Scudder
Emerging Markets
Growth Fund
Annual Report
October 31, 1998
Pure No-Load(TM) Funds
A fund seeking long-term growth of capital primarily through equity investment
in emerging markets around the globe.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Emerging Markets Growth Fund
- --------------------------------------------------------------------------------
Date of Inception: 5/8/96 Total Net Assets as of Ticker Symbol: SEMGX
10/31/98: $124.8 million
- --------------------------------------------------------------------------------
o Relative to its peers, the Fund continued to earn a top ranking, closing the
period in the top 29% of 151 emerging market funds according to Lipper
Analytical Services.
o For the 12-month period ended October 31, 1998, Scudder Emerging Markets
Growth Fund declined 28.54%, which compares to the 29.04% decline of the
unmanaged IFC Emerging Markets Investable Index.
o Longer term, the Fund has outperformed its benchmark index for the
two-and-one-half year period since inception.
o The Fund benefited from complete avoidance of Russian securities plus strong
positioning in the relatively stable Middle East.
Table of Contents
3 Letter from the Fund's Chairman 20 Financial Highlights
4 Performance Update 21 Notes to Financial Statements
5 Portfolio Summary 25 Report of Independent Accountants
6 Portfolio Management Discussion 26 Tax Information
9 Glossary of Investment Terms 28 Officers and Directors
10 Investment Portfolio 29 Investment Products and Services
17 Financial Statements 30 Scudder Solutions
2 - Scudder Emerging Markets Growth Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
The past year was not the best for emerging markets generally. Early
September marked the low point, as investors fled emerging markets after
Russia's devaluation and debt moratorium. The Russian economy is small,
measuring less than 1% of the global total. Nonetheless, investors worried that
other emerging markets might be affected by Russia's troubles and fled, driving
down other emerging markets in the process. Some markets turned in good gains
for the year, but most were swamped by negative sentiment without regard for
fundamentals.
In assessing the market environment and the Fund's performance over the year,
we take a degree of comfort from the fact that the Fund escaped some of the
fallout by avoiding Russia and Asia. At the same time, your Fund's management
emphasized companies in growing economies that have reduced their dependency on
foreign capital and in markets with good disclosure. A detailed discussion of
the market environment and the Fund's investment strategy begins on page 6.
While not all emerging markets are attractive, a number provide extraordinary
opportunities for investors interested in increasing their exposure at very
attractive valuation levels. The Fund continues to provide a convenient way to
invest in these markets for those seeking long-term above-average growth
potential and added diversification.
For those of you who are interested in new Scudder funds, we recently
introduced two international funds: Scudder International Growth Fund -- which
seeks to invest in high growth opportunities in both developed and developing
markets, and Scudder International Value Fund -- which seeks to invest in
undervalued foreign securities. For further information on these new funds,
please call Scudder Investor Information at 1-800-225-2470.
Thank you for your investment in Scudder Emerging Markets Growth Fund. If you
have any questions about your Fund, please call Scudder Investor Information at
the number above, or visit our Internet Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder Emerging Markets Growth Fund
3 - Scudder Emerging Markets Growth Fund
<PAGE>
Performance Update as of October 31, 1998
- ----------------------
Fund Index Comparisons
- ----------------------
Total Return
- ---------------------------------------------------
Period Ended Growth of Average
10/31/98 $10,000 Cumulative Annual
- ---------------------------------------------------
Scudder Emerging Markets Growth Fund
- ---------------------------------------------------
1 Year $ 7,146 -28.54% -28.54%
Life of Fund* $ 8,686 -13.14% -5.52%
- ---------------------------------------------------
IFC Emerging Markets Investable Index
- ---------------------------------------------------
1 Year $ 7,096 -29.04% -29.04%
Life of Fund* $ 6,182 -38.18% -18.03%
- ---------------------------------------------------
* The Fund commenced operation on May 8, 1996.
Index comparisons begin May 31, 1996.
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
IFC Emerging Markets Scudder Emerging Markets
Investable Index Growth Fund
5/96* 10000 10000
7/96 9454 10000
10/96 9676 10559
1/97 10559 12521
4/97 10621 12727
7/97 11567 13632
10/97 8711 11986
1/98 7852 11045
4/98 9013 12252
7/98 7363 10905
10/98 6182 8565
IFC Emerging Markets Investable Index is an unmanaged capitalization weighted
measure of stock markets in emerging market countries worldwide. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not reflect any
fees or expenses.
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
Yearly periods ended October 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
1996* 1997 1998
- ------------------------------------------------------------
Net Asset Value $ 12.85 $ 14.56 $ 10.36
- ------------------------------------------------------------
Income Dividends $ -- $ .03 $ .06
- ------------------------------------------------------------
Fund Total Return (%)** 7.08 13.51 -28.54
- ------------------------------------------------------------
Index Total Return (%) -3.24 -9.97 -29.04
- ------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total return and principal value
will fluctuate, so an investor's shares, when redeemed, may be worth more or
less than when purchased. If the Adviser had not maintained the Fund's expenses,
the total return for the one year and life of Fund periods would have been
lower.
** Fund total return does not reflect the effect of applicable redemption fees.
4 - Scudder Emerging Markets Growth Fund
<PAGE>
Portfolio Summary as of October 31, 1998
- ------------------------------
Geographical
(Excludes 9% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Europe 41%
Africa 28%
Latin America 20%
Pacific Basin 1%
U.S. & Canada 1%
Other 9%
---------------------------------------------
100%
---------------------------------------------
The Fund sidestepped some of the steep declines through
complete avoidance of Russia plus significant positions in
the relatively stable Middle East.
- ------------------------------
Sectors
(Excludes 9% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the table below.
