SCUDDER
Supplement to Prospectuses
Prospectus dated August 1, 1994 As Revised November 1, 1994
Scudder International Fund
Prospectuses dated November 1, 1994
Scudder Development Fund
Scudder Global Fund
Scudder Gold Fund
Prospectus dated February 1, 1995
Scudder Value Fund
Prospectuses dated March 1, 1995
Scudder Emerging Markets Income Fund
Scudder Global Small Company Fund
Scudder Greater Europe Growth Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Prospectuses dated May 1, 1995
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder Income Fund
Scudder Zero Coupon 2000 Fund
The following text replaces the section entitled "By telephone order."
By telephone order. Existing shareholders may purchase shares at a certain
day's price by calling 1-800-225-5163 before the close of regular trading
on the New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern
time, on that day. Orders must be for $10,000 or more and cannot be for an
amount greater than four times the value of your account at the time the
order is placed. You must include with your payment the order number given
at the time the order is placed. A confirmation with complete purchase
information is sent shortly after your order is received. If payment by
check or wire is not received within three business days, the order is
subject to cancelation and the shareholder will be responsible for any loss
to the Fund resulting from this cancelation. Telephone orders are not
available for shares held in Scudder IRA accounts and most other Scudder
retirement plan accounts.
June 7, 1995 PS999-2A-65
SFD99SU1
MIST3PS
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SCUDDER
June 7, 1995
Dear Scudder Investor,
The prospectus supplement on the reverse side is formal notice of a change in
Scudder's policy concerning the purchase of shares by telephone order. Investors
who purchase shares by telephone will now have three business days to pay for a
purchase, instead of the previous time limit of seven business days.
This new deadline is part of a new securities industry standard that mandates
settlement of all securities trades within three business days. The Securities
and Exchange Commission implemented this new deadline, called "T+3," to enhance
the stability of U.S. financial markets by reducing the amount of outstanding
debt among financial firms due to transaction activity.
If you have any questions about these changes, or about your Scudder Fund,
please call us at 1-800-225-2470. We will be happy to assist you.
Sincerely,
/s/David S. Lee
David S. Lee
President, Scudder Investor Services, Inc.
This letter is for explanatory purposes and is not part of the prospectus
supplement on the reverse side.
(over, please)
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Supplement to Statement of Additional Information dated March 1, 1995
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
The following text replaces the paragraph under "PURCHASES - 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 each 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
cancelation. In the event of such cancelation or cancelation at the purchaser's
request, the purchaser will be responsible for any loss incurred by a Fund or
the principal underwriter by reason of such cancelation. 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 relevant
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 relevant Fund.
June 7, 1995
<PAGE>
Supplement to Statement of Additional Information dated August 1, 1994
Scudder International Fund
Supplement to Statement of Additional Information dated October 10, 1994
Scudder Greater Europe Growth Fund
The following text replaces the paragraph under "PURCHASES - 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 members of the NASD, by banks, and by established
shareholders (except by Scudder Individual Retirement Account (IRA), Scudder
Horizon Plan, Scudder Profit Sharing and Money Purchase Pension Plans, and
Scudder 401(k) and Scudder 403(b) Plan holders). 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 cancelation. In the event of such cancelation or
cancelation 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
cancelation. 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.
June 7, 1995
<PAGE>
SCUDDER INTERNATIONAL FUND
A Pure No-Load(TM) (No Sales Charges) Mutual Fund Seeking
Long-Term Growth of Capital Primarily
From Foreign Equity Securities
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STATEMENT OF ADDITIONAL INFORMATION
August 1, 1994
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder International Fund dated
August 1, 1994, 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.
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TABLE OF CONTENTS
Page
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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Risk Factors.................................................................................................2
Repurchase Agreements.......................................................................................11
Investment Restrictions.....................................................................................12
PURCHASES............................................................................................................14
Additional Information About Opening An Account.............................................................14
Additional Information About Making Subsequent Investments..................................................14
Checks......................................................................................................14
Wire Transfer of Federal Funds..............................................................................15
Share Price.................................................................................................15
Share Certificates..........................................................................................15
Other Information...........................................................................................15
EXCHANGES AND REDEMPTIONS............................................................................................16
Exchanges...................................................................................................16
Redemption By Telephone.....................................................................................17
Redemption by Mail or Fax...................................................................................17
Redemption-in-Kind..........................................................................................18
Other Information...........................................................................................18
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................19
The Pure No-Load(TM) Concept................................................................................19
Dividend Reinvestment Plan..................................................................................20
Diversification.............................................................................................20
Scudder Funds Centers.......................................................................................20
Reports to Shareholders.....................................................................................20
Transaction Summaries.......................................................................................21
THE SCUDDER FAMILY OF FUNDS..........................................................................................21
SPECIAL PLAN ACCOUNTS................................................................................................24
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals.............................................................24
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals..............................................................................25
Scudder IRA: Individual Retirement Account.................................................................25
Scudder 403(b) Plan.........................................................................................26
Automatic Withdrawal Plan...................................................................................26
Group or Salary Deduction Plan..............................................................................26
Automatic Investment Plan...................................................................................27
Uniform Transfers/Gifts to Minors Act.......................................................................27
Scudder Trust Company.......................................................................................27
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................27
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TABLE OF CONTENTS (continued)
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PERFORMANCE INFORMATION..............................................................................................28
Average Annual Total Return.................................................................................28
Cumulative Total Return.....................................................................................29
Total Return................................................................................................29
Capital Change..............................................................................................29
Comparison of Fund Performance..............................................................................29
FUND ORGANIZATION....................................................................................................33
INVESTMENT ADVISER...................................................................................................34
DIRECTORS AND OFFICERS...............................................................................................37
REMUNERATION.........................................................................................................40
DISTRIBUTOR..........................................................................................................41
TAXES................................................................................................................42
PORTFOLIO TRANSACTIONS...............................................................................................45
Brokerage...................................................................................................45
Portfolio Turnover..........................................................................................46
NET ASSET VALUE......................................................................................................46
ADDITIONAL INFORMATION...............................................................................................47
Experts.....................................................................................................47
Other Information...........................................................................................48
FINANCIAL STATEMENTS.................................................................................................48
APPENDIX
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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies" and "Additional
information about policies and investments" in the Fund's prospectus.)
Scudder International Fund (the "Fund"), a series of Scudder
International Fund, Inc. (the "Corporation"), is a pure no-load(TM), open-end
management investment company which continuously offers and redeems its shares
at net asset value. It is a company of the type commonly known as a mutual fund.
The Fund is a diversified series of the Corporation.
General Investment Objective and Policies
The Fund's investment objective is to seek long-term growth of capital
primarily through a diversified portfolio of marketable foreign equity
securities selected primarily to permit the Fund to participate in non-U.S.
companies and economies with prospects for growth.
To the extent consistent with the Fund's objective of long-term growth
of capital, as described in the preceding paragraph, it is the policy of the
Fund to provide shareholders with participation in the economies of a number of
countries other than the U.S. The Fund may purchase securities of companies,
wherever organized, which, in the judgment of the Fund's investment adviser,
Scudder, Stevens & Clark, Inc. (the "Adviser"), have their principal activities
and interests outside of the U.S.
The Fund intends to diversify investments among several countries and
to have represented in the portfolio, in substantial proportions, business
activities in not less than three different countries. The Fund may invest in
securities of companies incorporated in the U.S. and having their principal
activities and interests outside of the U.S.
The Fund may utilize other investment strategies, and may also, for
hedging purposes, purchase foreign currencies in the form of bank deposits as
well as other foreign money market instruments, including but not limited to,
bankers' acceptances, certificates of deposit, commercial paper, short-term
government and corporate obligations and repurchase agreements.
Except as otherwise noted, the Fund's investment objective and policies
may be changed by a vote of the Board of Directors without a shareholder vote.
Achievement of the Fund's investment objective cannot be assured.
The major portion of the Fund's assets consists of equity securities of
established companies listed on recognized exchanges; the Adviser expects this
condition to continue, although the Fund may invest in other securities. Up to
20% of the total assets of the Fund may be invested in debt securities of
foreign governments, supranational organizations and private issuers, including
bonds denominated in the European Currency Unit (ECU). In determining the
location of the principal activities and interests of a company, the Adviser
takes into account such factors as the location of the company's assets,
personnel, sales and earnings. In selecting securities for the Fund's portfolio,
the Adviser seeks to identify companies whose securities prices do not
adequately reflect their established positions in their fields. In analyzing
companies for investment, the Adviser ordinarily looks for one or more of the
following characteristics: above-average earnings growth per share, high return
on invested capital, healthy balance sheets and overall financial strength,
strong competitive advantages, strength of management and general operating
characteristics which will enable the companies to compete successfully in the
marketplace. Investment decisions are made without regard to arbitrary criteria
as to minimum asset size, debt-equity ratios or dividend history of portfolio
companies.
The Fund may invest in any type of security including, but not limited
to shares, preferred or common; bonds and other evidences of indebtedness; and
other securities of issuers wherever organized, and not excluding evidences of
indebtedness of governments and their political subdivisions. The Fund, in view
of its investment objective, intends under normal conditions to maintain a
portfolio consisting primarily of a diversified list of equity securities.
<PAGE>
Under exceptional economic or market conditions abroad, the Fund may,
for temporary defensive purposes, until normal conditions return, invest all or
a major portion of its assets in Canadian or U.S. Government obligations or
currencies, or securities of companies incorporated in and having their
principal activities in such countries.
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.")
From time to time, the Fund may be a purchaser of restricted debt or
equity securities (i.e., securities which may require registration under the
Securities Act of 1933, or an exemption therefrom, in order to be sold in the
ordinary course of business) in a private placement. The Fund has undertaken not
to purchase or acquire any such securities if, solely as a result of such
purchase or acquisition, more than 5% of the value of the Fund's total assets
would be invested in restricted securities (securities subject to legal
restrictions on resales to institutions, or contractual restrictions on resale)
and more than 10% of its net assets would be invested in securities that are not
readily marketable.
Risk Factors
Foreign Securities. The Fund is intended to provide individual and institutional
investors with an opportunity to invest a portion of their assets in a
diversified group of securities of companies, wherever organized, which do
business primarily outside the U.S., and foreign governments. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future. Because of the
Fund's investment policy, the Fund is not intended to provide a complete
investment program for an investor.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for the Fund's agents to keep currently informed
about corporate actions 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.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The management of the Fund seeks to mitigate the risks
associated with the foregoing considerations through continuous professional
management.
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<PAGE>
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
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
entering into options or forward or futures contracts to purchase or sell
foreign currencies.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital growth, the Fund may
invest up to 20% of its total assets in debt securities including bonds of
foreign governments, supranational organizations and private issuers, including
bonds denominated in the ECU. Portfolio debt investments will be selected on the
basis of, among other things, yield, credit quality, and the fundamental
outlooks for currency and interest rate trends in different parts of the globe,
taking into account the ability to hedge a degree of currency or local bond
price risk. The Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's) or AAA,
AA, A or BBB by Standard & Poor's Corporation ("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.
High Yield/High Risk Bonds. The Fund may also purchase, to a limited extent,
debt securities which are rated below investment-grade, that is, rated below Baa
by Moody's or below BBB by S&P and unrated securities, which usually entail
greater risk (including the possibility of default or bankruptcy of the issuers
of such securities), generally involve greater volatility of price and risk of
principal and income, and may be less liquid, than securities in the higher
rating categories. The lower the ratings of such debt securities, the greater
their risks render them like equity securities. The Fund will invest no more
than 5% of its total assets in securities rated BB or lower by Moody's or Ba by
S&P, and may invest in securities which are rated D by S&P. Securities rated D
may be in default with respect to payment of principal or interest. See the
Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.
An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect the Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Fund to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
3
<PAGE>
Credit quality in the high-yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
On average, for the fiscal year ended March 31, 1994, the Fund's
holdings in debt securities rated below investment grade by one or more
nationally recognized rating services, or judged by the Adviser to be of
equivalent quality to the established categories of such rating services
comprised less than 5% of the Fund's total assets. For more information
regarding tax issues related to high yield securities, see "TAXES."
Strategic Transactions. 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. Such strategies are generally accepted as modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used 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 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 financial futures and options
thereon will be purchased, sold or entered into only for bona fide hedging, risk
management or portfolio management purposes and not for speculative purposes.
Strategic Transactions 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
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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 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
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<PAGE>
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.
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, foreign sovereign
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debt, 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 financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, 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 financial 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 financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
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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 of
which have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from a NRSRO or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Adviser.
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 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 forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Adviser considers that the Austrian schilling is
linked 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 contract 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 linkage between various currencies
may not be present or may not be present during the particular time that the
Fund is engaging in proxy hedging. If the Fund enters into a currency hedging
transaction, the Fund will comply with the asset segregation requirements
described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
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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.
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
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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 liquid high
grade 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 high grade 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 liquid
high-grade securities 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
liquid high grade 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 liquid, high grade 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 securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade 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 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, and the Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating 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 assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
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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 high grade
securities 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 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,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code for
qualification as a regulated investment company. (See "TAXES.")
Repurchase Agreements
The Fund may enter into repurchase agreements with any member bank of
the Federal Reserve System and any broker-dealer which is recognized as a
reporting government securities dealer if the creditworthiness of the bank or
broker-dealer has been determined by the Adviser to be at least as high as that
of other obligations the Fund may purchase or to be at least equal to that of
issuers of commercial paper rated within the two highest grades assigned by
Moody's or S&P.
