This prospectus sets forth concisely the information about Scudder Latin America
Fund, a non-diversified series of Scudder International Fund, Inc., an open-end
management investment company, that a prospective investor should know before
investing. Please retain it for future reference.
If you require more detailed
information, a Statement of Additional Information dated March 1, 1998, as
amended from time to time, may be obtained without charge by writing Scudder
Investor Services, Inc., Two International Place, Boston, MA 02110-4103 or
calling 1-800-225-2470. The Statement, which is incorporated by reference into
this prospectus, has been filed with the Securities and Exchange Commission and
is available along with other related materials on the Securities and Exchange
Commission's Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Contents--see page 4.
- ----------------------------
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- ----------------------------
[RECYCLE LOGO] Printed in recycled paper
SCUDDER
[SCUDDER LOGO]
Scudder
Latin America
Fund
[GRAPHIC OMITTED]
Prospectus
March 1, 1998
A pure no-load(TM) (no sales charges) mutual fund which seeks to provide
long-term capital appreciation through investment primarily in the securities of
Latin American issuers.
<PAGE>
Expense information
- --------------------------------------------------------------------------------
How to compare a Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Latin America Fund (the "Fund"). By reviewing
this table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load(TM) funds, you pay no commissions to purchase or redeem shares, or to
exchange from one fund to another. As a result, all of your investment goes to
work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended October 31,
1997.
Investment management fee 1.25%
12b-1 fees NONE
Other expenses 0.64%
Total Fund operating expenses 1.89%
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$19 $59 $102 $221
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Fund. If you wish to receive
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction
information--Redeeming shares."
- --------------------------------------------------------------------------------
- --
2
<PAGE>
Financial highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated October 31, 1997 which may be obtained without charge
by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the Period
December 8, 1992
(commencement
Years Ended October 31, of operations) to
October 31,
1997 (a) 1996 (a) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $20.63 $16.22 $24.44 $18.41 $12.00
Income from investment operations:
Net investment income (loss) ................. .26 .25 .09 (.03) .03
Net realized and unrealized gain (loss) on
investment transactions ................... 4.49 4.30 (7.62) 6.10 6.36
Total from investment operations ............. 4.75 4.55 (7.53) 6.07 6.39
Less distributions:
From net investment income .. ................ (.26) (.15) -- -- --
In excess of net investment income -- -- -- (.06) --
From net realized gains on investment
transactions .............................. -- -- (.73) (.06) --
Total distributions .......................... (.26) (.15) (.73) (.12) --
Redemption fees (c) .......................... -- .01 .04 .08 .02
Net asset value, end of period ............... $25.12 $20.63 $16.22 $24.44 $18.41
- ---------------------------------------------------------------------------------------------------------------
Total Return (%) ............................. 23.25 28.31(d) (30.96)(d) 33.43(d) 53.42**(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....... 883 622 519 809 261
Ratio of operating expenses, net to average
daily net assets (%) ...................... 1.89 1.96 2.08 2.01 2.00*
Ratio of operating expenses before expense
reductions, to average daily net assets (%) 1.89 1.96 2.11 2.05 2.69*
Ratio of net investment income (loss) to
average daily net assets (%) .............. .98 1.32 .52 (.20) .44*
Portfolio turnover rate (%) .................. 41.8 22.4 39.5 22.4 4.6*
Average commission rate paid (b) ............. $.0002 $.0001 -- -- --
</TABLE>
(a) Based on monthly average of shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after October 31, 1996.
(c) Until September 5, 1996, upon the redemption or exchange of shares held by
shareholders for less than one year, a fee of 2% was assessed and retained
by the Fund for the benefit of the remaining shareholders.
(d) 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
- --------------------------------------------------------------------------------
--
3
<PAGE>
A message from the President
[PHOTO OMITTED]
Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also manage
the mutual funds in a special program for the American Association of Retired
Persons, as well as the fund options available through Scudder Horizon Plan, a
tax-advantaged variable annuity. We also advise The Japan Fund, and numerous
other open and closed-end funds that invest in this country and other countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to shareholders include toll-free access to the professional
service representatives of Scudder Investor Relations, easy exchange among
funds, shareholder reports, informative newsletters and the walk-in convenience
of Scudder Investor Centers.
The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem shares or to exchange from one fund to another. There are no
12b-1 fees either, which many other funds now charge to support their marketing
efforts. All of your investment goes to work for you. We look forward to
welcoming you as a shareholder.
