Scudder Greater Europe Growth Fund
Supplement to Statement of Additional Information
dated October 10, 1994
The following is added to the discussion contained under
"PERFORMANCE INFORMATION."
The following graph illustrates the historical risks and
returns of selected indices which track the performance of
various combinations of United States and international
securities for the ten year period ended December 31, 1994;
results for other periods may vary. The graph uses ten-year
annualized international returns represented by the Morgan
Stanley Capital International Europe (EUR) 14 Index and ten-year
annualized United States returns represented by the S&P 500
Index. Risk is measured by the standard deviation in overall
portfolio performance within each index. Performance of an index
is historical, does not represent the performance of the Fund,
and is not a guarantee of future results.
(X-Y CHART TITLE) EFFICIENT FRONTIER
MSCI EUR 14 INDEX vs. S&P 500 INDEX (12/31/84-12/31/94)(CHART
DATA)
<TABLE>
<CAPTION>
Data Point Labels X-Axis Y-Axis
Standard Deviation Total Return
<S> <C> <C>
100% Int'l MSCI EAFE 17.95 18.46
10 US/90 Int'l 17.14 18.05
20/80 16.41 17.64
30 U.S./70 Int'l 15.8 17.23
40/60 15.3 16.82
50 U.S./50Int'l 14.93 16.41
60/40 14.7 16
70 U.S./30 Int'l 14.62 15.59
80/20 14.69 15.18
90 U.S./10 Int'l 14.91 14.77
100% U.S. S&P 500 15.27 14.36
</TABLE>
Source: Lipper Analytical Services, Inc. (Data as of 12/31/94)
February 15, 1995
<PAGE>
SCUDDER GREATER EUROPE GROWTH FUND
A Pure No-Load(tm) (No Sales Charges) Mutual Fund Seeking
Long-Term Growth of Capital Through Investments Primarily
in the Equity Securities of European Companies
STATEMENT OF ADDITIONAL INFORMATION
October 10, 1994
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of Scudder Greater Europe
Growth Fund dated October 10, 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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES 1
General Investment Objective and Policies 1
Investments 1
Country and Industry Analysis 2
Special Considerations 2
Risk Factors 4
Investment Restrictions 15
PURCHASES 17
Additional Information About Opening An Account 17
Additional Information About Making Subsequent Investments 17
Checks 17
Wire Transfer of Federal Funds 18
Share Price 18
Share Certificates 18
Other Information 18
EXCHANGES AND REDEMPTIONS 19
Exchanges 19
Redemption By Telephone 19
Redemption by Mail or Fax 20
Redemption-in-Kind 20
Other Information 21
FEATURES AND SERVICES OFFERED BY THE FUND 21
The Pure No-Load(tm) Concept 21
Dividend Reinvestment Plan 22
Scudder Funds Centers 23
Reports to Shareholders 23
Transaction Summaries 23
THE SCUDDER FAMILY OF FUNDS 23
SPECIAL PLAN ACCOUNTS 26
Scudder Retirement Plans: Profit-Sharing and Money Purchase 26
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for 27
Corporations and Self-Employed Individuals
Scudder IRA: Individual Retirement Account 27
Scudder 403(b) Plan 28
Automatic Withdrawal Plan 28
Group or Salary Deduction Plan 28
Automatic Investment Plan 29
Uniform Transfers/Gifts to Minors Act 29
Scudder Trust Company 29
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS 29
PERFORMANCE INFORMATION 30
Average Annual Total Return 30
Cumulative Total Return 30
Total Return 30
Capital Change 31
Comparison of Fund Performance 31
FUND ORGANIZATION 34
INVESTMENT ADVISER 36
DIRECTORS AND OFFICERS 38
REMUNERATION 40
DISTRIBUTOR 40
TAXES 41
PORTFOLIO TRANSACTIONS 45
Brokerage 45
Portfolio Turnover 45
NET ASSET VALUE 46
ADDITIONAL INFORMATION 47
Experts 47
Other Information 47
FINANCIAL STATEMENTS 47
APPENDIX
</TABLE>
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 Greater Europe Growth Fund (the "Fund"), is a pure
no-load(tm), non-diversified series of Scudder International Fund, Inc.
(the "Corporation"), an 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 may be appropriate for investors seeking to benefit from the
structural and cyclical changes taking place throughout Europe. Sometimes
a major market such as Europe will experience a severe recession with
accompanying high interest rates. An investor may benefit from subsequent
economic growth as the economy recovers and interest rates decline. The
Fund may also be appropriate for investors seeking to construct their own
portfolio using Scudder's regional funds.
General Investment Objective and Policies
The Fund's investment objective is to seek long-term growth of capital
through investments primarily in the equity securities of European
companies. Although its focus is on long-term growth, the Fund may provide
current income principally through holdings in dividend-paying securities.
Greater Europe includes both the industrialized nations of Western
Europe and the less wealthy or developed countries in Southern and Eastern
Europe. Within this diverse area, the Fund seeks to benefit from
accelerating economic growth transformation and deregulation taking hold.