A repurchase agreement provides a means for 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 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 upon 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 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 risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt instrument 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, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. However, if the
market value of the Obligation subject to the repurchase agreement becomes less
than the repurchase price (including interest), 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
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repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
Investment Restrictions
The policies set forth below are fundamental policies of the Fund and
may not be changed without the approval of a majority of the Fund's outstanding
shares. As used in this Statement of Additional Information, a "majority of the
outstanding voting securities of the Fund" means the lesser of (1) 67% or more
of the voting securities present at such meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy; or (2) more than 50% of the outstanding voting securities of the Fund.
The Fund may not:
(1) with respect to 75% of its total assets, taken at market
value, purchase more than 10% of the voting securities of any
one issuer, or invest more than 5% of the value of its total
assets in the securities of any one issuer, except obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and except securities of other investment
companies;
(2) borrow money, except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset
coverage of 300% for all borrowings;
(3) act as an underwriter of securities issued by others,
except to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of
the Fund;
(4) make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objectives and investment policies may be
deemed to be loans;
(5) purchase or sell real estate (except that the Fund may invest
in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and 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); and
(6) purchase or sell physical commodities or contracts
relating to physical commodities.
The Fund will not as a matter of nonfundamental policy:
(a) purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets
in another investment company, and may not invest more than
10% of its assets in other investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer, director or trustee of the Fund or a member, officer,
director or trustee of the investment adviser of the Fund if
one or more of such individuals owns beneficially more than
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one-half of one percent (1/2%) of the outstanding shares or
securities or both (taken at market value) of such issuer and
such individuals owning more than one-half of one percent
(1/2%) of such shares or securities together own beneficially
more than 5% of such shares or securities or both;
(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with
arbitrage transactions and except that the Fund may obtain
such short-term credits as may be necessary for the clearance
of purchases and sales of securities;
(e) invest more than 10% of its net assets in securities which are
not readily marketable, the disposition of which is restricted
under Federal securities laws, or in repurchase agreements not
terminable within 7 days, and the Fund will not invest more
than 5% of its total assets in restricted securities;
(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors, and
in equity securities which are not readily marketable except
U.S. Government securities, and obligations issued or
guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the
investments of the Fund in all such issuers to exceed 5% of
the total assets of the Fund taken at market value;
(g) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of its net assets; or sell put
options on securities if, as a result, the aggregate value of
the obligations underlying such put options would exceed 50%
of the Fund's net assets;
(h) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
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;
(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);
(j) borrow money in excess of 5% of its total assets (taken at
market value) except for temporary or emergency purposes or
borrow other than from banks;
(k) purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of the Fund's total net assets or more than 2% of its
net assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);
(l) invest more than 20% of its total assets in debt securities
(including convertible securities) or more than 5% of its
total assets in securities rated BB/Ba or below by Moody's or
S&P or the equivalent;
(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time the loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily. The Fund
has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Fund's
total assets; or
(n) purchase or sell real estate limited partnership interests.
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<PAGE>
In addition to the foregoing restrictions, it is not the policy of the
Fund to concentrate its investments in any particular industry and the Fund's
management does not intend to make acquisitions in particular industries which
would increase the percentage of the market value of the Fund's assets above 25%
for any one industry. The Fund may not deviate from such policy without a vote
of a majority of the outstanding shares as provided by the 1940 Act.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Fund.
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 $1,000 of Fund
shares through Scudder Investor Services, Inc. by letter, telegram, fax, TWX, or
telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. 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 ($1,000 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification number or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to State Street Bank, Attention: The Scudder Funds, State Street Bank
and Trust Company, Boston, MA 02101, ABA Number 011000028, DDA Account
9903-5552. The investor must give the Scudder fund name, account name and the
new account number. Finally, the investor must send a completed and signed
application to the Fund promptly.
The minimum initial purchase amount is less than $1,000 under certain
special plan accounts.
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, telegram, etc. by established shareholders (except by Scudder
Individual Retirement Account (IRA), Scudder pension and profit sharing, 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 Scudder Investor Services, Inc.
office listed in the Fund's prospectus. A two-part invoice of the purchase will
be mailed out promptly following receipt of a request to buy. Payment should be
attached to a copy of the invoice for proper identification. Federal regulations
require that payment be received within seven (7) business days. If payment is
not received within that time, the shares may be canceled. In the event of such
cancellation or cancellation at the purchaser's request, the purchaser will be
responsible for any loss incurred by the Fund or the principal underwriter by
reason of such cancellation. If the purchaser is a shareholder, the Fund shall
have the authority, as agent of the shareholder, to redeem shares in the account
in order to reimburse the Fund or the principal underwriter for the loss
incurred. Net losses on such transactions which are not recovered from the
purchaser will be absorbed by the principal underwriter. Any net profit on the
liquidation of unpaid shares will accrue to the Fund.
14
<PAGE>
Checks
A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.
If shares of a Fund are purchased by a check which proves to be
uncollectible, the Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Fund shall have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. 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 New York Stock Exchange ("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 regular close
of trading on the Exchange (normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Fund pays a fee for receipt by the Custodian of
"wired funds," but the right to charge investors for this service is reserved.
Boston banks are presently closed on certain holidays although the
Exchange may be open. These holidays are Martin Luther King, Jr. Day (the 3rd
Monday in January), 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 purchase order in good order. Net asset value
normally will be computed as of the close of regular trading on each day the
Exchange is open for trading. Orders received after the close of regular trading
on the Exchange will be executed at the next business day's net asset value. If
the order has been placed by a member of the NASD, other than Scudder Investor
Services, Inc., it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") in Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Fund's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Fund's
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
If purchases or redemptions of Fund shares are arranged and settlement
is made at an investor's election through a member of the NASD, other than
Scudder Investor Services, Inc., that member may, at its discretion, charge a
fee for that service.
The Board of Directors of the Fund and Scudder Investor Services, Inc.,
the Fund's principal underwriter, each has the right to limit 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.
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<PAGE>
The "Tax Identification Number" section of the Application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations a certification of exempt status), may be
returned to the investor if a correct, certified tax identification number and
certain other required certificates are not supplied.
The Fund 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 $1,000. 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 an original signature guarantee as described
under "Transaction Information--Redeeming shares--Signature guarantees" 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 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.
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, the Fund 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.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
16
<PAGE>
Redemption By Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $50,000 to their address of record.
Shareholders may also request by telephone to have the proceeds mailed or wired
to their predesignated bank account. In order to request wire redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish the telephone redemption
privilege must complete the appropriate section on the
application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder pension and profit-sharing, Scudder 401(k) and
Scudder 403(b) Planholders) who wish to establish telephone
redemption to a predesignated bank account or who want to
change the bank account previously designated to receive
redemption proceeds should either return a Telephone
Redemption Option Form (available upon request), or send a
letter identifying the account and specifying the exact
information to be changed. The letter must be signed exactly
as the shareholder's name(s) appears on the account. An
original signature and an original signature guarantee are
required for each person in whose name the account is
registered.
If a request for a redemption to a shareholder's bank account is made
by telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
The 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 by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
any redemptions to ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, trust, fiduciary agent,
attorney or partnership, the Transfer Agent requires, in addition to the stock
17
<PAGE>
power, certified evidence of authority to sign. These procedures are for the
protection of shareholders and should be followed to ensure prompt payment.
Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption will be sent within seven (7) business days
after receipt by the Transfer Agent of a request for redemption that complies
with the above requirements. Delays of more than seven (7) days of payment for
shares tendered for repurchase or redemption may result, but only until the
purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Fund has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund at the beginning of the
period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, telegram, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order and any certificates with proper
original signature guarantee, as described in the Fund's prospectus under
"Transaction information--Redeeming shares--Signature guarantees", should be
sent with a copy of the invoice to Scudder Funds, c/o Scudder Confirmed
Processing, Two International Place, Boston, Massachusetts 02110-4103. Failure
to deliver shares or required documents (see above) by the settlement date may
result in cancellation of the trade and the shareholder will be responsible for
any loss incurred by the Fund or the principal underwriter by reason of such
cancellation. Net losses on such transactions which are not recovered from the
shareholder will be absorbed by the principal underwriter. Any net gains so
resulting will accrue to the Fund. For this group, repurchases will be carried
out at the net asset value next computed after such repurchase requests have
been received. The arrangements described in this paragraph for repurchasing
shares are discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account, the shareholder
receives in addition to the net asset value thereof, all declared but unpaid
dividends thereon. The value of shares redeemed or repurchased may be more or
less than the shareholder's cost depending on the net asset value at the time of
redemption or repurchase. The Fund does not impose a redemption or repurchase
charge, although a wire charge may be applicable for redemption proceeds wired
to an investor's bank account. Redemption of shares, including redemptions
undertaken to effect an exchange for shares of another Scudder fund, may result
in tax consequences (gain or loss) to the shareholder and the proceeds of such
redemptions may be subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee 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 therefore may be
suspended at times (a) during which the Exchange is closed, other than customary
weekend and holiday closings, (b) during which trading on the Exchange is
restricted for any reason, (c) during which an emergency exists as a result of
which disposal by 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) during which the Commission by order permits
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<PAGE>
a suspension of the right of redemption or a postponement of the date of payment
or of redemption; provided that applicable rules and regulations of the
Commission (or any succeeding governmental authority) shall govern as to whether
the conditions prescribed in (b), (c) or (d) exist.
If transactions at any time reduce a shareholder's account balance in
the Fund to below $1,000 in value, the Fund will notify the shareholder that,
unless the account balance is brought up to at least $1,000, the Fund will
redeem all shares and close the account by sending redemption proceeds to the
shareholder. The shareholder has sixty days to bring the account balance up to
$1,000 before any action will be taken by the Fund. (This policy applies to
accounts of new shareholders, but does not apply to certain Special Plan
Accounts.) The Directors have the authority to change the minimum account size.
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 funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder 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.
19
<PAGE>
<TABLE>
<CAPTION>
===================== -------------------- ------------------ ---------------------- ======================
Scudder No-Load Fund with
YEARS Pure No-Load(TM)Fund 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1 Fee
12b-1 Fee
===================== -------------------- ------------------ ---------------------- ======================
<S> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
===================== -------------------- ------------------ ---------------------- ======================
15 41,772 38,222 37,698 40,371
===================== ==================== ================== ====================== ======================
20 67,275 61,557 58,672 64,282
===================== ==================== ================== ====================== ======================
</TABLE>
Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Dividend Reinvestment Plan
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 may be given to the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
by calling 1-800-225-5163.
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 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.
Diversification
Your investment represents an interest in a large, diversified
portfolio of carefully selected securities. Diversification may protect you
against the possible risks associated with concentrating in fewer securities or
in a specific market section.
Scudder Funds Centers
Investors may visit any of the Centers maintained by Scudder Investor
Services, Inc. listed in the Fund's Prospectus. The Centers are designed to
provide individuals with services during any business day. Investors may pick up
literature or find 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 Fund issues to its shareholders audited semiannual financial
statements, including a list of investments held and statements of assets and
liabilities, operations, and changes in net assets and supplementary
information. The Fund presently intends to distribute to shareholders informal
20
<PAGE>
quarterly reports during the intervening quarters, containing a statement of the
investments of the Fund. Each distribution will be accompanied by a brief
explanation of the source of the distribution.
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.
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.
Initial purchases in each Scudder fund must be at least $1,000 or $500 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.
MONEY MARKET
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 through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
twenty-five months. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.
INCOME
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 in
emerging markets.
Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.
Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. 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 Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.
Scudder Short Term Global Income Fund seeks to provide high current
income from a portfolio of high-grade money market instruments and
short-term bonds denominated in foreign currencies and the U.S. dollar.
21
<PAGE>
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in investment-grade
municipal securities.
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 Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high quality.
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 by investing in high-grade municipal securities of
intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.
GROWTH
Scudder Capital Growth Fund seeks to maximize long-term growth of
capital through a broad and flexible investment program emphasizing
common stocks.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.
Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S. and
foreign issuers. Income is an incidental consideration.
Scudder Global Small Company 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 Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Quality 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 Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
Scudder Service Representative; easy telephone exchanges into Scudder money
market, tax free, income, and growth funds; shares redeemable at net asset value
at any time.
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. 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 IRA's 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
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IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "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 Code.
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 Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,250 for married couples if one spouse has earned income of no
more than $250). 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.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
25
<PAGE>
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.)
<TABLE>
<CAPTION>
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
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder 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
Code. In general, employees of tax-exempt organizations described in Section
501(c)(3) of the 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 who currently own or purchase $10,000
or more of shares of the Fund may establish an Automatic Withdrawal Plan. The
investor can then receive monthly, quarterly or periodic redemptions from his or
her account for any designated amount of $50 or more. Payments are mailed at the
end of each month. 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. Requests for increases in withdrawal amounts or to change 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 by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Corporation or its agent on written notice, and
will be terminated when all shares of 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.
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<PAGE>
The Corporation reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
Scudder Trust Company
Annual service fees are paid by the Fund to Scudder Trust Company, an
affiliate of the Adviser, for certain retirement plan accounts and are included
in the fees paid to the Transfer Agent.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See"Distribution and performance information -- Dividends and
capital gains distributions" in the Fund's prospectus.)
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Fund may be subject to that excise tax. (See "TAXES.") In certain
circumstances, the Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.
27
<PAGE>
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends paid deduction on its federal tax return.
The Fund intends to distribute its investment company taxable income
and any net realized capital gains in November or December to avoid federal
excise tax, although an additional distribution may be made within three months
of the Fund's fiscal year end (March 31), if necessary.
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 of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
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 will be calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years, and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial payment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Return for years ended March 31, 1994
One Year Five Years Ten Years
22.69% 9.76% 15.08%
28
<PAGE>
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the 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 finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P) -1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
Cumulative Total Return for years ended March 31, 1994
One Year Five Years Ten Years
22.69% 59.31% 307.19%
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.
Capital Change
Capital Change measures the return from invested capital including
reinvested capital gains distributions. Capital Change does not include the
reinvestment of income dividends.