/s/ Edmond D. Villani
Scudder Latin America Fund
Investment objective
o long-term capital appreciation through investment primarily in the
securities of Latin American issuers
Investment characteristics
o convenient, low-cost access to emerging investment opportunities in Latin
America
o professional management of a broad range of equity securities, debt
securities and other investments in a rapidly growing region of the world
o above-average investment risk
Contents
Investment objective and policies .......................................... 6
Why invest in the Fund? .................................................... 9
Latin American investment experience ....................................... 9
Additional information about policies
and investments .......................................................... 9
Distribution and performance information ................................... 15
Fund organization .......................................................... 15
Transaction information .................................................... 17
Shareholder benefits ....................................................... 21
Purchases .................................................................. 24
Exchanges and redemptions .................................................. 25
Directors and Officers ..................................................... 27
Investment products and services
- --
4
<PAGE>
How to contact Scudder
Investment objective and policies
Scudder Latin America Fund (the "Fund"), a non-diversified series of Scudder
International Fund, Inc., seeks to provide long-term capital appreciation
through investment primarily in the securities of Latin American issuers.
The Fund seeks to benefit from economic and political trends emerging throughout
Latin America. These trends are supported by governmental initiatives designed
to promote freer trade and market-oriented economies. The Fund's investment
adviser, Scudder Kemper Investments, Inc. (the "Adviser"), believes that efforts
by Latin American countries to, among other things, reduce government spending
and deficits, control inflation, lower trade barriers, stabilize currency
exchange rates, increase foreign and domestic investment and privatize
state-owned companies, will set the stage for attractive investment returns over
time.
The Fund involves above-average investment risk. It is designed as a long-term
investment and not for short-term trading purposes, and should not be considered
a complete investment program.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in the Fund's 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
At least 65% of the Fund's total assets will be invested in the securities of
Latin American issuers, and 50% of the Fund's total assets will be invested in
Latin American equity securities. To meet its objective to provide long-term
capital appreciation, the Fund normally invests at least 65% of its total assets
in equity securities. For purposes of this prospectus, Latin America is defined
as Mexico, Central America, South America and the Spanish-speaking islands of
the Caribbean. The Fund defines securities of Latin American issuers as follows:
o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in Latin
America;
o Securities issued or guaranteed by the government of a country in Latin
America, its agencies or instrumentalities, political subdivisions or the
central bank of such country;
o Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in Latin
America; or
o Securities of Latin American issuers, as defined above, in the form of
depositary shares.
Although the Fund may participate in markets throughout Latin America, under
present conditions the Fund expects to focus its investments in Argentina,
Brazil, Chile, Colombia, Mexico and Peru. In the opinion of the Adviser, these
six countries offer the most developed capital markets in Latin America. The
Fund may invest in other countries in Latin America when the Adviser deems it
appropriate. The Fund intends to allocate investments among at least three
countries at all times.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
illiquid securities and may also be purchased through rights. Securities may be
listed on securities exchanges, traded over-the-counter, or have no organized
market.
The Fund may invest in debt securities when management anticipates that the
potential for capital appreciation is likely to equal or exceed that of equity
securities. Capital appreciation in
--
5
<PAGE>
debt securities may arise from a favorable change in relative foreign exchange
rates, in relative interest rate levels, or in the creditworthiness of issuers.
Receipt of income from such debt securities is incidental to the Fund's
objective of long-term capital appreciation. Most debt securities in which the
Fund invests are not rated. When debt securities are rated, it is expected that
such ratings will generally be below investment grade; that is, rated below Baa
by Moody's Investors Service, Inc. ("Moody's") or below BBB by Standard & Poor's
Corporation ("S&P"). For more information about the debt securities in which the
Fund may invest, including risks, please see "Additional information about
policies and investments."
The Fund may invest up to 35% of its total assets in the equity securities of
U.S. and other non-Latin American issuers. In evaluating non-Latin American
investments, the Adviser seeks investments where an issuer's Latin American
business activities and the impact of developments in Latin America may have a
positive effect on the issuer's business results.
In selecting companies for investment, the Fund typically evaluates industry
trends, a company's financial strength, its competitive position in domestic and
export markets, technology, recent developments and profitability, together with
overall growth prospects. Other considerations generally include quality and
depth of management, government regulation, and availability and cost of labor
and raw materials. Investment decisions are made without regard to arbitrary
criteria as to minimum asset size, debt-equity ratios or dividend history of
portfolio companies.
The allocation between equity and debt, and among countries in Latin America,
varies based on a number of factors, including?: expected rates of economic and
corporate profit growth; past performance and current and comparative valuations
in Latin American capital markets; the level and anticipated direction of
interest rates; changes or anticipated changes in Latin American government
policy; and the condition of the balance of payments and changes in the terms of
trade. The Fund, in seeking undervalued markets or individual securities, also
considers the effects of past economic crises or ongoing financial and political
uncertainties.