These developments involve, among other things, increased privatizations
and corporate restructurings, the reopening of equity markets and economies
in Eastern Europe, further broadening of the European Community, and the
implementation of economic policies to promote non-inflationary growth. The
Fund invests in companies it believes are well placed to benefit from these
and other structural and cyclical changes now underway in this region of
the world.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of
shareholders. Shareholders will receive written notice of any changes in
the Fund's objective. If there is a change in investment objective,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then current financial position and needs.
There can be no assurance that the Fund's objective will be met.
Investments
The Fund will invest, under normal market conditions, at least 80% of
its assets in the equity securities of European companies. The Fund defines
a European company as follows: a company organized under the laws of a
European country or for which the principal securities trading market is in
Europe; or a company, wherever organized, where at least 50% of the
company's non-current assets, capitalization, gross revenue or profit in
its most recent fiscal year represents (directly or indirectly through
subsidiaries) assets or activities located in Europe. Greater Europe is
home to 5,816 publicly traded companies.
The Fund expects the majority of its equity assets to be in the more
established and liquid markets of Western and Southern Europe. These more
established Western and Southern European countries include Austria,
Belgium, Denmark, Finland, France, Germany, Iceland, Ireland, Italy,
Luxembourg, the Netherlands, Norway, Spain, Sweden, Switzerland, and the
United Kingdom. To enhance return potential, however, the Fund may pursue
investment opportunities in the less wealthy nations of Southern Europe,
currently Greece, Portugal and Turkey, and the former communist countries
of Eastern Europe, including countries once part of the Soviet Union. The
Fund currently has no intention of investing more than 5% of the Fund's
total assets in Turkey. The Fund may invest in other countries of Europe
when their markets become sufficiently developed, in the opinion of the
Fund's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser").
The Fund intends to allocate its investments among at least three
countries at all times and does not expect to concentrate investments in
any particular industry. The Fund's equity investments are common stock,
preferred stock (convertible or non-convertible), depositary receipts
(sponsored or unsponsored) and warrants. These may be restricted
securities. Equity securities may also be purchased through rights.
Securities may be listed on securities exchanges, traded over-the-counter
or have no organized market. In addition, the Fund may engage in strategic
transactions.
The Fund may invest, under normal market conditions, up to 20% of its
total assets in European debt securities. Capital appreciation in debt
securities may arise from a favorable change in relative interest rate
levels or in the creditworthiness of issuers. Within this 20% limit, the
Fund may invest in debt securities which are unrated, rated, or the
equivalent of those rated below investment grade (commonly referred to as
"junk bonds"); that is, rated below Baa by Moody's Investors Service, Inc.
("Moody's") or below BBB by Standard & Poor's Corporation ("S&P"). The
Fund may invest in securities which are rated C by Moody's and D by S&P.
Such securities 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 organizations and their
respective characteristics.
The Fund may invest in when-issued securities and may enter into
repurchase agreements. The Fund may also invest in closed-end investment
companies that invest primarily in Europe. In addition, to provide for
redemptions or distributions, the Fund may borrow from banks and other
entities in an amount not exceeding the value of one-third of the Fund's
total assets. The Fund does not expect to borrow for investment purposes.
When, in the opinion of the Adviser, market conditions warrant, the
Fund may hold foreign or U.S. debt instruments as well as cash or cash
equivalents, including foreign and domestic money market instruments,
short-term government and corporate obligations, and repurchase agreements
without limit for temporary defensive purposes and up to 20% to maintain
liquidity. More information about investment techniques is provided under
"Additional information about policies and investments" in the Fund's
prospectus.
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 and more
than 10% of its net assets would be invested in securities that are not
readily marketable.
Country and Industry Analysis
Scudder, Stevens & Clark, Inc. has been managing European investments
for over 35 years. Scudder employs a dedicated team of approximately 20
experienced analysts, some of whom have specialized expertise in Europe,
and others of whom focus on one or more industries globally. These
analysts research the diverse European markets and seek to identify
companies, industries and markets which may be undervalued which have
outstanding growth prospects. These two groups of analysts work in teams
to create expertise synergies.
In managing the Fund, the Adviser utilizes reports, statistics and
other investment information from a wide variety of sources, including
brokers and dealers who may execute portfolio transactions for the Fund and
for clients of the Adviser. Investment decisions, however, will be based
primarily on critical analyses and investigations, including visiting
companies, touring facilities, and interviewing suppliers and customers, by
the Adviser's own research specialists and portfolio managers. Field
research, including visiting the companies and/or countries a particular
analyst covers, is an important piece of the research effort.
Special Considerations
Market Characteristics. The securities markets of many European countries
are relatively small, with the majority of market capitalization and
trading volume concentrated in a limited number of companies representing a
small number of industries. Consequently, the Fund's investment portfolio
may experience greater price volatility and significantly lower liquidity
than a portfolio invested in equity securities of U.S. companies. These
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the U.S. Securities settlements may in some
instances be subject to delays and related administrative uncertainties.