Quotations of the Fund's performance are historical and are not
intended to indicate future performance. An investor's shares when redeemed may
be worth more or less than their original cost. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is 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, and statistics published by the Small
Business Administration.
29
<PAGE>
Because some or all of the Fund's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations. In addition, the Fund's performance may also be
compared to the performance of broad groups of comparable mutual funds. Indices
with which the Fund's performance may be compared include, but are not limited
to, the following:
The Europe/Australia/Far East (EAFE) Index
Morgan Stanley Capital International World Index
J.P. Morgan Global Traded Bond Index
Salomon Brothers World Government Bond Index
NASDAQ Composite Index
Wilshire 5000 Stock Index
Since the assets in funds are always changing, the Fund may be ranked
within one asset-size class at one time and in another asset-size class at some
other time. In addition, the independent organization ranking the Fund in Fund
literature may change from time to time depending upon the basis of the
independent organization's categorizations of mutual funds, changes in
investment policies and investments, the Fund's asset size and other factors
deemed relevant. Footnotes in advertisements and other marketing literature will
include the organization issuing the ranking, time period and asset-size class,
as applicable, for the ranking in question.
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 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.
30
<PAGE>
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 interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
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 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 may 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.
31
<PAGE>
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.
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's 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.
32
<PAGE>
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.
Smart Money, 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, the nation's number one daily newspaper.
U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
FUND ORGANIZATION
(See "Fund organization" in the Fund's prospectus.)
The Corporation was organized as Scudder Fund of Canada Ltd. in Canada
in 1953 by the investment management firm of Scudder, Stevens & Clark. On March
16, 1964, the name of the Corporation was changed to Scudder International
Investments Ltd. On July 31, 1975, the corporate domicile of the Corporation was
changed to the U.S. through the transfer of its net assets to a newly formed
Maryland corporation, Scudder International Fund, Inc., in exchange for shares
of the Corporation which then were distributed to the shareholders of the
Corporation.
The authorized capital stock of the Corporation consists of 300 million
shares of a par value of $.01 each--all of one class and all having equal rights
as to voting, redemption, dividends and liquidation. Shareholders have one vote
for each share held. The Corporation's capital stock is comprised of three
series: Scudder International Fund, the original series; Scudder Latin America
Fund, and Scudder Pacific Opportunities Fund, both organized in December 1992.
Each series consists of 100 million shares. The Directors have the authority to
issue additional series of shares and to designate the relative rights and
preferences as between the different series. All shares issued and outstanding
are fully paid and non-assessable, transferable, and redeemable at net asset
value at the option of the shareholder. Shares have no pre-emptive or conversion
rights.
The shares of the Corporation have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
33
<PAGE>
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with such a share of
the general liabilities of the Corporation. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Directors, in their discretion, may authorize the division of
shares of the Corporation (or shares of a series) into different classes
permitting shares of different classes to be distributed by different methods.
Although shareholders of different classes of a series would have an interest in
the same portfolio of assets, shareholders of different classes may bear
different expenses in connection with different methods of distribution. The
Directors have no present intention of taking the action necessary to effect the
division of shares into separate classes (which under present regulations would
require the Corporation first to obtain an exemptive order of the Commission)
nor of changing the method of distribution of shares of the Fund.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall be immune from liability for any action
taken by them in good faith, in a manner reasonably believed to be in the best
interests of the Corporation and with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In so acting, a
Director shall be fully protected in relying in good faith upon the records of
the Corporation and upon reports made to the Corporation by persons selected in
good faith by the Directors as qualified to make such reports. The Articles and
the By-Laws provide that the Corporation will indemnify its Directors, officers,
employees or agents against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Corporation consistent with applicable law. Nothing in the Articles or the
By-Laws protects or indemnifies a Director, officer, employee or agent against
any liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Fund's
prospectus.)
Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to the Fund. This organization is one of the most experienced
investment management 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
34
<PAGE>
the public. In 1953, the Adviser introduced the Fund, the first mutual fund
available in the U.S. investing internationally in securities of issuers in
several foreign countries.
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, Scudder
Development Fund, Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust,
Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Scudder Investment
Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia
Fund, Inc., Scudder New Europe Fund, Inc., 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, Scudder World Income Opportunities Fund,
Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian Fund,
Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The Latin America Dollar
Income 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 aggregating approximately $12 billion
and includes the AARP Growth Trust, AARP Income Trust, AARP Tax Free Income
Trust and AARP Cash Investment Funds.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The Investment Management Agreement (the "Agreement") dated December
14, 1990 was approved by the shareholders of the Fund on December 13, 1990, and
by the Directors of the Fund on September 7, 1993. The Agreement will continue
in effect until September 30, 1994 and from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Directors
who are not parties to such Agreement or interested persons of the Adviser or
the Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Fund'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
35
<PAGE>
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 Code and to the Fund's investment objective, policies and
restrictions, and subject, further, to such policies and instructions as the
Board of Directors of the Fund 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 a fee equal to 1% on the
first $200 million of average daily net assets, 0.90 of 1% on such assets in
excess of $200 million, 0.85 of 1% on such assets in excess of $400 million, and
0.80 of 1% on such assets in excess of $800 million, 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 March 31,
1994, 1993 and 1992 were $14,695,765, $9,050,383 and $8,380,806, 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; 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
custodian agreement provides that the custodian shall compute the net asset
value.
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.
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<PAGE>
The Agreement requires the Adviser to reimburse the Fund for all or a
portion of advances of its management fee to the extent annual expenses of the
Fund (including the management fee stated above) exceed the limitations
prescribed by any state in which such Fund's shares are offered for sale.
Management has been advised that, while most states have eliminated expense
limitations, the lowest of such limitations is presently 2 1/2% of average daily
net assets up to $30 million, 2% of the next $70 million of average daily net
assets and 1 1/2% of average daily net assets in excess of that amount. Certain
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitations. For the fiscal years ended March
31, 1994, 1993 and 1992 the Fund's ratio of operating expenses to average net
assets equaled 1.21%, 1.26% and 1.30%, respectively. Any such fee advance
required to be returned to the Fund will be returned as promptly as practicable
after the end of the Fund's fiscal year. However, no fee payment will be made to
the Adviser during any fiscal year which will cause year to date expenses to
exceed the cumulative pro rata expense limitations at the time of such payment.
The Agreement also provides that the Fund may use any name derived from
the name "Scudder, Stevens & Clark" only as long as the Agreement or any
extension, renewal or amendment thereof remains in effect.
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. Dechert Price & Rhoads acts as general counsel for the Fund.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
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.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Investor Services,
Name and Address Position with Fund Principal Occupation** Inc.
<S> <C> <C> <C>
Edmond D. Villani #@* Chairman of the Board President and Managing Director of --
and Director Scudder, Stevens & Clark, Inc.
Nicholas Bratt #* President and Director Managing Director of Scudder, --
Stevens & Clark, Inc.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Investor Services,
Name and Address Position with Fund Principal Occupation** Inc.
<S> <C> <C> <C>
Paul Bancroft III Director Venture Capitalist and Consultant; --
Cheston Lane Retired President, Chief Executive
Rt. 2 Box 314E Officer and Director, Bessemer
Queenstown, MD 21658 Securities Corporation
Thomas J. Devine Director Consultant --
641 Lexington Avenue
New York, NY 10022
William H. Gleysteen, Jr. Director President, The Japan Society, Inc. --
The Japan Society, Inc. (1989 to present);Vice President of
333 East 47th Street Studies, Council on Foreign
New York, NY 10017 Relations(1987-1989)
William H. Luers Director President, The Metropolitan Museum --
The Metropolitan of Art (1986 to present)
Museum of Art
1000 Fifth Avenue
New York, NY 10028
Wilson Nolen Director Consultant (1989 to present); --
1120 Fifth Avenue Corporate Vice President, Becton,
New York, NY 10128 Dickinson & Company (manufacturer
of medical and scientific products)
until 1989
Juris Padegs #@* Director, Vice Managing Director of Scudder, Vice President &
President and Stevens & Clark, Inc. Director
Assistant Secretary
Daniel Pierce +* Director Chairman of the Board and Managing Vice President,
Director of Scudder, Stevens & Director & Assistant
Clark, Inc. Treasurer
Gordon Shillinglaw Director Professor Emeritus of Accounting, --
196 Villard Avenue Columbia University Graduate School
Hastings-on-Hudson, NY 10706 of Business
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Investor Services,
Name and Address Position with Fund Principal Occupation** Inc.
<S> <C> <C> <C>
Robert G. Stone, Jr. Director Chairman of the Board and Director, --
405 Lexington Ave Kirby Corporation (inland and
New York, NY 10174 offshore marine transportation and
diesel repairs)
Robert W. Lear Honorary Director Executive-in-Residence, Visiting --
429 Silvermine Road Professor, Columbia University
New Canaan, CT 06840 Graduate School of Business
Carol L. Franklin # Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Edmund B. Games + Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Jerard K. Hartman # Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
William E. Holzer # Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Thomas W. Joseph + Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer &
Assistant Clerk
David S. Lee + Vice Presidentand Managing Director of Scudder, President, Assistant
Assistant Treasurer Stevens & Clark, Inc. Treasurer and Director
Thomas F. McDonough + Vice President and Principal of Scudder, Stevens & Clerk
Secretary Clark, Inc.
Pamela A. McGrath + Vice President and Principal of Scudder, Stevens & --
Treasurer Clark, Inc.
Edward J. O'Connell # Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Kathryn L. Quirk # Vice President and Managing Director of Scudder, Vice President
Assistant Secretary Stevens & Clark, Inc.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter, Scudder
Investor Services,
Name and Address Position with Fund Principal Occupation** Inc.
<S> <C> <C> <C>
William F. Truscott + Vice President Principal of Scudder, Stevens & --
Clark, Inc.
Richard W. Desmond # Assistant Secretary Vice President of Scudder, Stevens Vice President
& Clark, Inc.
Coleen Downs Dinneen + Assistant Secretary Vice President of Scudder, Stevens Assistant Clerk
& Clark, Inc.
</TABLE>
* Messrs. Villani, Bratt, Padegs and Pierce are considered by the Fund
and its counsel to be persons who are "interested persons" of the
Adviser or of the Fund within the meaning of the Investment Company Act
of 1940, as amended.
** Unless otherwise stated, all officers and directors have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
@ Messrs. Villani and Padegs are members of the Executive Committee which
may exercise substantially all of the powers of the Board of Directors
when it is not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154
As of June 30, 1994, all Directors and officers of the Fund as a group
owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act) less than 1% of the shares of the Fund outstanding on
such date.
As of June 30, 1994, 3,460,773 shares in the aggregate, 6.51% of the
outstanding shares of the Fund, were held in the name of Charles Schwab, c/o
Charles Schwab & Co., Inc., Attn: Mutual Fund Department, 101 Montgomery Street,
San Francisco, CA 94104-4122, who may be deemed to be the beneficial owner of
certain of these shares, but disclaims any beneficial ownership therein.
To the best of the Fund's knowledge, as of June 30, 1994 no person
owned beneficially (as so defined) more than 5% of the Fund's outstanding shares
except as stated above.
The Directors and officers of the Fund also serve in similar capacities
with other Scudder Funds.
REMUNERATION
Several of the officers and Directors of the Fund may be officers or
employees of the Adviser, Scudder Service Corporation, Scudder Trust Company or
of Scudder Investor Services, Inc. and participate in the fees paid by the Fund.
The Fund pays no direct remuneration to any officer of the Fund. However, each
of the Fund's Directors who is not affiliated with the Adviser will be paid by
the Fund. Each of these unaffiliated Directors receives an annual director's fee
of $4,000 from the Fund and fees of $400 for each attended Directors' meeting,
audit committee meeting or meeting held for the purpose of considering
arrangements between the Fund and the Adviser or any of its affiliates. Each
unaffiliated Director also receives $150 per committee meeting other than those
set forth above. For the fiscal year ended March 31, 1994 such fees totalled
$57,990.
40
<PAGE>
DISTRIBUTOR
The Corporation has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
wholly-owned subsidiary of the Adviser, a Delaware corporation. The
Corporation's underwriting agreement dated September 17, 1992 will remain in
effect until September 30, 1994 and from year to year thereafter only if its
continuance is approved annually by a majority of the members of the Board of
Directors who are not parties to such agreement or interested persons of any
such party and either by vote of a majority of the Board of Directors or a
majority of the outstanding voting securities of the Fund. The underwriting
agreement was last approved by the Directors on September 7, 1993.
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 Commission of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Fund as a broker or
dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor); notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both 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 Fund's
shares 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 expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
Note: Although the Fund does not currently have a 12b-1 Plan, and the
Directors have no current intention of adopting one, 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.
As agent, the Distributor currently offers shares of the Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
41
<PAGE>
TAXES
(See "Distribution and performance information -- Dividends and
capital gains distributions" and "Transaction information--Tax
information, Tax identification number" in the Fund's prospectus.)
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund. Presently, the
Fund has no capital loss carryforwards.
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. If the Fund makes such an
election, it may not be treated as having met the excise tax distribution
requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholders, as the case may be, for less than 46 days.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.
42
<PAGE>
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,000 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,000 and
$50,000; $25,000 for a single individual, with a phase-out for adjusted gross
income between $25,000 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and will be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code.
If the Fund does not make the election permitted under section 853 any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income. Absent this election, shareholders
will not be able to claim either a credit or a deduction for their pro rata
portion of such taxes paid by the Fund, nor will shareholders be required to
treat as part of the amounts distributed to them their pro rata portion of such
taxes paid.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be 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 the exercise of a put option, on the Fund's holding period for
43
<PAGE>
the underlying property. The purchase of a put option may constitute a short
sale for federal income tax purposes, causing an adjustment in the holding
period of any stock in the Fund's portfolio similar to the stocks on which the
index is based. If the Fund writes an option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as short-term capital gain or loss. If a call option is exercised, the
character of the gain or loss depends on the holding period of the underlying
stock.
Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term capital gain or loss, and 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 as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
Subchapter M of the Code requires the Fund to realize less than 30% of
its annual gross income from the sale or other disposition of stock, securities
and certain options, futures and forward contracts held for less than three
months. The Fund's options, futures and forward transactions may increase the
amount of gains realized by the Fund that are subject to this 30% limitation.
Accordingly, the amount of such transactions that the Fund may undertake may be
limited.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Proposed regulations have been issued which may allow the Fund to make
an election to mark to market its shares of these foreign investment companies
in lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, 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. No mark to market losses
44
<PAGE>
would be recognized. The effect of the election would be to treat excess
distributions and gain on dispositions as ordinary income which is not subject
to a fund level tax when distributed to shareholders as a dividend.
Alternatively, 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.
If the Fund invests in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from the Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
the Fund in a written notice to shareholders.
The Fund will be required to report to the Internal Revenue Service
("IRS") all distributions of investment company taxable income and capital gains
as well as gross proceeds from the redemption or exchange of Fund shares, except
in the case of certain exempt shareholders. Under the backup withholding
provisions of Section 3406 of the Code, distributions of investment company
taxable income and capital gains and proceeds from the redemption or exchange of
the shares of a regulated investment company may be subject to withholding of
federal income tax at the rate of 31% in the case of non-exempt shareholders who
fail to furnish the investment company with their taxpayer identification
numbers and with required certifications regarding their status under the
federal income tax law. Withholding may also be required if a Fund is notified
by the IRS or a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to report
interest or dividend income. If the withholding provisions are applicable, any
such distributions and proceeds, whether taken in cash or reinvested in
additional shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of 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 advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage
To the maximum extent feasible, the Adviser places orders for portfolio
transactions for the Fund through the Distributor which in turn places orders on
behalf of the Fund with issuers, underwriters or other brokers and dealers. The
Distributor receives no commissions, fees or other remuneration from the Fund
for this service. Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results taking into account such factors as price, commission where
applicable (negotiable in the case of U.S. national securities exchange
transactions but generally fixed in the case of foreign exchange transactions)
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
45
<PAGE>
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.
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
brokers and dealers who supply market quotations to the Custodian for appraisal
purposes, or 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, and 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 not authorized when placing portfolio transactions
for the Fund to pay a brokerage commission (to the extent applicable) in excess
of that which another broker might have charged for executing the same
transaction solely on account of the receipt of research, market or statistical
information. The Adviser will not place orders with brokers or dealers on the
basis that the broker or dealer has or has not sold shares of the Fund. Except
for implementing the policy stated above, there is no intention to place
portfolio transactions with particular brokers or dealers or groups thereof. 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 otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Adviser, it is the
opinion of the Adviser that such information will only supplement 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 will be used by the Adviser in connection with the Fund. Conversely,
such information provided to the Adviser by brokers and 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 intend to review 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. Within
the past three years no such recapture has been effected.
In the fiscal years ended March 31, 1994, 1993 and 1992, the Fund paid
brokerage commissions of $4,769,882, $2,057,821 and $2,447,590, respectively.
For the fiscal year ended March 31, 1994, $4,768,264 (99.97%) of the total
brokerage commissions paid by the Fund resulted from orders for transactions,
placed consistent with the policy of seeking to obtain the most favorable net
results, with brokers and dealers who provided supplementary research, market
and statistical information to the Fund or the Adviser. The amount of such
transactions aggregated $1,747,826,587 (93.39% of all brokerage transactions).
The balance of such brokerage was not allocated to particular broker or dealer
with regard to the above-mentioned or other special factors.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. The Fund's
portfolio turnover rates for the fiscal years ended March 31, 1994 and 1993 were
39.9% and 29.2%, respectively. Purchases and sales are made for the Fund's
portfolio whenever necessary, in management's opinion, to meet the Fund's
objective.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
46
<PAGE>
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of a Fund, less
all liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter are 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.
ADDITIONAL INFORMATION
Experts
The Financial highlights of the Fund included in the 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 Coopers & Lybrand, One Post Office Square, Boston, Massachusetts
02109, independent accountants, and given on the authority of that firm as
experts in accounting and auditing.
47
<PAGE>
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of the Fund is 811165-10-9.
The Fund has a fiscal year end of March 31.
The Fund employs Brown Brothers Harriman and Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian for the Fund.
The firm of Dechert Price & Rhoads is counsel to the Fund.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts, 02107-2291, a wholly-owned subsidiary of the Adviser, is
the transfer and dividend disbursing 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
$17.55 for each account maintained for a participant. The fee incurred by the
Fund to Service Corporation for the year ended March 31, 1994, amounted to
$2,410,783.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the Commission 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 and
its amendments are available for inspection by the public at the Commission in
Washington, D.C.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended March 31, 1994,
together with the Report of Independent Accountants, is incorporated into this
Statement of Additional Information by reference in its entirety.
48
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds.
Ratings of Corporate Bonds
S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
<PAGE>
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
International
Fund
Annual Report
March 31, 1994
* A fund offering opportunities for long-term growth of capital
primarily from foreign equity securities. Provides international
diversification which helps reduce risk.
* A pure no-load(tm) fund with no commissions to buy, sell or exchange
shares.
<PAGE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
CONTENTS
2 Highlights
3 Letter from the Fund's Chairman
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
11 Investment Portfolio
21 Financial Statements
24 Financial Highlights
25 Notes to Financial Statements
31 Report of Independent Accountants
32 Tax Information
33 Officers and Directors
34 Investment Products and Services
35 How to Contact Scudder
HIGHLIGHTS
* Scudder International Fund generated a strong total return of 22.69%
during its fiscal year ended March 31, 1994.
* The Fund increased its exposure to Japan, with a focus on consumer
companies and established exporters to capitalize on Japan's
anticipated economic recovery.
* In early 1994, we locked in profits on certain Mexican holdings and
reduced the Fund's exposure there.
* The Fund's holdings in the Pacific Basin were also reduced through
sales of stocks that had appreciated rapidly in recent months along
with the region's stock markets.
2
<PAGE>
LETTER FROM THE FUND'S CHAIRMAN
- --------------------------------------------------------------------------------
Dear Shareholders,
The first months of 1994 were challenging for investors in virtually
all markets. Interest rates reversed direction after several years of
declines, triggering fears that inflation was on the rise and sparking
steep declines across global bond markets. That turmoil carried over into
stock markets around the world, which were already jittery due to a variety
of political and economic uncertainties in countries ranging from Japan to
Mexico.
These developments are a reminder that financial markets can fall as
well as rise. The declines were particularly disappointing for investors
accustomed to steadily rising securities prices across world markets. As
perceptions continue to evolve regarding the strength of global inflation
and economic activity, financial markets may experience additional
volatility. Yet we believe world economic growth will be moderate, with low
inflation. While growth rates in emerging economies may not match rates
posted in the last few years, economic recoveries in Europe and Japan are
expected to contribute to solid overall growth and help sustain global
equity prices.
Even so, the current market climate should lead investors to revisit
performance expectations. We believe U.S. stock market returns will remain
modestly positive after adjustments for inflation, but are not likely to
approach the extraordinary levels we've witnessed in recent years. Returns
for non-U.S. stock markets are expected to be relatively higher, although
they, too, will likely be lower than last year's highs. In all markets, we
expect corporate earnings growth to be the main contributor to stock price
increases, although several non-U.S. markets should also benefit from
declining interest rates.
Please call us at 1-800-225-2470 if you have questions about your Fund
or other Scudder investments. Page 35 has more information on how to
contact Scudder. Thank you for choosing Scudder International Fund to help
meet your investing needs.
Sincerely,
/s/Edmond D. Villani
Edmond D. Villani
Chairman,
Scudder International Fund
3
<PAGE>
SCUDDER INTERNATIONAL FUND
PERFORMANCE UPDATE as of March 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
GROWTH OF A $10,000 INVESTMENT
Scudder International Fund
<CAPTION>
Total Return
Period Growth ------------
Ended of Average
3/31/94 $10,000 Cumulative Annual
- -------- ------- ---------- -------
<S> <C> <C> <C>
1 Year $12,269 22.69% 22.69%
5 Year $15,931 59.31% 9.76%
10 Year $40,719 307.19% 15.08%
</TABLE>
<TABLE>
MSCI EAFE & Canada Index
- ------------------------
<CAPTION>
Total Return
Period Growth ------------
Ended of Average
3/31/94 $10,000 Cumulative Annual
- -------- ------- ---------- -------
<S> <C> <C> <C>
1 Year $12,187 21.87% 21.87%
5 Year $11,396 13.96% 2.65%
10 Year $43,037 330.37% 15.70%
</TABLE>
<TABLE>
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended March 31
Scudder International Fund
<CAPTION>
Year Amount
- ---------------------
<S> <C>
84 $10,000
85 9,760
86 16,023
87 22,461
88 22,354
89 25,559
90 29,924
91 30,360
92 30,415
93 33,188
94 40,719
</TABLE>
<TABLE>
MSCI EAFE & Canada Index
<CAPTION>
Year Amount
- ---------------------
<S> <C>
84 $10,000
85 10,240
86 18,336
87 29,262
88 33,826
89 37,765
90 33,659
91 34,481
92 31,816
93 35,313
94 43,037
</TABLE>
The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far East
(EAFE) & Canada Index is a capitalization weighted measure of stock markets in
Europe, Australia, the Far East and Canada. Index returns assume dividends
reinvested net of withholding tax and, unlike Fund returns, do not reflect any
fees or expenses.
<TABLE>
A chart in the form of a bar graph appears here, illustrating the Fund Total
Return (%) and Index Total Return (%) with the exact data points listed in the
table below.
- --------------------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- --------------------------------------------------------------------------------
Yearly periods ended March 31
Description of bar graph:
<CAPTION>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value . . . $23.03 $36.93 $44.05 $33.43 $34.79 $37.00 $34.69 $34.36 $35.69 $42.96
Income Dividends. . . $ .10 $ .41 $ .49 $ .82 $ .13 $ .43 $ .74 $ -- $ .83 $ .69
Capital Gains
Distributions. . . $ .58 $ .13 $ 5.93 $ 9.39 $ 3.06 $ 3.15 $ 1.98 $ .40 $ .86 $ .09
Fund Total Return (%) -2.40 64.17 40.18 -.47 14.34 17.08 1.46 .18 9.12 22.69
Index Total Return (%) 2.40 79.06 59.59 15.60 11.64 -10.87 2.44 -7.73 10.99 21.87
</TABLE>
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate so that an investor's shares when redeemed may be worth more or
less than when purchased.
4
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1994
- --------------------------------------------------------------------------------
DIVERSIFICATION
- --------------------------------------------------------------------------------
/ / Equity Securities 95% The Fund primarily invests
/ / Fixed Income Securities 2% in overseas companies we
/ / Cash Equivalents 3% believe offer good potential
---- for strong long-term earnings
100% growth.
====
A chart in the form of a pie chart appears here, illustrating the exact data
points appearing in the table above.
- --------------------------------------------------------------------------------
REGIONAL DISTRIBUTION
- --------------------------------------------------------------------------------
/ / Europe 41% We increased the Fund's invest-
/ / Japan 35% ments in Japan, responding to
/ / Pacific Basin 17% early signs of improvements in
/ / Latin America 5% economic growth and corporate
/ / Canada 2% profits.
----
100%
====
A chart in the form of a pie chart appears here, illustrating the exact data
points appearing in the table above.
- --------------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
- --------------------------------------------------------------------------------
1. MABUCHI MOTOR CO., LTD. Japanese Japanese holdings generally
manufacturer of DC motors fall into two categories:
domestic retailers we think
2. SONY CORP. Consumer electronic will prosper under new,
products manufacturer in Japan more relaxed regulations
and major exporters we expect
3. ITO-YOKADO CO., LTD. Leading to benefit from global economic
Japanese supermarket operator recovery and potential yen
weakness.
4. CANON INC. Leading producer of
visual image and information
equipment in Japan
5. KAMIGUMI CO., LTD. Port-harbor
cargo transport, trucking, and
warehousing in Japan
6. SECOM CO., LTD. Electronic
security systems in Japan
7. AUTOBACS SEVEN CO., LTD.
Retailer of automotive parts
and accessories in Japan
8. NICHIEI CO., LTD.
Japanese finance company
9. KYOCERA CORP.
Leading ceramic packaging
manufacturer in Japan
10. TECHNOLOGY RESOURCES
INDUSTRIES Mobile telephone
operator in Malaysia
- --------------------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio, see page 11.
A monthly investment portfolio summary is available upon request.
5
<PAGE>
SCUDDER INTERNATIONAL FUND
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Dear Shareholders,
March 31 marked the close of Scudder International Fund's fiscal year
1994. The year was rewarding, on the whole, for investors in stock markets
outside the United States. Scudder International Fund generated a strong
22.69% total return for the 12 months through March 31, 1994, despite price
weakness in February and March. The Fund closed the fiscal year with a net
asset value of $42.96 per share, up from $35.69 one year earlier. In
addition, the Fund paid shareholders a total of $0.69 per share in income
dividends and $0.09 per share in capital gains. By comparison, the
unmanaged EAFE (Europe, Australia, Far East) plus Canada Index returned
21.87% for this 12-month period.
We are pleased the Fund has generated such a strong return, but we
believe it is important to point out that international stocks, and the
Fund, enjoyed an exceptional 12 months. Looking at longer time periods, the
Fund has returned an average of 9.76% over the past five years, and 15.08%
over the past 10. For more information on long-term performance, including
comparisons to the Index, please turn to the Performance Update on page 4.
