserve System, the Custodian may
transfer funds to the account of such bank prior to the receipt of
written evidence that the securities subject to such repurchase
agreement have been transferred by book-entry into a segregated
non-proprietary account of the Custodian maintained with the Federal
Reserve Bank of Boston or of the safe-keeping receipt, provided that
such securities have in fact been so transferred by book-entry.
J. Payments for Repurchases or Redemptions of Shares of the Fund. From
such funds as may be available for the purpose but subject to the
limitations of the Charter and any applicable votes of the Board of
Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available
for payment to holders of Shares who have delivered to the Transfer
Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of the Fund, the
Custodian is authorized upon receipt of instructions from the Transfer
8
<PAGE>
Agent to wire funds to or through a commercial bank designated by the
redeeming shareholders.
K. Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company, which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article II as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of any of its responsibilities or liabilities
hereunder.
L. Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section
17A of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities Systems" in accordance with
applicable Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the
Custodian in the Securities System which shall not
include any assets of the Custodian other than assets
held as a fiduciary, custodian, or otherwise for
customers.
2) The records of the Custodian with respect to
securities of the Fund which are maintained in a
Securities System shall identify by book-entry those
securities belonging to the Fund.
3) The Custodian shall pay for securities purchased for
the account of the Fund upon (i) receipt of advice
from the Securities System that such securities have
been transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to
reflect such payment and transfer for the account of
the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon (i) receipt of
advice from the Securities System that payment for
such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from
the Securities System of transfers of securities for
9
<PAGE>
the account of the Fund shall identify the Fund, be
maintained for the Fund by the Custodian and be
provided to the Fund at its request. The Custodian
shall furnish the Fund confirmation of each transfer
to or from the account of the Fund in the form of a
written advice or notice and shall furnish to the
Fund copies of daily transaction sheets reflecting
each day's transactions in the Securities System for
the account of the Fund on the next business day.
4) The Custodian shall provide the Fund with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in
the Securities System.
5) The Custodian shall have received the initial or
annual certificate, as the case may be, required by
Article IX hereof.
6) Anything to the contrary in this Contract
not-withstanding, the Custodian shall be liable to
the Fund for any loss or damage to the Fund resulting
from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or
their employees or from any failure of the Custodian
or any such agent to enforce effectively such rights
as it may have against the Securities system; at the
election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with
respect to any claim against the Securities System or
any other person which the Custodian may have as a
consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any
such loss or damage.
L.1 "Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
deposit and/or maintain securities owned by the Fund for which the custodian
acts as issuing and paying agent for the direct issue of commercial paper by and
for issuers through the Custodian's book-entry system, referred to herein as the
"Direct Paper System", subject to the following provisions:
1) No transaction relating to securities in the Direct
Paper System will be effected in the absence of
Proper Instructions;
2) The Custodian may keep securities of the Fund in the
Direct Paper System only if such securities are
10
<PAGE>
represented in an account ("Account") of the
Custodian in the Direct Paper System which shall not
include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for
customers;
3) The records of the Custodian with respect to
securities of the Fund which are maintained in the
Direct Paper System shall identify by Portfolio by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for
the account of the Fund upon the making of an entry
on the records of the Custodian to reflect such
payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities
sold for the account of the Fund upon the making of
an entry on the records of the
Custodian to reflect such transfer and receipt of
payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of
each transfer to or from the account of the Fund, in
the form of a written advice or notice, of Direct
Paper on the next business day following such
transfer and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's
transactions in the Direct Paper System for the
account of the Fund; and
6) The Custodian shall provide the Fund with any report
on its system of internal accounting control
regarding the Direct Paper System as the Fund may
reasonably request from time to time."
M. Segregated Account. The Custodian shall upon receipt of proper
instructions, which may be standing instructions, establish and
maintain a segregated account or accounts for and on behalf of the
Fund, into which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by the
Custodian pursuant to Section L hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities exchange
(or the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
11
<PAGE>
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the
Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to proper instructions, a certified copy of a resolution of
the Directors or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
N. Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all U.S. federal
and state tax purposes in connection with receipt of income or other
payments with respect to securities of the Fund held by it and in
connection with transfers of securities.
O. Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of
such securities, if the securities are registered otherwise than in the
name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
material and all notices to such securities.
P. Communications Relating to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Fund all written information (including,
without limitation, pendency of calls and maturities of securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the Custodian from
issuers of the securities being held for the Fund or from any foreign
sub-custodians employed pursuant to Section Q hereof. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Fund all written information received by the Custodian (or received by
any foreign sub-custodian and transmitted to the Custodian) from
issuers of the securities whose tender or exchange is sought and from
the party (or his agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Fund shall notify the
Custodian at least three business days (five days in the case of
12
<PAGE>
foreign securities) prior to the date on which the Custodian is to take
such action.