Investment and Repatriation Restrictions. Foreign investment in the
securities markets of certain European countries is restricted or
controlled to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the
cost and expenses of the Fund. As illustrations, certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of securities of
a company which may have less advantageous terms than securities of the
company available for purchase by nationals. In addition, the repatriation
of both investment income and capital from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental
approval for repatriation.
In accordance with the Investment Company Act of 1940 (the "1940
Act"), the Fund may invest up to 10% of its total assets in securities of
closed-end investment companies. This restriction on investments in
securities of closed-end investment companies may limit opportunities for
the Fund to invest indirectly in certain small capital markets. If the
Fund acquires shares in closed-end investment companies, shareholders would
bear both their proportionate share of expenses in the Fund (including
management and advisory fees) and, indirectly, the expenses of such closed-
end investment companies (including management and advisory fees).
Role of Banks in Capital Markets. In a number of European countries,
commercial banks act as securities brokers and dealers, and as
underwriters, investment fund managers and investment advisers. They also
may hold equity participations, as well as controlling interests, in
industrial, commercial or financial enterprises, including companies whose
securities are publicly traded and listed on European stock exchanges.
Investors should consider the potential conflicts of interest that result
from the combination in a single firm of commercial banking and diversified
securities activities.
The Fund is prohibited under the 1940 Act, in the absence of an
exemptive rule or other exemptive relief, from purchasing the securities of
any company that, in its most recent fiscal year, derived more than 15% of
its gross revenues from securities-related activities.
Corporate Disclosure Standards. Issuers of securities in some European
jurisdictions are not subject to the same degree of regulation as are U.S.
issuers with respect to such matters as insider trading rules, restrictions
on market manipulation, shareholder proxy requirements and timely
disclosure of information. The reporting, accounting and auditing standards
of European countries differ from U.S. standards in important respects and
less information is available to investors in securities of European
companies than to investors in U.S. securities.
Transaction Costs. Brokerage commissions and transaction costs for
transactions both on and off the securities exchanges in many European
countries are generally higher than in the U.S.
Economic and Political Risks. The economies of individual European
countries may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product or gross national product, as
the case may be, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. In addition, securities
traded in certain emerging European securities markets may be subject to
risks due to the inexperience of financial intermediaries, the lack of
modern technology, the lack of sufficient capital base to expand business
operations and the possibility of permanent or temporary termination of
trading and greater spreads between bid and asked prices for securities in
such markets. Business entities in many Eastern European countries do not
have any recent history of operating in a market-oriented economy, and the
ultimate impact of Eastern European countries' attempts to move toward more
market-oriented economies is currently unclear. In addition, any change in
the leadership or policies of Eastern European countries may halt the
expansion of or reverse the liberalization of foreign investment policies
now occurring and adversely affect existing investment opportunities.
Other Risks of Foreign Investments. The Fund's investments could in the
future be adversely affected by any increase in taxes or by political,
economic or diplomatic developments. The Fund intends to seek investment
opportunities within the former "east bloc" countries in Eastern Europe.
See "Investment objective and policies" in the Fund's prospectus. All or a
substantial portion of such investments may be considered "not readily
marketable" for purposes of the limitations set forth below.
Most Eastern European countries have had a centrally planned,
socialist economy since shortly after World War II. The governments of a
number of Eastern European countries currently are implementing reforms
directed at political and economic liberalization, including efforts to
decentralize the economic decision-making process and move towards a market
economy. There can be no assurance that these reforms will continue or, if
continued will achieve their goals.
Investing in the securities of the former "east bloc" Eastern European
issuers involves certain considerations not usually associated with
investing in securities of issuers in more developed capital markets such
as the U.S., Japan or Western Europe, including (i) political and economic
considerations, such as greater risks of expropriation, confiscatory
taxation, nationalization and less social, political and economic
stability; (ii) the small current size of markets for such securities and
the currently low or non-existent volume of trading, resulting in lack of
liquidity and in price volatility; (iii) certain national policies which
may restrict the Fund's investment opportunities, including, without
limitation, restrictions on investing in issuers or industries deemed
sensitive to relevant national interest; and (iv) the absence of developed
legal structures governing foreign private investments and private
property. Applicable accounting and financial reporting standards in
Eastern Europe may be substantially different from U.S. accounting
standards and, in certain Eastern European countries, no reporting
standards currently exist. Consequently, substantially less information is
available to investors in Eastern Europe, and the information that is
available may not be conceptually comparable to, or prepared on the same
basis as that available in more developed capital markets, which may make
it difficult to assess the financial status of particular companies.
The governments of certain Eastern European countries may require that
a governmental or quasi-governmental authority act as custodian of the
Fund's assets invested in such countries. These authorities may not be
qualified to act as foreign custodians under the 1940 Act and, as a result,
the Fund would not be able to invest in these countries in the absence of
exemptive relief from the Securities and Exchange Commission (the
"Commission"). In addition, the risk of loss through government
confiscation may be increased in such countries.
Securities Not Readily Marketable. Although the Fund expects to invest
primarily in listed securities of established companies, it may invest up
to 10% of its total assets in securities which are not readily marketable
and which may involve a high degree of business and financial risk that can
result in substantial losses. Because of the absence of a trading market
for these investments, the Fund may not be able to realize their value upon
sale.