Rising Interest Rates Slowed World Stock Markets
The Fund's strong returns for the fiscal year mask an important shift
in investor sentiment. For most of the period, spotty U.S. economic growth
led individuals and institutions to look for profit opportunities outside
the United States. The global trend toward falling interest rates and
relatively low inflation also helped propel investors into stocks. Emerging
markets in the Pacific Basin and Latin America were the biggest
beneficiaries of this surge in demand. In late 1993, some markets in these
regions posted high double-digit returns on a monthly basis.
But, when U.S. central bank action prompted concern over the prospect
of higher inflation, global bond prices fell, spiking up interest rates
across the maturity spectrum. Fear carried over into global stock markets
and sent prices down sharply in the final two months of the Fund's fiscal
year, reducing the strong gains made in the preceding 10 months. Heavy
selling by hedge funds and other highly leveraged accounts, particularly in
emerging markets, added to the turmoil. Higher U.S. interest rates
generally translated into declines in the value of local currencies versus
the dollar, which also lowered returns to U.S. investors. The exception was
Japan, where a strengthening yen fueled gains for dollar-based investors.
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
(BAR CHART TITLE) Global Stock Market Returns in U.S. Dollars
(CHART DATA)
<TABLE>
<CAPTION>
10 Months 12 Months
Through Through
1/31/94 3/31/94
-------- --------
<S> <C> <C>
Australia 38.10% 21.45%
Canada 17.61% 7.00%
France 13.44% 6.22%
Germany 17.93% 19.73%
Hong Kong 80.74% 44.39%
Italy 39.43% 60.69%
Japan 22.87% 22.99%
Netherlands 26.11% 19.61%
Singapore/Malaysia 58.30% 42.66%
Spain 27.33% 15.75%
Sweden 59.49% 42.34%
Switaerland 52.68% 41.99%
United Kingdom 26.94% 12.59%
United States 8.60% 0.85%
Source: Morgan Stanley Capital International
</TABLE>
(CALLOUT NEXT TO CHART) - Rising U.S. and foreign interest rates in
February and March halted the surge of investment dollars into non-U.S.
stock markets, reversing some of the gains made in previous months.
European Holdings Focus on Prospects for Economic Recovery
Our goal for the Fund is to provide long-term capital growth,
primarily by investing in foreign stocks. We look for investment
opportunities anywhere outside the United States, although our research
often eliminates nations where the stock markets are too small, have
prohibitive regulations for foreign investors, or are too unstable due to
political conditions.
Throughout the year, most of the portfolio was invested in European
companies. Holdings in Switzerland, the United Kingdom, and France were the
largest European positions on March 31, in part because they offer
relatively large and liquid stock markets. Switzerland has remained
attractive as the home to a number of leading, globally competitive
corporations. Swiss holdings include pharmaceutical giant Ciba-Geigy,
manufacturer Brown, Boveri & Cie., and cement producer Holderbank.
Elsewhere in Europe we have selected companies that should benefit from
7
<PAGE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
increased economic growth and that occupy leading positions in expanding
industries. Examples include France's Michelin (tire manufacturer) and
Valeo (maker of automotive components), along with Germany's SAP (computer
software developer).
Early in the year we increased the Fund's investments in high-quality
European banks and insurance companies. Toward the end of the fiscal year,
we reduced holdings in banks that had already provided generous gains.
Union Bank of Switzerland, Banque Nationale de Paris (France), and
Bayerische Vereinsbank (Germany) were among those sold. We continued to
increase holdings in high-quality insurance companies, however, targeting
those we believe will benefit from improving demand and pricing for
reinsurance. Insurance investments include Switzerland's Zurich Insurance
Group and Swiss Reinsurance.
Flexible Strategy for Emerging Markets
Early in the fiscal year we built positions in the emerging markets of
Latin America and the Pacific Basin, although these markets still
represented a relatively small portion of the portfolio. Our strategy was,
and remains, to take advantage of the long-term growth opportunities these
regions offer. Nations in both areas have undergone landmark political and
economic reforms, and feature large, growing consumer markets. Throughout
the year, we focused on holdings in telephone companies, food and beverage
manufacturers and distributors, and construction-related industries. Some
of the best performers in these categories were Technology Resources
Industries (Malaysia), Philippine Long Distance Telephone, and Grupo
Embotellador de Mexico.
During the first 10 months of the fiscal year, the heady gains in
emerging markets caused prices of several stocks to move above what we
believed were reasonable values. As market volatility increased early in
1994, we began selectively to sell Latin America and Pacific Basin stocks,
while maintaining positions we believe have intrinsic long-term value.
Among the holdings we trimmed were Cheung Kong and China Light and Power in
Hong Kong, along with Grupo CIFRA in Mexico. This strategy led us to reduce
the Fund's Mexican position, which helped dampen the impact of stock market
volatility that followed a local civil uprising and the assassination of
the country's favored presidential candidate. We remain committed to
emerging market stocks as a way to diversify the portfolio and,
importantly, to capture rapid growth rates not available elsewhere in the
world.
8
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
- --------------------------------------------------------------------------------
Prospects for Economic Recovery Shine a New Light on Japan
Japan's tough times continued during the Fund's fiscal year. Its
economy remained mired in a stubborn recession despite significant interest
rate cuts, its real estate market continued to flounder, and ongoing
political scandals resulted in turnover of government administrations.
Accordingly, our overall strategy for most of the year was to limit the
Fund's investments in Japan to about 25% of the portfolio, well under the
45% to 50% weighting Japan receives in the EAFE plus Canada Index. This
decision meant the Fund underperformed the Index when Japan's stock market
experienced several sharp but brief rallies during the year. But, limiting
exposure to Japan generally worked in the Fund's favor.
Beginning in early 1994, however, we began to see signs that Japan's
changed financial and monetary policies would spark an economic recovery
and a turnaround in corporate earnings. We increased the Fund's investments
in companies we expect to benefit from the trend toward deregulation of
retailers. Examples include low-cost or value-
oriented manufacturers and merchants in the clothing and auto parts
industries, such as Shimachu (furniture retailer), Shimamura (discount
retailer), and Autobacs Seven. Moves toward more liberal import quotas led
us to target companies that extend beyond the retail industry, including
Kamigumi (cargo trucking and warehousing).
We also expect the yen to weaken against the U.S. dollar later this
year. Accordingly, we expanded the variety of Japanese stocks to include
established exporters such as Sony and Hitachi. Also added were NGK Spark
Plug Co. and Suzuki Motor Corp., companies in cyclical industries that
should progress with an expanding economy. By the end of the fiscal year,
Japan accounted for 35% of the portfolio, versus 25% when the period began.
9
<PAGE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Looking Ahead
As 1994 progresses, we expect to see a global economic recovery begin
to take shape. In our view, economic progress should continue to strengthen
in Europe, Japan, the United Kingdom, and Scandinavia and even in more
troubled France and Germany. Positive signs include increasing exports,
improved production, and rising auto sales. We continue to believe that
developed economies will generally follow the pattern of recovery we have
seen develop in the United States over the past few years. Therefore, we
expect to see a trend toward declining interest rates and a prolonged
period of erratic growth in most industrialized countries.
Developing nations, despite recent setbacks, should continue to offer
the fastest rate of economic growth, at least until the more mature
economies get back on track. The Pacific Basin will probably advance most
quickly, although at a more sustainable pace than we saw in 1993. Growth
estimates in China, for example, have been revised downward but remain
positive and are probably now more realistic. In all, we think these trends
indicate that careful, long-term investors will be rewarded for persevering
through short-term volatility. Moving forward, our strategy for Scudder
International Fund remains focused on investing in a variety of developed
and emerging markets in an effort to balance their long-term risks and
rewards.
Sincerely,
Your Portfolio Management Team
/s/Carol L. Franklin /s/Nicholas Bratt
Carol L. Franklin Nicholas Bratt
/s/Irene T. Cheng
Irene T. Cheng
Scudder International Fund:
A Team Approach to Investing
Scudder International Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work closely together to develop investment
strategies and select securities for the Fund. They are supported by
Scudder's large staff of economists, research analysts, traders, and other
investment specialists who work in our offices across the United States and
abroad. We believe our team approach benefits Scudder International Fund
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.
Lead Portfolio Manager Carol L. Franklin joined Scudder International
Fund's portfolio management team in 1986 and has been responsible for
setting the Fund's investment strategy and overseeing security selection
for the Fund's portfolio since 1992. Carol has 17 years of experience in
finance and investing, 13 as a member of the Scudder organization. Nicholas
Bratt, Portfolio Manager, has filled many important roles in international
equity investing since he joined Scudder in 1976. Nick also serves as head
of Scudder's Global Equity Group. Irene T. Cheng, Portfolio Manager, joined
the team in 1994. Irene, who has 14 years of experience in the financial
industry, has worked at Scudder since 1993.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.2% COMMERCIAL PAPER
-------------------------------------------------------------------------------------
U.S.$ 8,889,000 Associates Corp. of North America, 3.5%, 4/1/94 . . 8,889,000
U.S.$ 48,690,000 CIT Group Holdings, Inc., 3.47%, 4/4/94 . . . . . . 48,690,000
U.S.$ 12,016,000 ITT Financial Corp., 3.52%, 4/5/94 . . . . . . . . 12,011,302
-----------
TOTAL COMMERCIAL PAPER (Cost $69,590,302) . . . . . 69,590,302
-----------
1.8% BONDS
-------------------------------------------------------------------------------------
IL 57,700,000,000 Republic of Italy, 12%, 1/1/02 (Cost $38,811,564) 40,487,969
-----------
1.7% CONVERTIBLE BONDS
-------------------------------------------------------------------------------------
Aus.$ 7,002,000 BTR Nylex Ltd., 9%, 11/1/98 . . . . . . . . . . . 6,944,285
F.Fr. 58,126,400 Alcatel Alsthom, 6.5%, 1/1/00 . . . . . . . . . . . 11,346,815
U.S.$ 8,300,000 Henderson Land Development Co., Ltd.,
4%, 10/27/96 . . . . . . . . . . . . . . . . . . 8,009,500
U.S.$ 5,000,000 Ssangyong Cement Industrial Co., Ltd.,
3%, 12/31/05 . . . . . . . . . . . . . . . . . . 6,175,000
U.S.$ 4,000,000 Tong Yang Nylon, 3.25%, 12/31/05 . . . . . . . . . 4,700,000
-----------
TOTAL CONVERTIBLE BONDS (Cost $35,198,008) . . . . 37,175,600
-----------
0.4% CONVERTIBLE PREFERRED STOCK
Shares
-------------------------------------------------------------------------------------
PHILIPPINES 255,000 Philippine Long Distance Telephone Co.
(GDR) (Telecommunication services)
(Cost $6,375,000) . . . . . . . . . . . . . . . . . . . 9,052,500
-----------
1.0% PREFERRED STOCKS
-------------------------------------------------------------------------------------
GERMANY 14,000 SAP AG (Computer software)
(Cost $13,687,196) . . . . . . . . . . . . . . . . . . 21,054,524
-----------
91.9% COMMON STOCKS
-------------------------------------------------------------------------------------
ARGENTINA 0.3% 310,000 YPF SA (ADR) (Petroleum company) . . . . . . . . . . 7,362,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIA 1.5% 1,769,146 Coca Cola Amatil Ltd. (Soft drink bottler
and distributor) . . . . . .. . . . . . . . . . . . 13,163,631
3,000,000 Western Mining Corp. Ltd. (Mineral production
and exploration) . . . . . . . . . . . . . . . . . 14,993,651
1,480,100 Woodside Petroleum Ltd. (Major oil and
gas company)* . . . . . . . . . . . . . . . . . . 4,103,877
-----------
32,261,159
-----------
BRAZIL 0.8% 25,000,000 Centrais Eletricas Brasileiras S/A "B" (pfd.)
(Electric utility) . . . . . . . . . . . . . . . . . 7,171,323
250,000,000 Telecomunicacoes Brasileiras S.A. (pfd.)
(Telecommunication services) . . . . . . . . . . . 11,003,328
-----------
18,174,651
-----------
CANADA 1.7% 325,000 Magna International, Inc. "A" (ADR)
(Manufacturer of automotive parts) . . . . . . . . . 15,275,000
1,417,500 Rogers Communications Inc. "B" (Cable TV
and cellular telephones in Canada)* . . . . . . . . 21,769,866
-----------
37,044,866
-----------
FINLAND 0.5% 330,000 Metsa Serla Oy "B" (Paper products) . . . . . . . . . 12,134,745
-----------
FRANCE 6.5% 23,900 Carrefour (Hypermarket and food retailing) . . . . . 16,843,231
80,000 Castorama-Dubois Investissements
(Retailer, wholesaler and distributor) . . . . . . 11,177,631
80,638 Cetelem (Consumer finance company) . . . . . . . . . . 17,175,820
28,637 Compagnie Generale des Eaux (Water utility) . . . . . 13,052,759
71,500 L'Air Liquide (World's leading producer of
industrial gases) . . . . . . . . . . . . . . . . . 10,228,163
300,000 Michelin "B" (Leading tire manufacturer) . . . . . . . 13,095,499
618,800 Rhone-Poulenc SA "A" (Medical,
agricultural and consumer chemicals) . . . . . . . . 15,404,234
160,000 Societe Generale (Bank) . . . . . . . . . . . . . . . 17,671,035
152,400 Societe Nationale Elf Aquitaine
(Petroleum company) . . . . . . . . . . . . . . . . 9,885,261
77,307 Valeo SA (Automobile and truck components) . . . . . . 18,160,386
-----------
142,694,019
-----------
GERMANY 3.3% 37,191 Deutsche Bank AG (Bank) . . . . . . . . . . . . . . . 17,615,030
682 Deutsche Bank AG Warrants (expire 6/30/95)* . . . . . 101,953
5,620 Deutsche Bank AG Warrants (expire 6/30/97)* . . . . . 160,283
66,100 Mannesmann AG (Diversified construction and
technology company) . . . . . . . . . . . . . . . . 16,495,297
5,062 Mannesmann AG (New (e)) . . . . . . . . . . . . . . . 1,240,478
32,600 Siemens AG (Bearer) (Manufacturer of
electrical and electronic equipment) . . . . . . . 13,575,195
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
81,650 VEBA AG (Electric utility, distributor of oil and
chemicals) . . . . . . . . . . . . . . . . . . 23,751,393
-----------
72,939,629
-----------
GREECE 0.5% 326,700 Delta Dairy SA (Food producer and distributor) . . 9,253,904
65,340 Delta Dairy SA Rights (expire 4/4/94)* 23,367
90,915 Hellenic Bottling Co (Soft drink distributor) . . 2,848,610
-----------
12,125,881
-----------
HONG KONG 4.9% 2,731,500 Cheung Kong Holdings Ltd.