Financial 32%
Consumer Staples 17%
Communications 14%
Construction 7%
Health 7%
Metals & Minerals 4%
Energy 4%
Manufacturing 4%
Consumer Discretionary 4%
Other 7%
---------------------------------------------
100%
---------------------------------------------
Over the fiscal period, weightings in financial,
communications, and consumer staples companies rose, while
holdings in metals and minerals, energy, and manufacturing
decreased.
- ---------------------------
Ten Largest Equity Holdings
(22% of Portfolio)
- ---------------------------
1. OTP Bank Rt
Savings and commercial bank in Hungary
2. Pliva D.D.
Pharmaceutical company in Croatia
3. Wielkopolski Bank Kredytowy S.A.
Commercial bank in Poland
4. Omnium Nord Africaine
Conglomerate in Morocco
5. Fomento Economico Mexicano
S.A. de C.V. "B"
Producer of beer and soft drinks in
Mexico
6. Al Ahram Beverages Co.
Beverage company in Egypt
7. Netia Holdings BV
Telecommunication services in Poland
8. Magyar Olaj-es Gazipari Rt
Integrated domestic oil and gas
company in Hungary
9. Portugal Telecom SA
Telecommunication services in Portugal
10. Alpha Credit Bank A.E.
Commercial bank in Greece
The Fund's holdings were diversified across a wide range of
countries and industries.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Emerging Markets Growth Fund
<PAGE>
Portfolio Management Discussion
We asked Joyce Cornell, Lead Portfolio Manager of Scudder Emerging
Markets Growth Fund, to discuss the market environment and the Fund's
current investment strategy.
Q: How did the Fund perform for the 12-month period ended October 31, 1998?
A: The Fund declined 28.54% for the 12 months. Our avoidance of Russia and Asia
helped the Fund sidestep the substantial declines in these markets. Relative to
our peers, the Fund continued to earn a top ranking, closing the period in the
top 29% of 151 emerging market funds according to Lipper Analytical Services. I
might add that the Fund's above-average track record extends beyond the 12-month
period, with the Fund's relative performance significantly in excess of its
benchmark from inception.
Q: Were there any bright spots?
A: Our investments in several Arab markets held us in very good stead. The
Moroccan markets rose 31% for example, and Jordan dropped mildly, 6%. Elsewhere
in the Mediterranean markets, Greece rose 43% and Portugal rose 33%. This
contrasts with the 38% drop in the Hungarian market, and 14% drop in Poland not
to mention Mexico's plunge of 50% and Brazil's of 35%. The Arab countries'
strong economic growth and inexpensive markets with low leverage continue to
have appeal and we believe will continue to outperform. Our analysis is that
many of these countries are well along in the implementation of sound economic
polices and the liberalization of their economies.
Arab countries have nurtured the growth of their domestic economies with
relatively less dependence on exports for growth. Where there is relatively more
external dependence in Morocco and Tunisia, it is on tourism and agricultural
exports with the linkage predominantly to Europe. All of these markets are
characterized by remarkable efforts at improving openness, transparency, and
economic growth. We believe their fiscal management is good to excellent and,
with the exception of Lebanon, debt burdens are moderate. Even Lebanon is
showing improvement this year. There is also very little foreign portfolio
investment in these markets so there is a lot to gain when the world starts to
focus on their robust growth and cheap valuations. As of the end of the period,
the Fund had a 23% weight in the Arab markets.
Q: Russia, one of the world's smaller economies, triggered a sell-off in many
emerging markets. What happened?
A: We are pleased to say that we never invested in Russia. However, the
country's devaluation and debt default this summer triggered a chain reaction of
selling in the more liquid emerging markets. Hedge funds were significant
holders of Russian paper and were typically quite leveraged. Russia's financial
collapse triggered margin calls, which were met by selling whatever could be
sold. Hungary and Poland fit this category in addition to being former members
of the old Soviet trade block, which caused some investors to imagine that
Russia's collapse could have a trade impact. In fact there is little economic
connection anymore between these countries and Russia, but the need for
liquidity, plus heightened risk aversion, sidelined consideration of
fundamentals. The Fund's substantial positions in Hungary and Poland suffered as
a result. Russia's actions additionally prompted investors to again be wary of
6 - Scudder Emerging Markets Growth Fund
<PAGE>
any other countries with unstable fiscal or monetary policies. Brazil and Turkey
were prime targets. Fortunately, the Fund held little in these markets.
Q: Latin American bourses were particularly hard hit by the Russian crisis. Will
they avoid a meltdown like that of Asia?
A: Brazil is a large economy with many problems. It is hugely indebted and
increasing its borrowing due to uncontrolled fiscal profligacy. Now escalating
interest rates are forcing an unsupportable cost to rolling over maturing debt.
Brazil thus has the potential to unsettle markets further if it defaults or lets
its overvalued currency devalue. Brazil is on an unsustainable path, and the IMF
bailout buys Brazil six months at most to get its fiscal spending under control.
If Brazil fails to do this, the likelihood of a debt restructuring and
devaluation is high. We believe such a failure on Brazil's part will temporarily
rattle markets but will likely be executed in a more orderly fashion than
Russia's and will not inflict substantial additional fundamental damage on the
global financial system. Markets are already anticipating some fallout. In
short, we think we are near the end of such destabilizing events because world
markets have already taken the big offenders to the wood shed.
Q: What is your current investment focus?
A: We have emphasized companies with little or no debt and the ability to fund
growth from internally generated cash. We also have favored investments in
companies producing non-tradables. Services and products not fully exposed to
global deflationary forces are likely to have more pricing power and higher
earnings growth over the foreseeable future. For example, some of our favorite
investments are in Hungary whose securities are selling for 2.5 times free cash
flow and 4 to 5 times trailing earnings. A number of our Egyptian holdings have
yields above 10% and sport strong earnings growth.
Orszagos Takarekpenztar es Kereskedelmi Bank Rt (OTP) in Hungary is an excellent
example, and the Fund's largest holding. This bank is the largest in Hungary
with a countrywide branch network allowing them to source inexpensive deposits.