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 European companies. 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. Further, foreign markets have
different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the
volume of securities transactions making it difficult to conduct such
transactions. Delays in settlement could result in temporary periods when
assets of the Fund are uninvested and no return is earned thereon. The
inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems
either could result in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract
to sell the security, could result in possible liability to the purchaser.
Fixed commissions on some foreign 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.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence
on foreign economic assistance may be greater in these countries than in
developed countries. The management of the Fund seeks to mitigate the
risks associated with the foregoing considerations through active
professional management.
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.
Many of the currencies of Eastern European countries have experienced
a steady devaluation relative to western currencies. Any future
devaluation may have a detrimental impact on any investments made by the
Fund in Eastern Europe. The currencies of most Eastern European countries
are not freely convertible into other currencies and are not
internationally traded. The Fund will not invest its assets in non-
convertible fixed income securities denominated in currencies that are not
freely convertible into other currencies at the time the investment is
made.
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 European debt securities.
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, 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 or AAA, AA, A or BBB by S&P or, if unrated, judged to be of
equivalent quality as determined by the Adviser. Moody's considers bonds
it rates Baa to have speculative elements as well as investment-grade
characteristics.
High Yield/High Risk Bonds. Within its 20% limit of investments in debt
securities, the Fund may also purchase 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 may
invest in securities which are rated C by Moody's and D by S&P. Such
securities 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.
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.
Borrowing. The Fund is authorized to borrow money from banks and other
entities in an amount equal to up to 33 1/3% of the Fund's net assets for
purposes of liquidity and to provide for redemptions and distributions.
The Fund will borrow only when the Adviser believes that borrowing will
benefit the Fund after taking into account considerations such as the costs
of the borrowing. The Fund will not borrow for investment purposes, to
increase return or leverage the portfolio. Borrowing by the Fund will
involve special risk considerations. Although the principal of the Fund's
borrowings will be fixed, the Fund's assets may change in value during the
time a borrowing is outstanding, thus increasing exposure to capital risk.
The Fund will not make additional investments when borrowings exceed 5%.
Illiquid Securities. The Fund may occasionally purchase securities other
than in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market,
the securities so purchased are often "restricted securities" or "not
readily marketable," i.e., securities which cannot be sold to the public
without registration under the Securities Act of 1933 or the availability
of an exemption from registration (such as Rules 144 or 144A) or because
they are subject to other legal or contractual delays in or restrictions on
resale.
Generally speaking, restricted securities may be sold only to
qualified institutional buyers, or in a privately negotiated transaction to
a limited number of purchasers, or in limited quantities after they have
been held for a specified period of time and other conditions are met
pursuant to an exemption from registration, or in a public offering for
which a registration statement is in effect under the Securities Act of
1933. The Fund may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public,
and in such event the Fund may be liable to purchasers of such securities
if the registration statement prepared by the issuer, or the prospectus
forming a part of it, is materially inaccurate or misleading. Purchases
and sales of restricted securities may also involve higher transaction
costs than purchases and sales of readily marketable securities.
When-Issued Securities. The Fund may from time to time purchase equity and
debt securities on a "when-issued" or "forward delivery" basis. The price
of such securities, which may be expressed in yield terms, is fixed at the
time the commitment to purchase is made, but delivery and payment for the
when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by
the Fund to the issuer and no interest accrues to the Fund. To the extent
that assets of the Fund are held in cash pending the settlement of a
purchase of securities, the Fund would earn no income; however, it is the
Fund's intention to be fully invested to the extent practicable and subject
to the policies stated above. While when-issued or forward delivery
securities may be sold prior to the settlement date, the Fund intends to
purchase such securities with the purpose of actually acquiring them unless
a sale appears desirable for investment reasons. At the time the Fund
makes the commitment to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The market value of the
when-issued or forward delivery securities may be more or less than the
purchase price. The Fund does not believe that its net asset value or
income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis.
Convertible Securities. The Fund may invest in convertible securities,
that is, bonds, notes, debentures, preferred stocks and other securities
which are convertible into common stock. Investments in convertible
securities can provide an opportunity for capital appreciation and/or
income through interest and dividend payments by virtue of their conversion
or exchange features. The Fund will limit its purchases of convertible
securities to debt securities convertible into common stocks.
The convertible securities in which the Fund may invest are either
fixed income or zero coupon debt securities which may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares
of common stock. The exchange ratio for any particular convertible
security may be adjusted from time to time due to stock splits, dividends,
spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred
stocks, until converted, have general characteristics similar to both debt
and equity securities. Although to a lesser extent than with debt
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as
the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities.