(Real estate company) . . . . . . . . . . . . . . 14,050,199
2,822,400 China Light & Power Co., Ltd. (Electric utility) . 14,609,074
1,693,550 HSBC Holdings Ltd. (Bank) . . . . . . . . . . . . 19,066,080
6,402,400 Hong Kong & China Gas Co., Ltd. (Gas utility) . . . 15,989,844
520,000 Hong Kong & China Gas Co., Ltd. Warrants
(expire 6/30/94)* . . . . . . . . . . . . . . . . 915,138
4,213,584 Hutchison Whampoa, Ltd. (General trading
and real estate) . . . . . . . . . . . . . . . 17,175,379
2,667,600 Hysan Development Co. (Real estate developer) . . 8,560,843
1,504,952 Jardine Matheson Holdings, Ltd.
(Conglomerate: real estate, merchandising,
engineering) . . . . . . . . . . . . . . . . . 9,737,260
1,000,000 Sun Hung Kai Properties Ltd. (Real estate
developer and finance company) . . . . . . . . . 6,923,057
-----------
107,026,874
-----------
HUNGARY 0.1% 2,000 First Hungary Fund, Ltd. (Investment company) (d) 1,840,000
-----------
INDIA 0.6% 2,110,000 The India Fund (Investment company) . . . . . . . 13,935,493
-----------
INDONESIA 0.8% 1,690,000 Gadjah Tunggal (Tire manufacturer) . . . . . . . 2,783,991
400,000 Indocement (Cement producer) . . . . . . . . . . . 3,712,297
1,725,800 Kalbe Farma (Pharmaceutical producer and
distributor) . . . . . . . . . . . . . . . . . 9,289,689
680,000 Sinar Mas Agro Research & Technology Corp.
(Producer of edible oils) . . . . . . . . . . . 1,632,947
-----------
17,418,924
-----------
ITALY 2.0% 503,100 Assicurazioni Generali SpA (Life and property
insurance company) . . . . . . . . . . . . . . . 13,306,778
1,200,000 Riunione Adriatica di Sicurta SpA di Risparmio
(Insurance company) . . . . . . . . . . . . . . 12,002,482
5,050,000 Societa Finanziaria Telefonica Torino SpA
(Telephone utility and telecommunication
equipment manufacturer) . . . . . . . . . . . . 18,039,445
-----------
43,348,705
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER INTERNATIONAL FUND
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JAPAN 33.8% 1,513,000 Amano Corp. (Time-recorder manufacturer) . . . . 23,212,097
247,830 Autobacs Seven Co., Ltd. (Retailer of
automotive parts and accessories) . . . . . . . 28,576,675
1,933,000 Canon Inc. (Leading producer of visual image
and information equipment) . . . . . . . . . . 30,600,088
142,000 Chubu Electric Power Co., Inc. (Leading
regional electric power company) . . . . . . . 3,774,271
220,000 Cox Co., Ltd. (Men's and ladies' wear
chain store operator) . . . . . . . . . . . . . 7,158,841
220 DDI Corp. (Long distance telephone and
cellular operator) . . . . . . . . . . . . . . 15,973,030
2,000,000 Fujitsu Ltd. (Leading manufacturer of computers) . 19,934,529
436,000 Higashi Nihon House Co., Ltd (Housing
construction company) . . . . . . . . . . . . . 23,858,895
2,996,000 Hitachi Ltd. (General electronics manufacturer). . 27,227,048
250,000 Horipro Inc. (Growing entertainment production
company) . . . . . . . . . . . . . . . . . . . 5,252,357
588,000 Ito-Yokado Co., Ltd. (Leading supermarket
operator) . . . . . . . . . . . . . . . . . . . 31,199,883
1,800,000 Itochu Corp. (Leading general trading company). . 12,224,557
1,179,000 Japan Radio Co., Ltd. (Manufacturer of
wireless telecommunication equipment) . . . . . 22,465,921
2,441,000 Kamigumi Co., Ltd. (Port-harbor cargo
transport, trucking, and warehousing) . . . . . 30,054,820
237,600 Keyence Corp. (Specialized manufacturer
of sensors) . . . . . . . . . . . . . . . . . . 24,610,935
39,000 Koa Fire & Marine Insurance Co., Ltd.
(Property and casualty insurance company) . . . 262,960
427,000 Kyocera Corp. (Leading ceramic packaging
manufacturer) . . . . . . . . . . . . . . . . . 27,455,514
440,000 Mabuchi Motor Co., Ltd. (Manufacturer of
DC motors) . . . . . . . . . . . . . . . . . . 31,731,079
1,216,000 Matsushita Electrical Industrial Co., Ltd.
(Consumer electronic products manufacturer) . . 20,200,322
1,200,000 NGK Spark Plug Co., Ltd. (Leading
manufacturer of spark plugs in the world) . . . 15,009,527
319,800 Nichiei Co., Ltd. (Finance company) . . . . . . . 28,344,027
1,510,000 Nippon Shokubai Corp., Ltd. (Specialty
chemical producer) . . . . . . . . . . . . . . 14,607,905
866,000 Olympus Optical Co., Ltd. (Manufacturer of
endoscopes and lightweight cameras) . . . . . . 8,631,651
450,000 Secom Co., Ltd. (Electronic security
systems) . . . . . . . . . . . . . . . . . . . 29,901,793
364,000 Shimachu Co., Ltd. (Furniture retailer) . . . . . 16,575,365
331,000 Shimamura Co., Ltd. (Discount retailer) . . . . . 16,495,823
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
511,500 Showa Highpolymer Co., Ltd. (Manufacturer of
polyester resin and emulsion related products) . 6,797,674
550,000 Sony Corp. (Consumer electronic products
manufacturer) . . . . . . . . . . . . . . . . . 31,440,856
335,160 Sony Music Entertainment (Japan) Inc.
(Entertainment software producer and
marketer) . . . . . . . . . . . . . . . . . . . 21,615,830
1,540,000 Sumitomo Electric Industries, Ltd. (Leading
manufacturer of electric wires and cables) . . . 22,572,922
1,271,000 Sumitomo Forestry Co., Ltd. (Forestry and
house building) . . . . . . . . . . . . . . . . 26,578,785
1,800,000 Suzuki Motor Corp. (Leading minicar and
motorcycle producer) . . . . . . . . . . . . . 21,986,613
1,085,000 Takuma Co., Ltd. (Leading maker of boilers,
garbage incinerators and water treatment
plants) . . . . . . . . . . . . . . . . . . . . 16,539,796
256,300 Tohoku Electric Power Co., Inc. (Medium-scale
regional power supplier) . . . . . . . . . . . . 6,962,564
1,811,000 Tokio Marine & Fire Insurance Co., Ltd.
(Property and casualty insurance company). . . . 21,767,040
846,000 Tokyo Steel Manufacturing Co., Ltd.
(Electric furnace steelmaker) . . . . . . . . . 18,848,683
3,020,000 Toshiba Corp. (General electronics
manufacturer) . . . . . . . . . . . . . . . . . 21,749,548
100,000 Tsutsumi Jewelry Co., Ltd. (Manufacturer,
wholesaler and retailer of jewelry). . . . . . . 12,703,376
-----------
744,903,600
-----------
KOREA 1.6% 45,559 Kia Motor Corp. (GDS) (Automotive products
manufacturer) . . . . . . . . . . . . . . . . . 1,184,534
250 units(c) Korea 1990 Trust IDR (Investment company) . . . . 1,162,500
585 units(c) Korea Asia Fund IDR (Investment company). . . . . 5,411,250
190 units(c) Korea Equity Trust IDR (Investment company) . . . 1,947,500
245,855 Korea Long Term Credit Bank (Major
commercial bank) . . . . . . . . . . . . . . . . 7,310,314
21,000 Korea Trust (Investment company) (b). . . . . . . 1,333,500
257,811 Samsung Electronics Co., Ltd. (GDS)
(Major electronics manufacturer) . . . . . . . . 12,101,395
85,330 Samsung Heavy Industries Co., Ltd. (Machinery
manufacturer). . . . . . . . . . . . . . . . . . 4,355,567
-----------
34,806,560
-----------
MALAYSIA 3.2% 2,550,000 Malayan Banking Berhad (Leading banking
and financial services group) . . . . . . . . . 13,223,279
4,132,000 Sime Darby Berhad (Conglomerate) . . . . . . . . 9,403,171
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
SCUDDER INTERNATIONAL FUND
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6,035,800 Technology Resources Industries (Mobile
telephone operator) . . . . . . . . . . . . . . . . . . 27,246,103
2,559,709 Telekom Malaysia (Telecommunication services) . . . . . 17,188,868
750,000 Westmont Berhad (Shipyard) . . . . . . . . . . . . . . . 4,196,978
----------
71,258,399
----------
MEXICO 3.6% 225,000 Empresa ICA Sociedad Controladora S.A.
(Sponsored ADR) (Construction company) . . . . . . . . 5,400,000
7,089,000 Grupo CIFRA S.A. de C.V. "C" (Retailer) . . . . . . . . 18,159,637
925,297 Grupo Carso S.A. de CV (ADR) (Diversified
industrial group) . . . . . . . . . . . . . . . . . . . 17,002,332
493,000 Grupo Embotellador de Mexico SA (GDR)
(Soft drink bottler) . . . . . . . . . . . . . . . . . 13,619,125
253,145 Grupo Financiero Bancomer "C" (ADR)
(Premier retail and middle-market bank) . . . . . . . . 7,720,923
154,664 Grupo Televisa S.A. de CV (GDR)
(Leading media company) . . . . . . . . . . . . . . . . 7,887,864
490,000 Kimberly Clark de Mexico S.A. "A"
(Consumer paper products company) . . . . . . . . . . . 8,664,190
----------
78,454,071
----------
NETHERLANDS 2.7% 249,200 AEGON Insurance Group NV
(Insurance company) . . . . . . . . . . . . . . . . . . 12,571,040
199,600 Elsevier NV (Publisher) . . . . . . . . . . . . . . . . 17,594,034
550,000 Philips N.V (Leading manufacturer of
electrical equipment)* . . . . . . . . . . . . . . . 14,987,031
229,963 Wolters Kluwer CVA (Publisher) . . . . . . . . . . . . 13,611,719
----------
58,763,824
----------
NEW ZEALAND 0.9% 9,957,171 Carter Holt Harvey Ltd.
(Resource conglomerate) . . . . . . . . . . . . . . . 19,272,262
----------
NORWAY 0.9% 197,650 Kvaerner Industrier AS "A" (Free)
(Industrial conglomerate) . . . . . . . . . . . . . . 10,071,705
930,800 Saga Petroleum "A" (Free)
(Oil and gas producer) . . . . . . . . . . . . . . . . 9,486,206
----------
19,557,911
----------
PANAMA 0.4% 263,000 Panamerican Beverages Inc. "A"
(Soft drink bottler). . . . . . . . . . . . . . . . . . 9,106,375
----------
PHILIPPINES 0.6% 199,996 Philippine Long Distance Telephone Co.
(ADR) (Telecommunication services) . . . . . . . . . . 12,299,754
----------
SINGAPORE 0.4% 1,184,100 Sembawang Shipyard, Ltd.