This is a serious competitive advantage against any newcomer trying to enter the
market. OTP also uses this branch network to sell other financial products such
as insurance. Importantly, in our opinion, Hungary provides a fine environment
for bank growth with interest rates declining steadily, stimulating loan growth,
and a robustly growing economy creating loan demand as well. This increasing
demand allows OTP to increase its profitability dramatically through both volume
growth and economies of scale. OTP enjoys pricing power due to demand and
structural barriers to entry.
Q: Asia has deep-rooted problems. When will it make sense to return to this
region?
A: We anticipate that the deflation emanating from Asia will continue, and
remain wary of the area despite its recent bounce. A key restructuring step has
yet to be taken: recapitalization of the banking systems. Without a system to
provide financial intermediation, growth can't take place. We are additionally
concerned that with a slowing U.S. economy, Asia's exporting its way to recovery
will be more and more difficult. There are always exceptions to broad
7 - Scudder Emerging Markets Growth Fund
<PAGE>
generalizations. We are watching Taiwan and the Philippines, which are in decent
shape, as their banking systems are intact and they offer some interesting
investments. Taiwan, in particular, has been more capitalist than its neighbors
by regularly allowing businesses to fail. This has resulted in a competitive,
resilient industrial base. We have added a few world-class technology companies
to the portfolio. In the stricken economies of Thailand and Indonesia, the smoke
of confusion and economic destruction is clearing a bit and we are buying a few
promising survivors. The recessions in Asia will last a long time and earnings
of companies are still falling.
Q: What is your overall outlook for the emerging equity markets?
A: We believe the extremely attractive value now exposed in many solid markets
will attract investors as the financial world settles down after the convulsions
it experienced this summer. Speculators, various hedge funds and many banks have
been forced to sell at any price, but this process has about run its course.
Their forced liquidations have created an excellent opportunity for genuine
investors. If ever there were a time when the investor could profit at the
expense of the speculator, it is now.
Scudder Emerging Markets Growth Fund:
A Team Approach to Investing
Scudder Emerging Markets Growth Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an
important role in the Fund's management process. Team members work together to
develop investment strategies and select securities for the Fund's portfolio.
They are supported by the Adviser's large staff of economists, research
analysts, traders, and other investment specialists who work in our offices
across the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging our extensive
resources.
Joyce E. Cornell, Lead Portfolio Manager, has overall responsibility for the
Fund's day-to-day management and investment strategies. Ms. Cornell has been a
portfolio manager with the Adviser since 1993, and joined the Adviser in 1991
after eight years of investment experience as a research analyst. Elizabeth
Allan, Portfolio Manager, joined the Adviser in 1987, and has numerous years of
Pacific Basin research and investing experience. Tara C. Kenney, Portfolio
Manager, joined the Adviser in 1995 and has over ten years of financial
industry experience. Andre J. DeSimone, Portfolio Manager, joined the Adviser
in 1997 after three years as Chief Executive Officer of a stock brokerage
company in Kenya. Mr. DeSimone also has six years of experience in investment
banking.
8 - Scudder Emerging Markets Growth Fund
<PAGE>
Glossary of Investment Terms
CURRENCY DEVALUATION A significant decline of a currency's value relative
to other currencies, such as the U.S. dollar.
Trading or central bank intervention (or the lack of
intervention) may prompt this in the currency
markets. For U.S. investors who are investing
overseas, a devaluation of a foreign currency can
have the effect of reducing the total return of
their investment.
EXCHANGE RATE The price at which one country's currency can be
exchanged into another currency. Currencies
represent a store of value in the economic,
political, and financial health of the home country.
Changes in the value of a currency can add to or
subtract from an investor's total return in a
foreign investment.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and earnings
on balance sheets and income statements. Distinct
from technical analysis, which evaluates the
attractiveness of a stock based on historical price
and trading volume movements, rather than the
financial results of the underlying company.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually by
sector, industry, or country -- within a
portfolio relative to a benchmark index, (i.e. the
IFC Emerging Markets Investable Index) or an
investment universe.
PRICE/EARNINGS RATIO (P/E) A widely used gauge of a stock's valuation that
(also "earnings multiple") indicates what investors are paying for a company's
earnings on a per share basis. Typically based on a
company's projected earnings for the next 12 months,
a higher "earnings multiple" indicates a higher
expected growth rate and the potential for greater
price fluctuations.
TRANSPARENCY The degree to which investors can evaluate if a
company is managed in the interests of shareholders.