A unique feature of convertible securities is that as the market price of
the underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock, although typically not as much as the underlying
common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of
course, like all debt securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may
default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Depositary Receipts. The Fund may invest indirectly in securities of
issuers through sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary
Receipts ("IDRs") and other types of Depositary Receipts (which, together
with ADRs, GDRs and IDRs are hereinafter referred to as "Depositary
Receipts"). Depositary Receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be
converted. In addition, the issuers of the stock of unsponsored Depositary
Receipts are not obligated to disclose material information in the United
States and, therefore, there may not be a correlation between such
information and the market value of the Depositary Receipts. ADRs are
Depositary Receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they also
may be issued by U.S. banks or trust companies, and evidence ownership of
underlying securities issued by either a foreign or a U.S. corporation.
Generally, Depositary Receipts in registered form are designed for use in
the U.S. securities markets and Depositary Receipts in bearer form are
designed for use in securities markets outside the U.S. For purposes of
the Fund's investment policies, the Fund's investments in ADRs, GDRs and
other types of Depositary Receipts will be deemed to be investments in the
underlying securities. Depositary Receipts other than those denominated in
U.S. dollars will be subject to foreign currency exchange rate risk.
Certain Depositary Receipts may not be listed on an exchange and therefore
may be illiquid securities. The Fund does not intend to invest more than
5% of its total assets in unsponsored Depositary Receipts.
Strategic Transactions and Derivatives. The Fund may, but is not required
to, utilize various other investment strategies as described below to hedge
various market risks (such as interest rates, currency exchange rates, and
broad or specific equity or fixed-income market movements), to manage the
effective maturity or duration of fixed-income securities in the Fund's
portfolio, or to enhance potential gain. These strategies may include the
use of derivatives contracts. 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
without limit to attempt to protect against possible changes in the market
value of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations,
to protect the Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to
enhance potential gain although no more than 5% of the Fund's assets will
be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time
and in any combination, and there is no particular strategy that dictates
the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market
conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply
with applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving 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, including derivatives contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to
certain market movements is incorrect, the risk that the use of such
Strategic Transactions could result in losses greater than if they had not
been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or
for prices higher than (in the case of put options) or lower than (in the
case of call options) current market values, limit the amount of
appreciation the Fund can realize on its investments or cause the Fund to
hold a security it might otherwise sell. The use of currency transactions
can result in the Fund incurring losses as a result of a number of factors
including the imposition of exchange controls, suspension of settlements,
or the inability to deliver or receive a specified currency. The use of
options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the Fund's position. In addition,
futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in
certain markets, the Fund might not be able to close out a transaction
without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is
limited to the cost of the initial premium. Losses resulting from the use
of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions
had not been utilized.
General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or
sold. Thus, the following general discussion relates to each of the
particular types of options discussed in greater detail below. In
addition, many Strategic Transactions involving options require segregation
of Fund assets in special accounts, as described below under "Use of
Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the
underlying security, commodity, index, currency or other instrument at the
exercise price. For instance, the Fund's purchase of a put option on a
security might be designed to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in the market value by giving the Fund the right to sell such
instrument at the option exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller
the obligation to sell, the underlying instrument at the exercise price.
The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it
intends to purchase in the future by fixing the price at which it may
purchase such instrument. An American style put or call option may be
exercised at any time during the option period while a European style put
or call option may be exercised only upon expiration or during a fixed
period prior thereto. The Fund is authorized to purchase and sell exchange
listed options and over-the-counter options ("OTC options"). Exchange
listed options are issued by a regulated intermediary such as the Options
Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial
intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or
currency, although in the future cash settlement may become available.
Index options and Eurodollar instruments are cash settled for the net
amount, if any, by which the option is "in-the-money" (i.e., where the
value of the underlying instrument exceeds, in the case of a call option,
or is less than, in the case of a put option, the exercise price of the
option) at the time the option is exercised. Frequently, rather than
taking or making delivery of the underlying instrument through the process
of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of
the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon
the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities including reaching daily price limits;
(iv) interruption of the normal operations of the OCC or an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle current
trading volume; or (vi) a decision by one or more exchanges to discontinue
the trading of options (or a particular class or series of options), in
which event the relevant market for that option on that exchange would
cease to exist, although outstanding options on that exchange would
generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the
hours during which the underlying financial instruments are traded. To the
extent that the option markets close before the markets for the underlying
financial instruments, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers,
financial institutions or other parties ("Counterparties") through direct
bilateral agreement with the Counterparty. In contrast to exchange listed
options, which generally have standardized terms and performance mechanics,
all the terms of an OTC option, including such terms as method of
settlement, term, exercise price, premium, guarantees and security, are set
by negotiation of the parties. The Fund will only sell OTC options (other
than OTC currency options) that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to
the Fund at a formula price within seven days. The Fund expects generally
to enter into OTC options that have cash settlement provisions, although it
is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails
to make or take delivery of the security, currency or other instrument
underlying an OTC option it has entered into with the Fund or fails to make
a cash settlement payment due in accordance with the terms of that option,
the Fund will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, the Adviser must
assess the creditworthiness of each such Counterparty or any guarantor or
credit enhancement of the Counterparty's credit to determine the likelihood
that the terms of the OTC option will be satisfied. The Fund will engage
in OTC option transactions only with U.S. government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers" or
broker/dealers, domestic or foreign banks or other financial institutions
which have received (or the guarantors of the obligation of which have
received) a short-term credit rating of A-1 from S&P or P-1 from Moody's or
an equivalent rating from any nationally recognized statistical rating
organization ("NRSRO"). The staff of the Commission 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 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.