Q. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
1) Appointment of Foreign Sub-Custodian. The Custodian is
authorized and instructed to employ as sub-custodians for the
Fund's securities and other assets maintained outside of the
United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto
("foreign sub-custodians"). Upon receipt of Proper
Instructions, together with a certified resolution of the
Fund's Board of Directors, the Custodian and the Fund may
agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodians. Upon receipt
of Proper Instructions from the Fund the Custodian shall cease
the employment of anyone or more of such sub-custodians for
maintaining custody of the Fund's assets.
2) Assets to be Held. The Custodian shall limit the securities
and other assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities," as defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company
Act of 1940, and (b) cash and cash equivalents in such amounts
as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities
transactions.
3) Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Custodian and the Fund, assets
of the Fund shall be maintained in foreign securities
depositories only through arrangements implemented by the
foreign banking institutions serving as sub-custodians
pursuant to the terms hereof.
4) Segregation of Securities. The Custodian shall identify on its
books as belonging to the Fund, the foreign securities of the
Fund held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a
custody account for the Custodian on behalf of the Fund and
physically segregate in that account, securities and other
assets of the Fund, and, in the event that such institution
deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging
to the Custodian, as agent for the Fund, the securities so
deposited (all collectively referred to as the "Account").
13
<PAGE>
5) Agreements with Foreign Banking Institutions. Each agreement
with a foreign banking institution shall be substantially in
the form set forth in Exhibit 1 hereto and shall provide that:
(a) the Fund's assets will not be subject to any right,
charge, security interest, lien or claim of any kind in favor
of the foreign banking institution or its creditors, except a
claim of payment for their safe custody or administration; (b)
beneficial ownership for the Fund's assets will be freely
transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to the Fund;
(d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent
permitted under applicable law the independent public
accountants for the Fund, will be given access to the books
and records of the foreign banking institution relating to its
actions under its agreement with the Custodian; and (e) assets
of the Fund held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
6) Access of Independent Accountants of the Fund. Upon request by
the Fund, the Custodian will use its best efforts to arrange
for the independent accountants of the Fund to be afforded
access to the books and records of any foreign banking
institution employed as a foreign sub-custodian insofar as
such books and records relate to the performance of such
foreign banking institution under its agreement with the
Custodian.
7) Reports by Custodian. The Custodian will supply to the Fund
from time to time, as mutually agreed upon, statements in
respect of the securities and other assets of the Fund held by
foreign sub-custodians, including but not limited to an
identification of entities having possession of the Fund's
securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian
on behalf of the Fund indicating, as to securities acquired
for the Fund, the identity of the entity having physical
possession of such securities.
8) Transactions in Foreign Custody Account.
(a) Upon receipt of Proper Instructions, which may be
continuing instructions, when deemed appropriate by
the parties, the Custodian shall make or cause its
foreign sub-custodian to transfer, exchange or
deliver foreign securities owned by the Fund, but
except to the extent explicitly provided herein, only
14
<PAGE>
in any of the cases specified in Section B hereof.
(b) Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by
the parties the Custodian shall pay out or cause its
foreign sub-custodians to pay out monies of the fund,
but except to the extent explicitly provided herein,
only in any of the cases specified in Section H
hereof.
(c) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities
received for the account of the Fund and delivery of
securities maintained for the account of the Fund may
be effected in accordance with the customary or
established securities trading or securities
processing practices and procedures in the
jurisdiction or market in which the transaction
occurred, including, without limitation, delivering
securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving
later payment for such securities from such purchaser
or dealer.
(d) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such
entity's nominee to the same extent as set forth in
Section C hereof and the fund agrees to hold any such
nominee harmless from any liability as a holder of
record of such securities.
9) Liability of Foreign Sub-Custodians. Each agreement pursuant
to which the Custodian employs a foreign banking institution
as a foreign sub-custodian shall require the institution to
exercise reasonable care in the performance of its duties and
to indemnify, and hold harmless, the Custodian and Fund from
and against any loss, damage, cost, expense, liability or
claim arising out of or in connection with such institution's
performance of such obligations. At the election of the Fund,
it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund
has not been made whole for any such loss, damage, cost
expense, liability or claim.
10) Liability of Custodian. The Custodian shall be liable for the
acts or omissions of a foreign banking institution to the same
extent as set forth with respect to sub-custodians generally
15
<PAGE>
in Article I hereof and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph (12) hereof, the Custodian shall not
be liable for any loss, damage, cost, expense, liability or
claim resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign country including,
but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or
terrorism.
11) Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June, information
concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope
to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the custodian will
promptly inform the Fund in the event that the Custodian
learns of a material adverse change in the financial condition
of a foreign sub-custodian or is notified by a foreign banking
institution employed as a foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders'
equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in
accordance with generally accepted U.S. accounting
principles).
12) Branches of U.S. Banks. Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the
custody of the Fund assets is maintained in a foreign branch
of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 and
which meets the qualification set forth in Section 26 (a) of
said Act. The appointment of any such branch as a
sub-custodian shall be governed by Article I of this Contract.