Transparency is often not as good in developing
markets where disclosure requirements may be less
stringent, and protectionism, subsidies, and cronyism
may distort the business environment.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
9 - Scudder Emerging Markets Growth Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 5.3%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/30/1998, 5.4%,
to be repurchased at $6,509,928 on 11/2/1998, collateralized by a $4,881,000 -----------
U.S. Treasury Bond, 10.375%, 11/15/2009 (Cost $6,507,000) ............................. 6,507,000 6,507,000
-----------
Short-Term Notes 4.1%
- ------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Association, 4.90%**, 11/03/1998 (Cost $4,998,639) ........... 5,000,000 4,998,639
-----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 90.6%
- ------------------------------------------------------------------------------------------------------------------------------
Argentina 0.1%
S.A. San Miguel AGICI "B" (Cultivation and processing of lemons and lemon
products) ............................................................................. 9,100 88,299
-----------
Bahrain 0.4%
Arab Insurance Group (GDR) (Insurance company) .......................................... 30,000 285,750
Arab Insurance Group .................................................................... 216,690 212,356
-----------
498,106
-----------
Bolivia 0.2%
Corriente Resources, Inc.* (Mining and processing of gold, bismuth, tin and
tungsten in South America) ............................................................ 405,900 184,141
-----------
Botswana 1.1%
Sechaba Investment Trust Co. (Brewery) .................................................. 1,024,000 1,313,751
-----------
Brazil 3.3%
Companhia Energetica de Minas Gerais (pfd.) (Electric power utility) .................... 6,032,427 117,321
Embratel Participacoes S.A.(pfd)* (Telecommunication services) .......................... 73,400,000 1,033,716
Petroleo Brasileiro S.A. (pfd.) (Petroleum company) ..................................... 3,200,000 402,381
Saraiva S.A. Livreiros Editores (pfd.) (Book publisher) ................................. 175,900 393,707
Telecomunicacoes de Minas Gerais S.A. (voting)* (Telecommunication services) ............ 15,530 119
Telecomunicacoes de Minas Gerais S.A. "B" (pfd.)* ....................................... 192 6
Telecomunicacoes de Minas Gerais S.A. "C" (pfd.)* ....................................... 192 2
Telecomunicacoes Brasileiras S.A. (ADR) (Telecommunication services) .................... 11,500 873,281
Telecomunicacoes Brasileiras S.A. (Rights)* (Telecommunications services) ............... 5,800 440,438
Telecomunicacoes de Sao Paulo S.A. (pfd.) (Telecommunication services) .................. 3,578,800 600,017
Telecomunicacoes do Rio de Janeiro S.A. (pfd.)* (Telecommunication services) ............ 7,331,800 227,409
-----------
4,088,397
-----------
Bulgaria 0.1%
Bulgartabak Holding* (Tobacco company) (b) .............................................. 6,500 70,875
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Canada 0.1%
Etruscan Enterprises Ltd.* (Exploration and development of gold prospect in
Niger) ................................................................................ 90,300 76,079
Interoil Corp.* (Fully integrated energy company) ....................................... 30,000 21,000
-----------
97,079
-----------
Chile 1.7%
Laboratorio Chile S.A. (ADR) (Manufacturer and distributor of off-patent
pharmaceutical products) .............................................................. 31,650 458,925
Vina Concha y Toro S.A. (ADR) (Wine producer) ........................................... 63,500 1,631,156
-----------
2,090,081
-----------
Croatia 3.7%
Pliva D.D. (GDR) (Pharmaceutical company) ............................................... 106,650 1,567,755
Pliva D.D. "S" (GDR) .................................................................... 138,470 2,035,509
Zagrebacka Banka (GDR) (Commercial bank) ................................................ 84,400 903,080
-----------
4,506,344
-----------
Czech Republic 1.5%
Ceske Radiokomunikace* (TV and radio signal transmission services) ...................... 59,000 1,799,500
-----------
Egypt 13.0%
Al Ahram Beverages Co. (GDR) (Beverage company) ......................................... 83,700 2,351,970
Arab International Construction Co.* (Construction company) ............................. 32,571 236,353
EFG Hermes Holdings, S.A.E. (GDR)* (Brokerage firm) ..................................... 79,600 915,400
Eastern Tobacco Co. (Maker of tobacco products) ......................................... 61,220 1,399,314
Egyptian Financial & Industrial Co. (Fertilizer producer) ............................... 56,000 946,939
Egyptian International Pharmaceutical Co. (Pharmaceutical company) ...................... 27,400 1,381,423
Egyptian Mobile Phone Network, Ltd.* (Cellular telecommunication services) .............. 73,766 395,713
International Foods Co.* (Food producer) (b) ............................................ 34,000 545,190
Madinet Nasser City Housing Co. (Real estate development company) ....................... 27,670 857,125
Misr International Bank (Commercial bank) ............................................... 57,410 1,120,248
Misr International Bank (GDR) (Commercial and foreign bank) ............................. 16,400 153,750
Misr Refrigeration & Air Conditioning Manufacturing Co. (Manufacturer and
distributor of air conditioning units) (b) ............................................ 31,140 658,207
ORASCOM* (Hotel and resort developer) (b) ............................................... 500 384,293
ORASCOM Hotel Holdings* (b) ............................................................. 156,000 500,292
Olympic Group Financial (Manufacturer of Stoves) ........................................ 200,000 830,904
Oriental Weavers Corp. (Carpet manufacturer) ............................................ 18,600 400,741
Suez Cement Co. (Cement producer) ....................................................... 77,677 1,200,257
Suez Cement Co. (GDR) ................................................................... 24,600 361,620
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Torrah Portland Cement Co. (Cement producer) ............................................ 84,305 1,371,492
-----------
16,011,231
-----------
Estonia 0.3%
Eesti Uhispanka (GDR)* (Commercial bank) ................................................ 77,600 393,820
-----------
Finland 0.7%
Nokia AB Oy "A" (ADR) (Leading cellular telephone manufacturer) ......................... 9,700 902,706
-----------
Ghana 0.6%
Social Security Bank Ltd. (Full service commercial bank) ................................ 804,000 683,744
-----------
Greece 5.2%
Alpha Credit Bank A.E. (Commercial bank) ................................................ 26,767 2,139,564
Delta Informatics S.A. (Corporate information services) ................................. 33,600 625,627
Ethniki General Insurance Co. (Insurance and reinsurance company) ....................... 29,500 691,848
Hellenic Telecommunication Organization SA (OTE) (Telecommunication services) ........... 28,000 636,771
National Bank of Greece S.A. (Full service bank) ........................................ 11,440 1,626,039
STET Hellas Telecommunications S.A. (ADR)* (Provider of mobile telecommunication