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 commitment or option to
sell a currency whose changes in value are generally considered to be
correlated to a currency or currencies in which some or all of the Fund's
portfolio securities are or are expected to be denominated, in exchange for
U.S. dollars. The amount of the commitment or option would not exceed the
value of the Fund's securities denominated in correlated currencies. For
example, if the Adviser considers that the Austrian schilling is correlated
to the German deutschemark (the "D-mark"), the Fund holds securities
denominated in schillings and the Adviser believes that the value of
schillings will decline against the U.S. dollar, the Adviser may enter into
a commitment or option to sell D-marks and buy dollars. Currency hedging
involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to
the Fund if the currency being hedged fluctuates in value to a degree or in
a direction that is not anticipated. Further, there is the risk that the
perceived correlation between various currencies may not be present or may
not be present during the particular time that the Fund is engaging in
proxy hedging. If the Fund enters into a currency hedging transaction, the
Fund will comply with the asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by
governments. These can result in losses to the Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could
also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the
use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in
the issuing nation. Trading options on currency futures is relatively new,
and the ability to establish and close out positions on such options is
subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.
Combined Transactions. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions,
multiple currency transactions (including forward currency contracts) and
multiple interest rate transactions and any combination of futures,
options, currency and interest rate transactions ("component"
transactions), instead of a single Strategic Transaction, as part of a
single or combined strategy when, in the opinion of the Adviser, it is in
the best interests of the Fund to do so. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into
based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks
or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into
which the Fund may enter are interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. The Fund expects
to enter into these transactions primarily to preserve a return or spread
on a particular investment or portion of its portfolio, to protect against
currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund intends to use these transactions as
hedges and not as speculative investments and will not sell interest rate
caps or floors where it does not own securities or other instruments
providing the income stream the Fund may be obligated to pay. Interest
rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap
cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to
the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments
on a notional principal amount from the party selling such floor to the
extent that a specified index falls below a predetermined interest rate or
amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Inasmuch as
these swaps, caps, floors and collars are entered into for good faith
hedging purposes, the Adviser and the Fund believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to its borrowing restrictions. The Fund will
not enter into any swap, cap, floor or collar transaction unless, at the
time of entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by
S&P or Moody's or has an equivalent rating from a NRSRO or is determined to
be of equivalent credit quality by the Adviser. If there is a default by
the Counterparty, the Fund may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency-denominated instruments
are available from time to time. Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings. The Fund might use Eurodollar futures
contracts and options thereon to hedge against changes in LIBOR, to which
many interest rate swaps and fixed income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside
the U.S., Strategic Transactions may not be regulated as rigorously as in
the U.S., may not involve a clearing mechanism and related guarantees, and
are subject to the risk of governmental actions affecting trading in, or
the prices of, foreign securities, currencies and other instruments. The
value of such positions also could be adversely affected by: (i) other
complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events occurring in
foreign markets during non-business hours in the U.S., (iv) the imposition
of different exercise and settlement terms and procedures and margin
requirements than in the U.S., and (v) lower trading volume and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions,
in addition to other requirements, require that the Fund segregate 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.
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 of 1986,
as amended (the "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 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) purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to
be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that
there is no limitation with respect to investments in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (for the purposes of this restriction,
telephone companies are considered to be in a separate industry
from gas and electric public utilities, and wholly-owned finance
companies are considered to be in the industry of their parents
if their activities are primarily related to financing the
activities of their parents);
(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);
(6) purchase or sell physical commodities or contracts relating to
physical commodities; and
(7) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for
shares of the separate classes or series of the Corporation;
provided that collateral arrangements with respect to currency-
related contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation margin,
are not considered to be the issuance of senior securities for
purposes of this restriction.
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 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 at no added cost 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 securities, the disposition of which is
restricted under Federal securities laws, and 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, except
U.S. Government securities, securities of such issuers which are
rated by at least one nationally recognized statistical rating
organization 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 10% 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) 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);
(k) invest more than 20% of its total assets in debt securities
(including convertible securities);
(l) 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;
(m) purchase or sell real estate limited partnership interests; or
(n) purchase or retain securities of an issuer if, with respect to
75% of the Fund's total assets, such purchase would result in
more than 10% of the outstanding voting securities of such
issuers being held by the Fund.
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. The Fund currently has no intention of engaging in reverse
repurchase agreements.
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 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.
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 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.
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.
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.
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 Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the
extent that the Fund does not follow such procedures, it may be liable for
losses due to unauthorized or fraudulent telephone instructions. The Fund
will not be liable for acting upon instructions communicated by telephone
that it reasonably believes to be genuine.
Redemption by Mail or Fax
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 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 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
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 after the record
date of a dividend, 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 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
NASD 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.