(Ship building and repairing) . . . . . . . . . . . . 8,155,791
----------
SPAIN 3.2% 57,750 Acerinox, S.A (Producer of iron and steel) . . . . . . 5,407,622
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
150,000 Argentaria Corporacion Bancaria de Espana
(Commercial bank) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,355,353
97,600 Banco Popular Espanol SA (Bank) . . . . . . . . . . . . . . . . . . . . . 10,625,208
431,000 Compania Telefonica Nacional de Espana SA
(ADR) (Telecommunication services) . . . . . . . . . . . . . . . . . . . 15,516,000
295,700 Empresa Nacional de Electricidad SA
(Electric utility) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,464,890
33,300 Repsol SA (Integrated oil company) . . . . . . . . . . . . . . . . . . . 1,044,694
513,000 Repsol SA (ADR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,133,500
-----------
69,547,267
-----------
SWEDEN 1.4% 798,100 Astra AB "A" (Free) (Pharmaceutical company) . . . . . . . . . . . . . . 15,614,800
850,000 S.K.F. AB "A" (Free) (Manufacturer of
roller bearings) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,325,891
-----------
30,940,691
-----------
SWITZERLAND 6.8% 27,610 Brown, Boveri & Cie. AG (Bearer)
(Manufacturer of electrical equipment) . . . . . . . . . . . . . . . . . 22,941,453
555 Brown, Boveri & Cie. AG (Registered) . . . . . . . . . . . . . . . . . . 86,565
31,402 CS Holdings (Bearer) (Banking and financial services) . . . . . . . . . . 13,914,392
26,895 Ciba-Geigy AG (Bearer) (Pharmaceutical company) . . . . . . . . . . . . . 17,351,613
776 Ciba-Geigy AG (Registered) . . . . . . . . . . . . . . . . . . . . . . . 485,241
4,000 Ciba-Geigy AG Warrants (expire 6/6/95)* . . . . . . . . . . . . . . . . . 33,322
28,850 Holderbank Financiere Glaris AG (Bearer) (Cement company) . . . . . . . . 19,226,515
17,737 Nestle SA (Registered) (Food manufacturer) . . . . . . . . . . . . . . . 14,913,918
14,490 SGS Holdings SA (Bearer) (Trade inspection company) . . . . . . . . . . . 22,395,037
51,062 Swiss Bank Corp. (Bearer) (Leading Switzerland universal bank) . . . . . 14,697,747
1,000 Swiss Bank Corp. Warrants (expire 6/30/95)* . . . . . . . . . . . . . . 19,851
25,231 Swiss Reinsurance (Registered) (Life, accident and health
insurance company) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,518,134
19,495 Swiss Reinsurance "A" Warrants (expire 10/14/94)* . . . . . . . . . . . . 55,285
19,495 Swiss Reinsurance "B" Warrants (expire 6/30/95)* . . . . . . . . . . . . 65,651
13,803 Zurich Insurance Group (Registered)
(Insurance company) . . . . . . . . . . . . . . . . . . . . . . . . . . 12,966,306
-----------
149,671,030
-----------
THAILAND 0.7% 154,900 American Standard Sanitaryware (Foreign registered)
(Manufacturer of bathroom fixtures) . . . . . . . . . . . . . . . . . . 5,967,610
3,564,740 Bank of Ayudhya (Foreign registered)
(Commercial bank) (d) . . . . . . . . . . . . . . . . . . . . . . . . . 10,314,151
-----------
16,281,761
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
SCUDDER INTERNATIONAL FUND
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TURKEY 0.1% 200,000 Migros Turkey (Department store chain)* . . . . . 1,686,275
-------------
UNITED KINGDOM 8.1% 914,200 BAA PLC (Owner and operator of U.S.
and U.K. airports) . . . . . . . . . . . . . . . 13,598,723
1,720,000 Boots Co. PLC (Chemist, retailer and
pharmaceutical producer) . . . . . . . . . . . . 12,920,423
2,688,800 Cable and Wireless PLC (International
telecommunication services in the United
Kingdom and Hong Kong) . . . . . . . . . . . . . 18,118,140
1,924,400 Cadbury Schweppes PLC (Candy, soft drinks
and other food products) . . . . . . . . . . . . 13,325,146
700,000 Carlton Communications PLC (Television post
production products and services) . . . . . . . . 8,975,574
3,928,491 Coats Viyella PLC (Textile manufacturer) . . . . . 13,440,348
3,700,000 Hanson PLC (Industrial management company) . . . . 14,846,364
7,385,000 Lasmo PLC (Oil production and exploration) . . . . 13,182,223
2,386,700 Powergen PLC (Electric utility) . . . . . . . . . 19,171,165
1,658,881 RTZ Corp. PLC (Mining and finance company) . . . . 20,283,550
672,400 Reuters Holdings PLC (International news
agency) . . . . . . . . . . . . . . . . . . . . . 19,483,796
1,431,600 Waste Management International PLC
(Waste collection and disposal services) . . . . 11,499,325
-------------
178,844,777
-------------
TOTAL COMMON STOCKS (Cost $1,685,060,254) . . . . 2,021,857,794
-------------
0.0% PURCHASED OPTIONS
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF CONTRACTS
- ---------------------------------------------------------------------------------------------------------------
13,125,000 Call option on Nikkei 300 Index, strike price
Yen 300, expiration date 6/10/94
(Cost $2,093,064) . . . . . . . . . . . . . . . 964,479
-------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $1,850,815,388) (a) . . . . . . . . . . . 2,200,183,168
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $1,871,369,887. At
March 31, 1994, net unrealized appreciation for all securities
based on tax cost was $328,813,281. This consisted of aggregate
gross unrealized appreciation for all securities in which there was
an excess of market value over tax cost of $374,131,146 and
aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of
$45,317,865.
(b) Security trades in units; however, equivalent shares are
represented in the portfolio.
(c) 500 shares = 1 IDR unit (International Depository Receipt) for
Korea Asia Fund
1,000 shares = 1 IDR unit for Korea 1990 Trust and Korea Equity
Trust.
(d) Securities valued in good faith by the valuation committee of the
Board of Directors. The cost of these securities at March 31, 1994
aggregated $8,825,439. See Note A of the Notes to Financial
Statements.
(e) New shares issued during 1994, eligible for a pro rata share of
1994 dividends.
* Non-income producing security.
<TABLE>
At March 31, 1994, outstanding written put options were as follows (Note A):
<CAPTION>
NUMBER OF EXPIRATION STRIKE MARKET
CONTRACTS DATE PRICE VALUE ($)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nikkei 225 Index . . . 375,000 6/10/94 Yen 18,000 1,645,363
---------
Total outstanding written options (Premiums received $1,190,609) . . . . . . 1,645,363
=========
</TABLE>
<TABLE>
Transactions in written put option contracts during the year ended March 31, 1994 were:
<CAPTION>
PREMIUMS
NUMBER OF CONTRACTS RECEIVED ($)
--------------------------------------------------
<S> <C> <C>
Outstanding at
March 31, 1993 . . . . . . . . . . -- --
Contracts written . . . . . . . . . 375,000 1,190,609
--------------------------------------------------
Outstanding at
March 31, 1994 . . . . . . . . . . 375,000 1,190,609
======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
<TABLE>
At March 31, 1994, sector diversification of the Fund's equity investments was as follows:
<CAPTION>
SECTOR DIVERSIFICATION % OF EQUITY HOLDINGS MARKET VALUE ($)
- ---------------------- -------------------- ----------------
<S> <C> <C>
Manufacturing 19.4 405,982,128
Financial 16.3 340,408,135
Service Industries 8.8 184,499,315
Consumer Discretionary 7.7 160,576,737
Communications 6.9 144,437,168
Consumer Staples 6.7 139,066,600
Utilities 5.8 120,862,421
Construction 5.6 117,077,325
Durables 4.5 94,951,944
Energy 3.4 70,426,424
Technology 3.3 68,444,567
Media 3.1 65,501,491
Health 3.1 64,326,739
Metals and Minerals 2.9 59,533,506
Transportation 1.4 30,054,820
Miscellaneous 1.1 22,991,098
----- -------------
TOTAL EQUITY HOLDINGS 100.0 2,089,140,418
===== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $1,850,815,388)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . . . $2,200,183,168
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,306
Foreign currency holdings, at market (identified cost
$8,015,073) (Note A) . . . . . . . . . . . . . . . . . . . . 7,969,587
Forward foreign currency exchange contracts held at
market (identified cost $16,373,613) (Notes A and D) . . . . 16,421,332
Receivable on sale of forward foreign currency
exchange contracts (Notes A and D) . . . . . . . . . . . . . 160,197,421
Other receivables:
Dividends and interest . . . . . . . . . . . . . . . . . . . 6,130,878
Investments sold . . . . . . . . . . . . . . . . . . . . . . 30,865,418
Fund shares sold . . . . . . . . . . . . . . . . . . . . . . 3,136,330
Foreign taxes recoverable . . . . . . . . . . . . . . . . . 2,175,113
-------------
Total assets . . . . . . . . . . . . . . . . . . . . . . 2,427,175,553
LIABILITIES
Payables:
Investments purchased . . . . . . . . . . . . . . . . . . . $ 26,791,325
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . 8,856,821
Accrued management fee (Note C) . . . . . . . . . . . . . . 1,575,120
Other accrued expenses (Note C) . . . . . . . . . . . . . . 1,420,706
Written options, at market (premiums received
$1,190,609) (Note A) . . . . . . . . . . . . . . . . . . 1,645,363
Payable for forward foreign currency exchange
contracts held (Notes A and D) . . . . . . . . . . . . . 16,373,613
Payable for foreign currencies to deliver
(Notes A and D) . . . . . . . . . . . . . . . . . . . . . 172,171,452
------------
Total liabilities . . . . . . . . . . . . . . . . . . . . 228,834,400
--------------
Net assets, at market value . . . . . . . . . . . . . . . . . . $2,198,341,153
==============
NET ASSETS
Net assets consist of:
Distributions in excess of net investment income (Note E) $(8,283,579)
Unrealized appreciation (depreciation) on:
Investments . . . . . . . . . . . . . . . . . . . . . . . 349,367,780
Written options . . . . . . . . . . . . . . . . . . . . . (454,754)
Foreign currency related transactions . . . . . . . . . . (12,008,088)
Accumulated net realized gain (Note E) . . . . . . . . . . . 59,310,225
Capital stock . . . . . . . . . . . . . . . . . . . . . . . 511,777
Additional paid-in capital (Note E) . . . . . . . . . . . . 1,809,897,792
--------------
Net assets, at market value . . . . . . . . . . . . . . . . . . $2,198,341,153
==============
NET ASSET VALUE, offering and redemption price per share
($2,198,341,153 / 51,177,699 shares of capital
stock outstanding, $.01 par value, 100,000,000
shares authorized) . . . . . . . . . . . . . . . . . . . . . $42.96
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
SCUDDER INTERNATIONAL FUND
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . $27,048,127
Interest . . . . . . . . . . . . . . . . . . . . . . . . 11,390,515
Exchange loss (Note A) . . . . . . . . . . . . . . . . . (508,025)
-----------
37,930,617
Less foreign taxes withheld . . . . . . . . . . . . . . . (3,747,495)
-----------
34,183,122
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $14,695,765
Services to shareholders (Note C) . . . . . . . . . . . . 2,958,614
Directors' fees (Note C) . . . . . . . . . . . . . . . . 57,990
Custodian fees . . . . . . . . . . . . . . . . . . . . . 2,249,758
Reports to shareholders . . . . . . . . . . . . . . . . . 454,800
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 145,409
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 43,271
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 492,206 21,097,813
----------- ------------
Net investment income . . . . . . . . . . . . . . . . . . 13,085,309
NET REALIZED AND UNREALIZED GAIN (LOSS) ON ------------
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . 91,219,946
Foreign currency related transactions . . . . . . . . (5,310,832) 85,909,114
-----------
Net unrealized appreciation (depreciation)
during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . 216,663,329
Written options . . . . . . . . . . . . . . . . . . . (454,754)
Foreign currency related transactions . . . . . . . . (10,004,928) 206,203,647
----------- ------------
Net gain on investment transactions . . . . . . . . . . . 292,112,761
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $305,198,070
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED MARCH 31,
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . $ 13,085,309 $ 11,665,880
Net realized gain from investment
transactions . . . . . . . . . . . . . . . . . 85,909,114 14,255,423
Net unrealized appreciation on investment
transactions during the period . . . . . . . . . 206,203,647 68,122,365
-------------- --------------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . 305,198,070 94,043,668
-------------- --------------
Distributions to shareholders:
From net investment income ($.63 and $.83 per
share, respectively) . . . . . . . . . . . . . . (25,672,105) (24,348,265)
-------------- --------------
In excess of net investment income ($.06 per
share) . . . . . . . . . . . . . . . . . . . . . (2,685,200) --
-------------- --------------
From net realized gains ($.09 and $.86 per
share, respectively) . . . . . . . . . . . . . . (4,116,057) (25,549,257)
-------------- --------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . 1,265,991,777 484,670,738
Net asset value of shares issued to
shareholders in reinvestment of distributions . 29,236,041 45,105,978
Cost of shares redeemed . . . . . . . . . . . . . . (549,728,090) (327,199,696)
------------- --------------
Net increase in net assets from Fund share
transactions . . . . . . . . . . . . . . . . . . 745,499,728 202,577,020
-------------- --------------
INCREASE IN NET ASSETS . . . . . . . . . . . . . . 1,018,224,436 246,723,166
Net assets at beginning of period . . . . . . . . . 1,180,116,717 933,393,551
-------------- --------------
NET ASSETS AT END OF PERIOD (including
distributions in excess of net investment
income of $8,283,579 and undistributed
net investment income of $11,399,430,
respectively) . . . . . . . . . . . . . . . . . $2,198,341,153 $1,180,116,717
============== ==============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 33,066,860 27,162,337
-------------- --------------
Shares sold . . . . . . . . . . . . . . . . . . . . 30,640,577 14,123,604
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 712,983 1,333,140
Shares redeemed . . . . . . . . . . . . . . . . . . (13,242,721) (9,552,221)
-------------- --------------
Net increase in Fund shares . . . . . . . . . . . . 18,110,839 5,904,523
-------------- --------------
Shares outstanding at end of period . . . . . . . . 51,177,699 33,066,860
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
<TABLE>
SCUDDER INTERNATIONAL FUND
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial statements.