services) ............................................................................. 25,800 677,250
-----------
6,397,099
-----------
Hong Kong 0.0%
Moulin International Holdings Ltd., Warrants* (expire 10/16/1999) (Manufacturer
of optical products) .................................................................. 249,208 1,577
-----------
Hungary 7.8%
BorsodChem Rt (Chemical producer) ....................................................... 14,000 346,471
Gedeon Richter Rt (Pharmaceutical company) .............................................. 13,800 455,787
Magyar Olaj-es Gazipari Rt (Integrated domestic oil and gas company) .................... 102,400 2,297,345
Matav Rt Ordinary "A" (Telecommunication services) ...................................... 245,500 1,276,446
OTP Bank Rt (Savings and commercial bank) ............................................... 102,100 3,634,284
Pannonplast Rt (Manufacturer of plastic products from PVC, polypropylene,
polyethylene and other raw materials) ................................................. 26,787 830,215
Pick Szeged Rt (Processes, markets and distributes meat products) ....................... 19,165 797,877
-----------
9,638,425
-----------
India 0.5%
HDFC Bank Ltd. (Corporate banking and financial services) (b) ........................... 21,900 27,236
Hindustan Petroleum Corp., Ltd (Oil refining, manufacturer of petroleum
products) (b) ......................................................................... 77,400 486,227
Housing Development Finance Corp. Ltd. (Housing finance provider to individuals,
corporations and developers) (b) ...................................................... 1,400 73,733
ICICI Banking Corp. (Bank) (b) .......................................................... 2,400 1,529
-----------
588,725
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Indonesia 0.0%
Pan Indonesia Bank Warrants* (expires 6/26/00) (Commercial bank) ........................ 148,628 743
-----------
Israel 1.6%
ECI Telecommunications Ltd. (Telecommunication services) ................................ 17,500 579,688
-----------
ESC Medical Systems Ltd.* (Producer of devices for non-invasive treatment of benign
vascular lesions) ..................................................................... 53,000 430,625
MEMCO Software Ltd.* (Producer of security software) .................................... 79,300 981,339
-----------
1,991,652
-----------
Jordan 2.4%
Arab Bank PLC (Commercial bank) ......................................................... 3,900 1,111,938
Arab Potash Co., Ltd. (GDR) (Salt and chemical extraction from brines) .................. 15,000 67,125
Aramex International Ltd.* (Express delivery and freight forwarding in the
Mideast and India) .................................................................... 35,700 290,063
Hikma* (Pharmaceutical company) (b) ..................................................... 68,000 491,854
The Housing Bank (Residential construction finance) ..................................... 285,200 1,085,522
-----------
3,046,502
-----------
Kenya 3.7%
East African Portland Cement Co. (Cement producer) ...................................... 290,000 87,997
Firestone East Africa Ltd. (Tire manufacturer) .......................................... 1,395,000 356,643
James Finlay PLC (Tea producer) ......................................................... 989,000 1,324,390
Kenya Power & Lighting Co., Ltd. (Distribution and sale of electricity) ................. 135,500 438,416
Sasini Tea & Coffee Ltd. (Tea and coffee grower and processor) (b) ...................... 1,387,500 1,744,552
Uchumi Supermarket Ltd. (Supermarket operator) .......................................... 730,000 526,236
-----------
4,478,234
-----------
Lebanon 0.8%
Banque Audi (GDR) (Commercial bank) ..................................................... 7,600 205,960
Banque Libanaise pour le Commerce SAL (GDR) (Commercial bank) ........................... 43,800 755,550
-----------
961,510
-----------
Malawi 0.8%
African Lakes Corp. PLC* (Motor trading, agriculture, mining, engineering,
computer supplies and general trading) ................................................ 744,928 617,233
Press Corp., Ltd. (GDR)* (Conglomerate, industrial holding company) ..................... 54,550 381,850
-----------
999,083
-----------
Mexico 8.8%
Consorcio ARA, S.A. de C.V.* (Low-income housing developer) ............................. 331,000 726,969
Fomento Economico Mexicano S.A. de C.V. "B" (Producer of beer and soft drinks) .......... 982,000 2,530,778
Gruma S.A. de C.V. "B"* (Producer and distributor of corn flour) ........................ 571,665 1,357,337
Grupo CIFRA S.A. de C.V. "C"* (Discount retailer) ....................................... 296,000 383,617
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Grupo Financiero Banamex-Accival, S.A. de C.V. "B"* (Bank) .............................. 984,200 1,032,105
Grupo Industrial Bimbo, S.A. de C.V. "A" (Producer of bread and other baked
goods) ................................................................................ 688,900 1,158,617
Grupo Industrial Maseca S.A. de C.V. "B" (Food producer) ................................ 381,500 309,488
Grupo Modelo S.A. "C" (Leading brewery) ................................................. 178,000 375,089
Industrias Penoles S.A. de C.V. (Exploration and marketing of minerals and
non-ferrous metals such as lead, zinc and silver) ..................................... 470,000 1,436,783
Latinoamericana Duty Free, S.A. de C.V.* (Operator of high quality duty free
airport shops) ........................................................................ 320,000 69,964
Organizacion Soriana S.A. de C.V. "A" (Retailer) ........................................ 37,000 109,997
Sigma Alimentos S.A.de C.V."B" (Producer and distributor of cold storage foods) ......... 358,639 528,663
Telefonos de Mexico S.A. de C.V. "L" (ADR) (Telecommunication services) ................. 15,500 818,594
-----------
10,838,001
-----------
Morocco 4.5%
Omnium Nord Africaine (Conglomerate) .................................................... 20,000 2,595,921
Societe Nationale d'Investissements (Conglomerate, various joint ventures) .............. 10,100 1,095,924
Societe des Brasseries du Nord Marocain (Distributor of beer and carbonated
beverages) ............................................................................ 1,600 521,357
WAFABANK (Commercial bank) .............................................................. 10,307 1,343,406
-----------
5,556,608
-----------
Oman 2.4%
Bank Muscat Al Ahla Al Omani (Commercial bank) .......................................... 40,750 465,745
Muscat Marriott* (Hotel operator) (b) ................................................... 100,000 135,074
National Bank of Oman Ltd. (Commercial bank) ............................................ 115,090 1,261,588
Oman Cable Industry SAOG* (Manufacturer of electrical and power cables) (b) ............. 28,685 178,827
Oryx Fund, Ltd.* (Mutual fund domiciled in Guernsey, investing in the Middle
East) ................................................................................. 79,500 934,125
-----------
2,975,359
-----------
Peru 4.4%
Cementos Lima S.A. "T" (Cement producer) ................................................ 140,900 1,653,974
Enrique Ferreyros y Cia. (Machinery manufacturer) ....................................... 2,007,071 1,955,725
Gitennes Exploration Inc.* (Exploration and development of gold mining