<TABLE>
<CAPTION>
Scudder Load Fund No-Load Fund
Pure No- 8.50% Load with 0.75% with 0.25%
YEARS Load(tm) Fund Fund 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.
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 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.
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.
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 Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
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.
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.
* These funds are not available for sale in all states. For
information, contact Scudder Investor Services, Inc.
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 IRS's approval of an employer's
plan under Section 401(a) of 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
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.
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. 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.
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 December to avoid federal excise tax,
although an additional distribution may be made within three months of the
Fund's fiscal year end, 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 and the life of the Fund, 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.
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.
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.
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 amount of assets that the
Adviser has under management in various geographical areas may be quoted in
advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's
college planning program. The description may contain illustrations of
projected future college costs based on assumed rates of inflation and
examples of hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund
to other Scudder funds or broad categories of funds, such as money market,
bond or equity funds, in terms of potential risks and returns. Money
market funds are designed to maintain a constant $1.00 share price and have
a fluctuating yield. Share price, yield and total return of a bond fund
will fluctuate. The share price and return of an equity fund also will
fluctuate. The description may also compare the Fund to bank products,
such as certificates of deposit. Unlike mutual funds, certificates of
deposit are insured up to $100,000 by the U.S. Government and offer a fixed
rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity
funds, which may involve the loss of principal. However, all long-term
investments, including investments in bank products, may be subject to
inflation risk, which is the risk of erosion of the value of an investment
as prices increase over a long time period. The risks/returns associated
with an investment in bond or equity funds depend upon many factors. For
bond funds these factors include, but are not limited to, a fund's overall
investment objective, the average portfolio maturity, credit quality of the
securities held, and 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.
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.
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, a leading national 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 400
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 four series: Scudder International Fund, the original
series; Scudder Latin America Fund and Scudder Pacific Opportunities Fund,
both organized in December, 1992 and Scudder Greater Europe Growth Fund,
organized in August, 1994. 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 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 the public. In 1953, the Adviser introduced
the Scudder International 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 October
10, 1994 was approved by the Directors of the Fund on September 7, 1994 and
by the initial shareholder of the Fund on October 7, 1994. The Agreement
will continue in effect until September 30, 1996 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 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 1.00% of
the Fund's average daily net assets, payable monthly, provided the Fund
will make such interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund
and unpaid. The Adviser has agreed until February 29, 1996 to maintain the
total annualized expenses of the Fund at no more than 1.50% of the average
daily net assets of the Fund.
Under the Agreement the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions;
legal, auditing and accounting expenses; the calculation of net asset
value; taxes and governmental fees; the fees and expenses of the Transfer
Agent; the cost of preparing share certificates or any other expenses of
issue, sale, underwriting, distribution, redemption or repurchase of
shares; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Directors, officers and
employees of the Fund who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to stockholders; and the fees
and disbursements of custodians. The Fund may arrange to have third
parties assume all or part of the expenses of sale, underwriting and
distribution of shares of the Fund. The Fund is also responsible for its
expenses of shareholders' meetings, the cost of responding to shareholders'
inquiries, and its expenses incurred in connection with litigation,
proceedings and claims and the legal obligation it may have to indemnify
its officers and Directors of the Fund with respect thereto. The Agreement
expressly provides that the Adviser shall not be required to pay a pricing
agent of the Fund for portfolio pricing services, if any.
The Agreement 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.
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.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
Position with
Underwriter,
Position Principal Scudder Investor
Name and Address with Fund Occupation** Services, Inc.
- ---------------- ---------- ------------ ------------------
<C> <C> <C> <C>
Edmond D. Villani #@* Chairman ofthe President and --
Board and Managing Director
Director of Scudder,
Stevens & Clark,
Inc.
Nicholas Bratt #* President and Managing Director --
Director of Scudder,
Stevens & Clark,
Inc.
Paul Bancroft III Director Venture Capitalist --
1120 Cheston Lane and Consultant;
Queenstown, MD 21658 Retired President,
Chief Executive
Officer and
Director, Bessemer
Securities
Corporation
Thomas J. Devine Director Consultant --
641 Lexington Avenue
New York, NY 10022
William H. Gleysteen, Director President, The --
Jr. Japan Society,
The Japan Society, Inc. (1989 to
Inc. present); Vice
333 East 47th Street President of
New York, NY 10017 Studies, Council
on Foreign
Relations(1987-
1989)
William H. Luers Director President, The --
The Metropolitan Metropolitan
Museum of Art Museum of Art
1000 Fifth Avenue (1986 to present)
New York, NY 10028
Wilson Nolen Director Consultant (1989 --
1120 Fifth Avenue to present);
New York, NY 10128 Corporate Vice
President, Becton,
Dickinson &
Company
(manufacturer of
medical and
scientific
products) until
1989
Juris Padegs #@* Director, Vice Managing Director Vice President &
President and of Scudder, Director
Assistant Stevens & Clark,
Secretary Inc.
Daniel Pierce +* Director Chairman of the Vice President,
Board and Managing Director &
Director of Assistant
Scudder, Stevens & Treasurer
Clark, Inc.