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . . . . . . . . $35.69 $34.36 $34.69 $37.00 $34.79 $33.43 $44.05 $36.93 $23.03 $24.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (c) . . . . . . . .31 .38 .44 .80 .49 .40 .45 .47(b) .74 .51
Net realized and unrealized
gain (loss) on investment
transactions . . . . . . . . . . . . . 7.74 2.64 (.37) (.39) 5.30 4.15 (.86) 13.07 13.70 (1.09)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations . . . . 8.05 3.02 .07 .41 5.79 4.55 (.41) 13.54 14.44 (.58)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income . . . . . . (.63) (.83) -- (.74) (.43) (.13) (.82) (.49) (.41) (.10)
In excess of net investment income . . . (.06) -- -- -- -- -- -- -- -- --
From net realized gains on
investment transactions . . . . . . . (.09) (.86) (.40) (1.98) (3.15) (3.06) (9.39) (5.93) (.13) (.58)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . (.78) (1.69) (.40) (2.72) (3.58) (3.19) (10.21) (6.42) (.54) (.68)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . $42.96 $35.69 $34.36 $34.69 $37.00 $34.79 $33.43 $44.05 $36.93 $23.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . 22.69 9.12 .18 1.46 17.08 14.34 (.47) 40.18 64.17 (2.40)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) . . . . . . . . . . . . . 2,198 1,180 933 929 783 550 559 791 597 223
Ratio of operating expenses to
average net assets (%) (c) . . . . . . 1.21 1.26 1.30 1.24 1.18 1.22 1.21 1.09(b) .99 1.04
Ratio of net investment income to
average net assets (%) . . . . . . . . .75 1.13 1.25 2.22 1.33 1.20 1.16 1.19 2.60 2.34
Portfolio turnover rate (%) . . . . . . . 39.9 29.2 50.4 70.1 49.4 48.3 54.8 66.5 36.0 19.5
<FN>
(a) Based on monthly average shares outstanding during the period.
(b) The Adviser did not impose a portion of its management fee amounting to $.004 per share.
(c) Interest expense for the years ended March 31, 1992, 1991, 1990, 1989, 1988 and 1987 amounted to $.003, $.001, $.001,
$.001, $.015, and $.005 per share, and the related ratio of interest expense to average net assets was .008%, .003%,
.002%, .004%, .04%, and .01%, respectively.
</FN>
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder International Fund (the "Fund") is a diversified series of Scudder
International Fund, Inc. (the "Corporation"). The Corporation is organized as a
Maryland corporation and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The policies
described below are followed consistently by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S.
or foreign stock exchanges are valued at the most recent sale price reported on
the exchange on which the security is traded most extensively. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation is used. Securities quoted on the National
Association of Securities Dealers Automatic Quotation ("NASDAQ") System, for
which there have been sales, are valued at the most recent sale price reported
on such system. If there are no such sales, the value is the high or "inside"
bid quotation. Securities which are not quoted on the NASDAQ System but are
traded in another over-the-counter market are valued at the most recent sale
price on such market. If no sale occurred, the security is then valued at the
calculated mean between the most recent bid and asked quotations. If there are
no such bid and asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors. Securities valued in
good faith by the Valuation Committee of the Board of Directors at fair value
amounted to $12,154,151 (.55% of net assets) and have been noted in the
investment portfolio as of March 31, 1994.
25
<PAGE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
OPTIONS. The Fund may write (sell) exchange-listed and over-the-counter call
and put options on securities, securities indices, currencies and other
financial instruments. When the Fund writes a call, it gives the purchaser of
the call option the right to buy the underlying security or currency at the
price specified in the option (the "exercise price") at any time during the
option period, generally ranging up to nine months. When the Fund writes a put
option, it gives the purchaser of the put option the right to sell the
underlying security or currency to the Fund at the exercise price at any time
during the option period, generally ranging up to nine months.
If the option expires unexercised, the Fund will realize income, in the form of
a capital gain, to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security or currency to the option
holder or purchase the underlying security or currency from the option holder
at the exercise price. Certain options, including options on indices will
require cash settlement by the Fund if the option is exercised. By writing a
call option, the Fund foregoes, in exchange for the premium less the commission
("net premium"), the opportunity to profit during the option period from an
increase in the market value of the underlying security or currency above the
exercise price. By writing a put option, the Fund, in exchange for the net
premium received, accepts the risk of a decline in the market value of the
underlying security or currency below the exercise price.
The liability representing the Fund's obligation under an exchange traded
written call or put option is valued at the last sale price or, in the absence
of a sale, the mean between the closing bid and asked quotations or at the most
recent asked quotation if no bid and asked quotations are available.
Over-the-counter written options are valued at the most recent asked quotation.
In addition, the Fund may purchase, singly and in combination, call and put
options on securities, securities indices, currencies and other financial
instruments. Exchange traded purchased options are valued at the last sales
price or, in the absence of a sale, the mean between the closing bid and asked
quotations or at the most recent bid quotation if no bid and asked quotations
are available. Over-the-counter purchased options are valued at the most recent
bid quotation.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
Forward Foreign Currency Exchange Contracts. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the Fund
may enter into forward foreign currency exchange contracts ("contracts").
Additionally, the Fund may enter into contracts to hedge certain other foreign
currency denominated assets. Contracts are recorded at market value.
Certain risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts. Realized gains
and losses arising from such transactions are included in net realized gain from
foreign currency related transactions.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
The net assets of the Fund are presented at the exchange rates and market
values at the close of the period. The Fund does not isolate that portion of
gains and losses on investments which is due to changes in foreign exchange
rates from that which is due to changes in market prices of the equity
securities. However, for federal income tax purposes the Fund does isolate the
effect of changes in foreign exchange rates from the changes in market prices
for realized gains and losses on debt obligations. Exchange gain or loss
represents net currency gains (losses) realized between the ex and payment
dates on dividends and interest. Net realized gain (loss) from foreign currency
27
<PAGE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
related transactions includes gains (losses) between trade and settlement dates
on portfolio transactions.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders. The
Fund paid no federal income taxes and no federal income tax provision was
required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax. Earnings
and profits distributed to shareholders on redemption of Fund shares ("tax
equalization") may be utilized by the Fund, to the extent permissible, as part
of the Fund's dividends paid deduction on its federal tax return.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
primarily relate to redemptions-in-kind, investments in options, forward
contracts, passive foreign investment companies, foreign denominated
investments, and certain securities sold at a loss. As a result, net investment
income and net realized gain (loss) on investment transactions for a reporting
period may differ significantly from distributions during such period.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
OTHER. Investment security transactions are accounted for on a trade date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
B. Purchases and Sales Of Securities
- --------------------------------------------------------------------------------
For the year ended March 31, 1994, purchases and sales of investment securities
(excluding short-term investments) aggregated $1,337,026,520 and $648,302,671,
respectively. The sales of investment securities includes the market value of
securities relating to redemptions-in-kind during the period, upon which the
Fund recognized a net realized gain of $13,306,406.
C. Related Parties
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objective, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The
management fee payable under the Agreement is equal to an annual rate of 1% on
the first $200,000,000 of the Fund's average daily net assets, 0.90% on the
next $200,000,000, 0.85% on the next $400,000,000, and 0.80% of such net assets
in excess of $800,000,000, computed and accrued daily and payable monthly. The
Agreement also provides that if the Fund's expenses, exclusive of taxes,
interest, and extraordinary expenses, exceed specified limits, such excess, up
to the amount of the management fee, will be paid by the Adviser. For the year
ended March 31, 1994, the fee pursuant to the Agreement amounted to
$14,695,765, which was equivalent to an annual effective rate of .85% of the
Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend-paying and shareholder service agent for the Fund.
For the year ended March 31, 1994, the amount charged to the Fund by SSC
aggregated $2,410,783 of which $259,356 is unpaid at March 31, 1994.
The Fund pays each Director not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended March 31, 1994, Directors' fees aggregated $57,990.
29
<PAGE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------
<TABLE>
D. Commitments
- --------------------------------------------------------------------------------
As of March 31, 1994, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized depreciation of
$11,926,312.
<CAPTION>
NET UNREALIZED
APPRECIATION
SETTLEMENT (DEPRECIATION)
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
------------------------------- -------------------------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
U.S. Dollars 8,796,677 Japanese Yen 902,539,112 4/4/94 22,779
U.S. Dollars 3,909,196 British Pounds 2,633,548 4/5/94 8,206
U.S. Dollars 1,333,656 Swedish Kronas 10,462,532 4/5/94 4,246
U.S. Dollars 1,213,253 Spanish Pesetas 166,300,562 4/6/94 10,010
U.S. Dollars 558,569 Spanish Pesetas 76,300,471 4/7/94 2,677
U.S. Dollars 562,262 Spanish Pesetas 76,411,384 4/8/94 (200)
Japanese Yen 1,265,994,338 U.S. Dollars 12,172,890 4/4/94 (198,189)
British Pounds 10,021,398 U.S. Dollars 14,925,550 4/5/94 18,723
Japanese Yen 242,430,999 U.S. Dollars 2,361,724 4/5/94 (7,269)
Japanese Yen 75,937,500 U.S. Dollars 737,257 4/7/94 (4,791)
Japanese Yen 6,962,150,000 U.S. Dollars 65,000,000 1/24/96 (6,317,721)
Japanese Yen 6,878,300,000 U.S. Dollars 65,000,000 1/25/96 (5,464,783)
-----------
(11,926,312)
===========
</TABLE>
E. Reclassification of Capital Accounts
- --------------------------------------------------------------------------------
As required, effective April 1, 1993, the Fund has adopted the provisions of
Statement of Position 93-2 "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies (SOP)." In implementing the SOP, the Fund has reclassified
$3,032,776 to increase undistributed net investment income and $84,123,695 to
decrease accumulated net realized gain with a net increase of $81,090,919 to
additional paid-in capital. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to tax equalization
which is treated differently in the computation of distributable income and
capital gains under federal income tax rules and regulations versus generally
accepted accounting principles. The statement of changes in net assets and
financial highlights for prior periods have not been restated to reflect this
change in presentation.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS OF SCUDDER INTERNATIONAL FUND, INC. AND TO THE
SHAREHOLDERS OF SCUDDER INTERNATIONAL FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
International Fund, including the investment portfolio, as of March 31, 1994,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the ten years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder International Fund as of March 31, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
ten years in the period then ended in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND
May 18, 1994
31
<PAGE>
SCUDDER INTERNATIONAL FUND
TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund paid distributions of $.089 per share from net long-term capital gains
during its taxable year ended March 31, 1994. Pursuant to Section 852 of the
Internal Revenue Code, the Fund designates $64,353,624 as capital gain
dividends for its taxable year ended March 31, 1994.
The Fund paid foreign taxes of $3,747,495 and the Fund recognized $15,980,019
of foreign source income during the taxable year ended March 31, 1994. Pursuant
to section 853 of the Internal Revenue Code, the Fund designates $.0732 per
share of foreign taxes paid and $.3122 of gross income earned from foreign
sources in the taxable year ended March 31, 1994.
Please consult a tax adviser if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Service
Representative at 1-800-225-5163.
32
<PAGE>
OFFICERS ANS DIRECTORS
- --------------------------------------------------------------------------------
Edmond D. Villani*
Chairman of the Board and Director
Nicholas Bratt*
President and Director
Paul Bancroft III
Director; Venture Capitalist and Consultant
Thomas J. Devine
Director; Consultant
William H. Gleysteen, Jr.
Director; President, The Japan Society, Inc.
William H. Luers
Director; President, The Metropolitan Museum of Art
Wilson Nolen
Director; Consultant
Juris Padegs*
Director, Vice President and Assistant Secretary
Daniel Pierce*
Director
Gordon Shillinglaw
Director; Professor Emeritus of Accounting, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Director; Chairman of the Board and Director, Kirby Corporation
Robert W. Lear
Honorary Director
Carol L. Franklin*
Vice President
Edmund B. Games*
Vice President
Jerard K. Hartman*
Vice President
William E. Holzer*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President and Assistant Treasurer
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
William F. Truscott*
Vice President
Richard W. Desmond*
Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
33
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
- --------------------------------------------------------------------------------
<TABLE>
The Scudder Family of Funds
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Money market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax free money market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Value Fund
Scudder Balanced Fund The Japan Fund**
Scudder Growth and Income Fund
Retirement Plans and Tax-Advantaged Investments
- -------------------------------------------------------------------------------------------------------------------
IRAs
Keogh Plans 403(b) Plans
Scudder Horizon Plan* (a variable annuity) SEP-IRAs
401(k) Plans Profit Sharing and Money Purchase
Pension Plans
Closed-end Funds#
- -------------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- -------------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
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. +A portion of the income from the tax
free funds may be subject to federal, state and local taxes. *Not available in all states. **Managed by Asia
Management Corp. (a wholly-owned subsidiary of Scudder, Stevens & Clark, Inc.). #These funds, advised by Scudder,
Stevens & Clark, Inc., are traded on the New York Stock Exchange. Scudder Horizon Plan, a no-load variable annuity
contract provided by Charter National Life Insurance Company of St. Louis, is offered by Scudder Insurance Agency,
Inc. 1-800-225-2470. ++For information on Scudder Treasurers Trust(tm), an institutional cash management service
that utilizes certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
34
<PAGE>
HOW TO CONTACT SCUDDER
- --------------------------------------------------------------------------------
Account Service and Information
- -------------------------------------------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
- -------------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
- -------------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
- -------------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:
Boca Raton Los Angeles
Boston New York
Chicago Portland, OR
Cincinnati San Francisco
Scottsdale
For information on Scudder For information on Scudder
Treasurers Trust(tm), an Institutional Funds,* funds
institutional cash management designed to meet the broad
service for corporations, investment management and
non-profit organizations and service needs of banks and other
trusts which utilizes certain institutions, call:
portfolios of Scudder Fund, 1-800-854-8525.
Inc.* ($100,000 minimum), call:
1-800-541-7703.
Scudder Investor Information and Scudder Funds Centers are services provided through Scudder Investor
Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus with more complete
information, including management fees and expenses. Please read it carefully before you invest or send
money.
</TABLE>
35
<PAGE>
Celebrating 75 Years of Serving Investors
- --------------------------------------------------------------------------------
This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, investment adviser for the Scudder Funds. Established in
1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark, Scudder was
the first independent investment counsel firm in the United States. Since
its birth, Scudder's pioneering spirit and commitment to professional
long-term investment management have helped shape the investment industry.
In 1928, we introduced the nation's first no-load mutual fund. Today we
offer 35 pure no load(tm) funds, including the first international mutual
fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