properties in Peru) ................................................................... 54,000 19,248
Minas Buenaventura S.A. "B" (Mining company) ............................................ 280,500 1,684,729
Minas Buenaventura S.A. (ADR) ........................................................... 14,800 181,300
-----------
5,494,976
-----------
Philippines 0.2%
International Container Terminal Services, Inc.* (Containerized cargo handling
firm) ................................................................................. 3,023,375 202,308
-----------
Poland 13.2%
Amica Wronki SA* (Manufacturer of home appliances) ...................................... 67,222 318,014
Bank Przemyslowo Handlowy (Bank) ........................................................ 29,998 1,976,359
Bydgoska Fabryka Kabli S.A.* (Manufacturer of cables, wires and insulating
materials) ............................................................................ 94,050 316,639
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cersanit SA (Manufacturer of ceramic sanitary products) ................................. 175,000 474,895
Computerland Poland S.A.* (Provider of computer services and systems) ................... 65,800 828,826
Debica S.A. "A" (Tire manufacturer) ..................................................... 51,200 861,878
Elektrim Spolka Akcyjna S.A. (Manufacturer of power equipment, electrical
machinery and apparatus) .............................................................. 16,500 196,343
ITI Group S.A.* (Telecommunication services) (b) ........................................ 8,315 2,074,593
IZOLACJA S.A.* (Manufacturer of building material) ...................................... 9,900 412,320
Jelfa (Pharmaceutical company) .......................................................... 39,100 216,749
KGHM Polska Miedz S.A.* (Producer of copper and silver) ................................. 44,800 166,432
Kredyt Bank PBI S.A.* (Provider of a full range of banking services) .................... 111,000 438,137
Kutnowskie Zaklady Farmaceutyczne Polfa S.A.* (Producer of pharmaceuticals,
veterinary medicines, food components) ................................................ 21,600 198,102
Mostostal Krakow S.A.* (Heavy construction company) ..................................... 128,638 145,607
Mostostal Zabrze Holding S.A. (Construction company) .................................... 271,100 920,583
Netia Holdings BV* (Telecommunication services) (b) ..................................... 96,742 1,934,840
Netia Holdings BV "O"* (b) .............................................................. 8,729 174,580
Netia Holdings BV "P"* (b) .............................................................. 7,330 146,600
Netia Holdings BV "R"* (b) .............................................................. 3,980 79,600
Orbis S.A.* (Hotel owner and operator) .................................................. 68,800 599,042
Powszechny Bank Kredytowy S.A. (Commercial bank) ........................................ 10,000 214,773
Wielkopolski Bank Kredytowy S.A. (Commercial bank) ...................................... 488,800 3,191,990
Zaklady Lentex (Producer of PVC products used in cars, footwear, housing and
public construction) .................................................................. 25,800 80,122
Zaklady Metali Lekkich Kety* (Manufacturer of aluminum casting alloys and
products) ............................................................................. 36,300 240,209
-----------
16,207,233
-----------
Portugal 4.9%
Banco Espirito Santo e Comercial de Lisboa, SA (Commercial and investment
banking) .............................................................................. 35,443 1,047,135
Banco Portugues do Investimento (Bank) .................................................. 31,400 962,799
Electricidade de Portugal (Electric utility) ............................................ 40,100 1,007,958
Portugal Telecom SA (Telecommunication services) ........................................ 47,000 2,226,702
Semapa Cement SA (Cement producer) ...................................................... 39,200 764,782
-----------
6,009,376
-----------
South Africa 0.1%
Energy Africa Ltd.* (Oil and gas exploration and production) ............................ 85,133 144,551
-----------
Sri Lanka 0.1%
Tea Plantations Investment Trust PLC* (Trust investing in regional plantations) ......... 100,700 113,779
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thailand 0.2%
PTT Exploration and Production Co., Ltd.* (Petroleum refinery) (b) ...................... 22,000 203,565
-----------
Tunisia 0.1%
Banque International Arabe Tunisia (GDR)* (Bank) ........................................ 10,500 97,913
-----------
Turkey 0.6%
Migros Turkey (Retailer) ................................................................ 936,000 796,236
-----------
United States 0.6%
Benton Oil & Gas Co.* (Oil and gas exploration, development and production) ............. 111,600 571,950
Schlumberger Ltd. (Oil field services and electronics) .................................. 2,900 152,250
-----------
724,200
-----------
Zimbabwe 0.9%
Delta Corp., Ltd. (Brewery) ............................................................. 863,647 194,141
Meikles Africa Ltd. (Hotel operator) .................................................... 700,400 350,200
National Merchant Bank of Zimbabwe Ltd. (Commercial bank) ............................... 342,500 128,438
Tanganda Tea Co., Ltd. (Tea producer and distributor) ................................... 2,461,212 456,440
-----------
1,129,219
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $132,937,471) 111,324,948
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $144,443,110) (a) 122,830,587
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate. (Unaudited)
(a) The cost for federal income tax purposes was $145,748,180. At October 31,
1998, net unrealized depreciation for all securities based on tax cost was
$22,917,593. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $10,389,656 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$33,307,249.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $9,911,667 (7.9% of net assets). Their
values have been estimated by the Valuation Committee in the absence of
readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at October 31, 1998 aggregated $9,581,079. These
securities may also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
16 - Scudder Emerging Markets Growth Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $144,443,110) .............. $ 122,830,587
Foreign currency, at market (identified cost $1,200,131) ........... 1,203,449
Receivable for investments sold .................................... 1,564,673
Dividends and interest receivable .................................. 423,522
Receivable for Fund shares sold .................................... 78,998
Foreign taxes recoverable .......................................... 17,475
Deferred organization expenses ..................................... 8,705
Other assets ....................................................... 637
----------------
Total assets ....................................................... 126,128,046
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Due to custodian bank .............................................. 13,896
Payable for investments purchased .................................. 266,434