Gordon Shillinglaw Director Professor Emeritus --
196 Villard Avenue of Accounting,
Hastings-on-Hudson, Columbia
NY 10706 University
Graduate School of
Business
Robert G. Stone, Jr. Director Chairman of the --
405 Lexington Ave Board and
New York, NY 10174 Director, Kirby
Corporation
(inland and
offshore marine
transportation and
diesel repairs)
Robert W. Lear Honorary Executive-in- --
429 Silvermine Road Director Residence,
New Canaan, CT 06840 Visiting
Professor,
Columbia
University
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 Vice President,
Scudder, Stevens & Director,
Clark, Inc. Treasurer &
Assistant Clerk
David S. Lee + Vice President Managing Director President,
and Assistant of Scudder, Assistant
Treasurer Stevens & Clark, Treasurer and
Inc. Director
Thomas F. McDonough + Vice President Principal of Clerk
and Secretary Scudder, Stevens &
Clark, Inc.
Pamela A. McGrath + Vice President Principal of --
and Treasurer Scudder, Stevens &
Clark, Inc.
Edward J. O'Connell # Vice President Principal of Assistant
and Assistant Scudder, Stevens & Treasurer
Treasurer Clark, Inc.
Kathryn L. Quirk # Vice President Managing Director Vice President
and Assistant of Scudder,
Secretary Stevens & Clark,
Inc.
William F. Truscott + Vice President Principal of --
Scudder,Stevens &
Clark, Inc.
Richard W. Desmond # Assistant Vice President of Vice President
Secretary Scudder, Stevens &
Clark, Inc.
Coleen Downs Dinneen+ Assistant Vice President of Assistant Clerk
Secretary Scudder, Stevens &
Clark, Inc.
* 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
</TABLE>
All Directors and officers as a group owned less than 1% of the Fund's
outstanding shares as of the commencement of operations.
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, Scudder Investor Services, Inc. or of Scudder Fund Accounting
Corporation 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.
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, 1995 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, 1994.
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.
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 will elect 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.
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 ($40,050 for
married individuals filing a joint return, with a phase-out of the
deduction for adjusted gross income between $40,050 and $50,000; $25,050
for a single individual, with a phase-out for adjusted gross income between
$25,050 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 foreign securities. 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 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 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.
A portion of the difference between the issue price and the face
amount (the "original issue discount") of zero coupon securities held by
the Fund will be treated as income to the Fund each year, even though the
Fund receives no cash interest payments. This income is included in
determining the amount of income which the Fund must distribute to maintain
its status as a regulated investment company and to avoid the payment of a
federal income tax and the 4% excise tax. 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 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.
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. A
higher rate involves greater brokerage transaction expenses to the Fund and
may result in the realization of net capital gains, which would be taxable
to shareholders when distributed. Purchases and sales are made for the
Fund's portfolio whenever necessary, in management's opinion, to meet the
Fund's objective. The Fund expects to have an annual portfolio turnover
rate not exceeding 100% for its initial fiscal year.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for
trading. The Exchange is scheduled to be closed on the following holidays:
New Year's Day, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. Net asset value per share is
determined by dividing the value of the total assets of the Fund, less all
liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. 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 will be included in the
prospectus and the Financial Statements incorporated by reference in this
Statement of Additional Information in reliance on the report of Coopers &
Lybrand, L.L.P., One Post Office Square, Boston, Massachusetts, 02109,
independent accountants, and given on the authority of that firm as experts
in accounting and auditing.
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 40 6.
The Fund has a fiscal year end of October 31.
The Fund employs Brown Brothers Harriman & Co., 40 Water Street,
Boston, Massachusetts, 02109, as Custodian for the Fund. Brown Brothers
Harriman & Co. has entered into agreements with foreign subcustodians
approved by the Directors of the Corporation pursuant to Rule 17f-5 of the
1940 Act.
The firm of Dechert Price & Rhoads is counsel to the Fund.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a wholly-owned subsidiary of the Adviser,
computes net asset value for the Fund. The Fund pays Scudder Fund
Accounting Corporation an annual fee equal to 0.065% of the first $150
million of average daily net assets, 0.04% of such assets in excess of $150
million, 0.02% of such assets in excess of $1 billion, plus holding and
transaction charges for this service.
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 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 Statement of Assets and Liabilities as of March 31, 1994 for
Scudder International Fund, another series of Scudder International Fund,
Inc., and the Report of Independent Accountants are included herein.
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.
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.
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.
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
<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.
<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.
<PAGE>
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.
(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
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.
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.
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.
<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 $13,687,196) . . . . . . . . . . . . . . . . . . 21,054,524
-----------
91.9% COMMON STOCKS
-------------------------------------------------------------------------------------
ARGENTINA 0.3% 310,000 YPF SA (ADR) (Petroleum company) . . . . . . . . . . 7,362,500
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SCUDDER INTERNATIONAL FUND
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------------------------
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
<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.
</TABLE>
<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.
<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.
<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
<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.
<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.
<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.
<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
<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.
<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.
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund**
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia 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.
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
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
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.
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.