R. Proper Instructions. "Proper instructions" as used throughout this
Article II means a writing signed or initialled by one or more person
or persons as the Directors shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be considered
proper instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. Upon receipt of a certificate
16
<PAGE>
of the Secretary or an Assistant Secretary as to the authorization by
the Directors of the Fund accompanied by a detailed description of
procedures approved by the Board of Directors, "proper instructions"
may include communications effected directly between electro-mechanical
or electronic devices provided that the Board of Directors and the
Custodian are satisfied that such procedures afford adequate safeguards
for the Fund's assets.
S. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses
of handling securities or other similar items
relating to its duties under this contract, provided
that all such payments shall be accounted for to the
Fund;
2) surrender securities in temporary form for securities
in definitive form;
3) endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details
in connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the
securities and property of the Fund except as
otherwise directed by the Board of Directors of the
Fund.
T. Evidence of Authority. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other
instrument, or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of Directors
of the fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors pursuant to the Charter as
described in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written notice to
the contrary.
III. Duties of Custodian with Respect to Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Directors of the Fund to keep the books
17
<PAGE>
of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. The Custodian shall also upon request calculate the net income of the
fund and, if instructed in writing by an officer of the fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the income of the Fund shall be made at the time or times described from time to
time in the Fund's currently effective prospectus.
IV. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, as amended,
with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable federal and state tax laws and any other law or
administrative rules or procedures which may be applicable to the Fund. All such
records shall be the property of the Fund and shall at all times during the
regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by the Fund and
held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
V. Opinion of Fund's Independent Accountant
the Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other
periodic reports to the Securities and Exchange Commission and with respect to
any other requirements of such Commission.
VI. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the custodian under this Contract; such reports, which
shall be of sufficient scope and in sufficient detail, as may reasonably be
18
<PAGE>
required by the Fund, to provide reasonable assurance that any material
inadequacies would be disclosed, shall state in detail material inadequacies
disclosed by such examination, and, if there are no such inadequacies, shall so
state.
VII. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
VIII. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article II, Section
P hereof to the same extent as set forth in Article I hereof with respect to
sub-custodians located in the United States and, regardless of whether assets
are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by Article II,
Section P, paragraph 12 hereof, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from, or caused by, the
direction of or authorization by the Fund to maintain custody of any securities
or cash of the Fund in a foreign country including, but not limited to, losses
resulting from nationalization, expropriation, currency restrictions, or acts of
war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
19
<PAGE>
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian to advance cash or securities for
any purpose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the Fund
assets to the extent necessary to obtain reimbursement.
IX. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement to the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that the Custodian shall not act under Section II.L. hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Directors of the Fund has approved the initial use
of a particular Securities System and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Directors has reviewed
the use by the Fund of such Securities System, as required in each case by Rule
17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not act under Section II.L.1 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors has approved the initial use of the Direct Paper System and the
receipt of an annual certificate of the Secretary or an Assistant Secretary that
the Board of Directors has reviewed the use by the Fund of the Direct Paper
System; provided further, however, that the Fund shall not amend or terminate
this Contract in contravention of any applicable federal or state regulations,
or any provision of the Declaration of Trust, and further provided, that the
Fund may at any time by action of its Board of Directors (i) substitute another
bank or trust company for the Custodian by giving notice as described above to
the Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency, the Federal Deposit Insurance Corporation or the Commissioner of
Banks for the Commonwealth of Massachusetts or upon the happening of a like
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event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
X. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors
of the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian such securities,
funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940, as
amended, doing business in Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of vote referred to or of the
Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
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XI. Special Provisions Concerning Repurchase Agreements
Notwithstanding anything to the contrary in this Agreement, upon
receipt of proper instructions, which may be standing instructions, in
connection with repurchase agreements, the Custodian shall transmit, prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Fund's custodian account to a special custodian approved by the Board of
Directors of the Fund, which funds shall be used to pay for securities to be
purchased by the Fund subject to the Fund's obligation to sell and the seller's
obligation to repurchase such securities. In such a case, the securities shall
be held in the custody of the special custodian.
XII. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Charter or the By-Laws of the Fund. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an amendment of
this Contract.
XIII.Directors
All references to actions of or by Directors herein shall require
action by such Directors acting as a board or formally constituted group and not
individually.
XIV. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
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IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 23rd day of August, 1991.
SEAL SCUDDER MUTUAL FUNDS, INC.
By /s/David S. Lee
--------------------------
David S. Lee, Vice President
SEAL STATE STREET BANK AND TRUST COMPANY
By /s/T. B. Hagerty
-------------------
Its Vice President
--------------------------
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Scudder Mutual Funds, Inc.
Exhibit B
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of Scudder Mutual
Funds, Inc. for use as sub-custodians for the Fund's securities and other
assets.
BANK COUNTRY
- ---- -------
ANZ Banking Group Ltd. Australia
Canada Trust Company Canada
State Street London Limited United Kingdom
DEPOSITORY COUNTRY
- ---------- -------
EUROCLEAR Transnational
CEDEL S.A. Transnational
Approved:
/s/David S. Lee
- ------------
Fund's Authorized Officer
Dated: June 26, 1991
-------------