Payable for Fund shares redeemed ................................... 656,628
Accrued management fee ............................................. 110,653
Other payables and accrued expenses ................................ 278,532
----------------
Total liabilities .................................................. 1,326,143
-------------------------------------------------------------------------------------------
Net assets, at market value $ 124,801,903
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distributions in excess of net investment income........ (609,346)
Unrealized appreciation (depreciation) on:
Investment securities ........................................... (21,612,523)
Foreign currency related transactions ........................... (1,590)
Accumulated net realized loss ...................................... (33,572,921)
Paid-in capital .................................................... 180,598,283
-------------------------------------------------------------------------------------------
Net assets, at market value $ 124,801,903
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($124,801,903 / 12,048,140 shares of capital stock ----------------
outstanding, $.01 par value, 100,000,000 shares authorized) ...... $10.36
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Emerging Markets Growth Fund
<PAGE>
Statement of Operations
year ended October 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $250,484) .............. $ 4,049,351
Interest ........................................................... 751,507
-----------------
4,800,858
-----------------
Expenses:
Management fee ..................................................... 2,273,356
Custodian and accounting fees ...................................... 845,233
Services to shareholders ........................................... 864,134
Directors' fees and expenses ....................................... 64,302
Registration fees .................................................. 11,663
Auditing ........................................................... 58,368
Reports to shareholders ............................................ 60,976
Legal .............................................................. 15,110
Other .............................................................. 5,062
-----------------
Total expenses before reductions ................................... 4,198,204
Expense reductions ................................................. (269,707)
-----------------
Expenses, net ...................................................... 3,928,497
-------------------------------------------------------------------------------------------
Net investment income 872,361
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................................ (32,738,074)
Foreign currency related transactions (net of CPMF tax $38,624) .... (282,789)
-----------------
(33,020,863)
-----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................ (26,398,603)
Foreign currency related transactions .............................. 18,753
-----------------
(26,379,850)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (59,400,713)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (58,528,352)
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Emerging Markets Growth Fund
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income (loss) ................................ $ 872,361 $ 196,739
Net realized gain (loss) .................................... (33,020,863) (551,775)
Net unrealized appreciation (depreciation) on
investment transactions during the period ................. (26,379,850) 3,155,703
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ................................................ (58,528,352) 2,800,667
---------------- ----------------
Distributions to shareholders from net investment
income .................................................... (862,031) (178,523)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................... 57,798,973 195,752,276
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 731,288 144,724
Cost of shares redeemed ..................................... (94,348,182) (55,248,506)
Redemption fees ............................................. 385,726 560,150
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions .............................................. (35,432,195) 141,208,644
---------------- ----------------
Increase (decrease) in net assets ........................... (94,822,578) 143,830,788
Net assets at beginning of period ........................... 219,624,481 75,793,693
Net assets at end of period (including accumulated
distributions in excess of net investment income of ---------------- ----------------
$609,346 and $474,763, respectively) ...................... $ 124,801,903 $ 219,624,481
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 15,080,532 5,896,839
---------------- ----------------
Shares sold ................................................. 4,313,252 12,807,944
Shares issued to shareholders in reinvestment of
distributions ............................................. 52,272 10,595
Shares redeemed ............................................. (7,397,916) (3,634,846)
---------------- ----------------
Net increase (decrease) in Fund shares ...................... (3,032,392) 9,183,693
---------------- ----------------
Shares outstanding at end of period ......................... 12,048,140 15,080,532
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder Emerging Markets Growth Fund
<PAGE>
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.
<TABLE>
<CAPTION>
For the Period
May 8, 1996
(commencement)
Years Ended of operations) to
October 31, October 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
------------------------------------------
Net asset value, beginning of period .......................................... $ 14.56 $ 12.85 $ 12.00
------------------------------------------
Income from investment operations:
Net investment income (loss) .................................................. .06 .02 (.02)
Net realized and unrealized gain (loss) on investments ........................ (4.23) 1.67 .86
------------------------------------------
Total from investment operations .............................................. (4.17) 1.69 .84
------------------------------------------
Less distributions from net investment income ................................. (.06) (.03) --
Redemption fees ............................................................... .03 .05 .01
------------------------------------------
Net asset value, end of period ................................................ $ 10.36 $ 14.56 $ 12.85
------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) (c) ...................................................... (28.54) 13.51 7.08**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................ 125 220 76
Ratio of operating expenses, net, to average daily net assets (%) ............. 2.16 2.00 2.00*
Ratio of operating expenses, before expense reductions, to
average daily net assets (%) ................................................ 2.31 2.33 3.79*
Ratio of net investment income (loss) to average daily net assets (%) ......... .48 .11 (.32)*
Portfolio turnover rate (%) ................................................... 44.8 61.5 19.5*
</TABLE>
(a) Based on monthly average of shares outstanding during the period.
(b) Total return is higher due to maintenance of the Fund's expenses.
(c) Total return does not reflect the effect to the shareholder of the 2%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
20 - Scudder Emerging Markets Growth Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Emerging Markets Growth Fund ("the Fund") is a non-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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Fund in the preparation of its
financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on Nasdaq. If there are no such sales, the value is the most
recent bid quotation. Securities which are not quoted on Nasdaq but are traded
in another over-the-counter market are valued at the most recent sale price on
such market. If no sale occurred, the security is then valued at the mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations the most recent bid quotation shall be used.
Portfolio debt securities other than money market instruments with an original
maturity over sixty days are valued by pricing agents approved by the officers
of the Fund, whose quotations reflect broker/dealer-supplied valuations and
electronic data processing techniques. If the pricing agents are unable to
provide such quotations, the most recent bid quotation supplied by a bona fide
market maker shall be used. Money market instruments purchased with an original
maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which, at the time
of purchase and each subsequent business day, is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least the repurchase price.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
21 - Scudder Emerging Markets Growth Fund
<PAGE>
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 other
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 Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex-dividend and payment dates on
dividends, interest, and foreign withholding taxes.
Taxation. The Fund's policy is to comply with the requirements of the Internal
Revenue Code of 1986, as amended, which are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders. The
Fund paid no federal income taxes and no federal income tax provision was
required.
At October 31, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $33,200,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2004 ($400,000) and October 31, 2006 ($32,800,000), the expiration dates,
whichever occurs first.
Effective January 23, 1997, the Fund is also subject to a .20% Contribuicao
Provisoria sobre Movimentacoes Financeiras (CPMF) tax which is applied to
foreign exchange transactions representing capital inflows or outflows to the
Brazilian market. This tax has been reported as part of the net realized gain
(loss) on foreign currency related transactions.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 2% of the current net asset value of the shares
will be assessed and retained by the Fund for the benefit of the remaining
shareholders. The redemption fee is included as an addition to paid-in capital.
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 income tax return.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to passive foreign investment companies and certain securities
sold at a loss. As a result, net investment income (loss) and net realized gain
(loss) on investment transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund may
periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.
22 - Scudder Emerging Markets Growth Fund
<PAGE>
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
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.
B. Purchases and Sales of Securities
For the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $74,861,818 and
$91,486,010, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Directors and by the Fund's Shareholders. The
Management Agreement, which was effective December 31, 1997, was the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, the Fund pays the Adviser a
fee equal to an annual rate of 1.25% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment 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 Management Agreement. The Adviser agreed not to impose all or a portion
of its management fee until February 28, 1998, in order to maintain the
annualized expenses of the Fund at not more than 2.00% of average daily net
assets. On March 1, 1998, the Adviser agreed to maintain the annualized expenses
of the Fund at 2.25% until February 28, 1999. For the year ended October 31,
1998, the Adviser did not impose a portion of its management fee amounting to
$269,707, and the amount imposed amounted to $2,003,649.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's Management Agreement with Scudder Kemper was deemed to
have been assigned and, therefore, terminated. The Board of Directors of the
Fund has approved a new investment management agreement with Scudder Kemper,
which is substantially identical to the former Management Agreement, except for
the dates of execution and
23 - Scudder Emerging Markets Growth Fund
<PAGE>
termination. The Board of Directors of the Fund has obtained shareholder
approval of the new investment management agreement.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended October 31,
1998, the amount charged to the Fund by STC aggregated $87,163, of which $9,362
is unpaid at October 31, 1998.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $157,637, of
which $21,786 is unpaid at October 31, 1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended October 31, 1998 the amount charged by SSC aggregated $459,710, of
which $31,609 is unpaid at October 31, 1998.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. For the year ended October 31,
1998, the Special Servicing Agreement expense charged to the Fund amounted to
$189,060.
The Fund pays each Director not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1998, Directors' fees and expenses aggregated $64,302.
D. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in these markets may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
24 - Scudder Emerging Markets Growth Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder International Fund, Inc. and the
Shareholders of Scudder Emerging Markets Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Emerging Markets Growth
Fund (the "Fund") at October 31, 1998, 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 two years in the
period then ended and for the period May 8, 1996 (commencement of operations) to
October 31, 1996, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 21, 1998
25 - Scudder Emerging Markets Growth Fund
<PAGE>
Tax Information
The Fund paid foreign taxes of $260,000 and earned $650,000 of foreign source
income during the year ended October 31, 1998. Pursuant to Section 853 of the
Internal Revenue Code, the Fund designates $.021 per share as foreign taxes paid
and $.054 per share as income earned from foreign sources for the fiscal year
ended October 31, 1998.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
26 - Scudder Emerging Markets Growth Fund
<PAGE>
This Page
intentionally
left blank.
27 - Scudder Emerging Markets Growth Fund
<PAGE>
Officers and Directors
Daniel Pierce*
Chairman of the Board and
Director
Nicholas Bratt*
President
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; Chief Executive
Officer, Scientific Learning
Corporation
William T. Burgin
Director; General Partner,
Bessemer Venture Partners
Thomas J. Devine
Director; Consultant
Keith R. Fox
Director; President, Exeter
Capital Management
Corporation
William H. Gleysteen, Jr.
Director; Consultant; Guest
Scholar, Brookings Institute
William H. Luers
Director; President, The
Metropolitan Museum of Art
Wilson Nolen
Director; Consultant
Kathryn L. Quirk*
Director, Vice President and
Assistant Secretary
Joan Spero
Director; President, Doris Duke
Charitable Foundation
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Elizabeth J. Allan*
Vice President
Irene T. Cheng*
Vice President
Joyce E. Cornell*
Vice President
Susan E. Dahl*
Vice President
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Theresa Gusman*
Vice President
Thomas W. Joseph*
Vice President
Sheridan P. Reilly*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Richard W. Desmond*
Assistant Secretary
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
28 - Scudder Emerging Markets Growth Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
29 - Scudder Emerging Markets Growth Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Emerging Markets Growth Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
31 - Scudder Emerging Markets Growth Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
[LOGO]