To provide for redemptions, or in anticipation of investment in Latin American
securities, the Fund may hold cash or cash equivalents (in U.S. dollars or
foreign currencies) and other short-term securities, including money market
securities denominated in U.S. dollars or foreign currencies. The Fund may
assume a defensive position when, due to political or other factors, the Adviser
determines that opportunities for capital appreciation in Latin American markets
would be significantly limited over an extended period or that investing in
those markets poses undue risk to investors. The Fund may, for temporary
defensive purposes, invest without limit in cash or cash equivalents and money
market instruments, or invest all or a portion of its assets in securities of
U.S. or other non-Latin American issuers when the Adviser deems such a position
advisable in light of economic or market conditions. It is impossible to
accurately predict how long such alternative strategies may be utilized. The
Fund may also invest in closed-end investment companies investing primarily in
Latin America. In addition, the Fund may invest in loan participations and
assignments, when-issued securities, convertible securities, illiquid and
restricted securities, repurchase agreements, reverse repurchase agreements and
may engage in strategic transactions, including derivatives. See "Additional
information about policies and investments" for more information about these
investment techniques.
- --
6
<PAGE>
Why invest in the Fund?
The Fund seeks to take advantage of evolving economic and political trends in
Latin America. These trends are largely a result of efforts by Latin American
governments to institute democratic and market-oriented economic reforms.
Although the pace and success in accomplishing these objectives vary
significantly throughout Latin America, there has been a general trend in recent
years towards reducing government's role in economic affairs and creating a
business environment conducive to investment and growth. To take better
advantage of Latin America's abundant natural resources and other strengths,
many countries in the region have established policies to control inflation,
reduce government deficits and external debt, stabilize currency exchange rates,
reduce taxes and interest rates, and modernize and open securities markets.
Governments have also privatized state-owned enterprises, including telephone
companies, utilities, banks, petrochemical concerns and railroads, and are
beginning to invest heavily in infrastructure, which is necessary for a strong
economy. In some Latin American countries these initiatives have already led to
more stable economic conditions, stronger economic growth, reduction of capital
outflows, and increased interest by foreign investors in Latin America, all of
which have helped boost capital market returns in recent years.
Investors should be aware that participation in the Fund involves special
considerations and risks not typically associated with a mutual fund investing
principally in the securities of U.S. issuers. However, for investors who can
accept the risks of Latin American investing and have a long-term investment
horizon, the Fund offers the potential for substantial capital appreciation over
time. See "Additional information about policies and investments--Risk factors."
The Fund is the first pure no-load fund to invest in Latin America.
Latin American investment experience
The Adviser has been active in international investment for over 40 years. The
Adviser manages a number of offshore and U.S. investment companies that invest
in all or select regions of Latin America, including two closed-end funds
trading on the New York Stock Exchange: The Argentina Fund, Inc., and The Brazil
Fund, Inc.
Additional information about policies and investments
Investment restrictions
The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Fund's Board of Directors. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Fund's combined Statement of Additional Information.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.
--
7
<PAGE>
Loan participations and assignments
The Fund may invest in fixed and floating rate loans arranged through private
negotiations between an issuer of emerging market debt instruments and one or
more financial institutions ("lenders"). Generally, the Fund's investments in
loans are expected to take the form of loan participations and assignments of
portions of loans from third parties.
When investing in a participation, the Fund will typically have the right to
receive payments only from the lender to the extent the lender receives payments
from the borrower, and not from the borrower itself. Likewise, the Fund
typically will be able to enforce its rights only through the lender, and not
directly against the borrower. As a result, the Fund will assume the credit risk
of both the borrower and the lender that is selling the participation.
When the Fund purchases assignments from lenders, it will acquire direct rights
against the borrower, but these rights and the Fund's obligations may differ
from, and be more limited than, those held by the assigning lender.
Loan participations and assignments may be illiquid. Please refer to "Risk
factors--Illiquid investments" for more information.
When-issued securities
The Fund may purchase equity and debt securities on a when-issued or forward
delivery basis, for payment and delivery at a later date. The price and yield
are generally fixed on the date of commitment to purchase. During the period
between purchase and settlement, no interest accrues to the Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price.
Convertible securities
The Fund may invest in convertible securities which may offer higher income than
the common stocks into which they are convertible. The convertible securities in
which the Fund may invest include 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. Prior to their conversion, convertible
securities may have characteristics similar to non-convertible securities.
Common stocks
Under normal circumstances, the Fund invests in common stocks. Common stock is
issued by companies to raise cash for business purposes and represents a
proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase at a specified time and price. The Fund may also enter
into repurchase commitments for investment purposes for periods of 30 days or
more. Such commitments involve investment risk similar to that of debt
securities.
Illiquid securities
The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.
- --
8
<PAGE>
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's total 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 to create leveraged exposure in the Fund. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Non-diversified investment company. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940 (the "1940 Act"),
which means that the Fund is not limited by the 1940 Act in the proportion of
its assets that it may invest in the obligations of a single issuer. The
investment of a large percentage of the Fund's assets in the securities of a
small number of issuers may cause the Fund's share price to fluctuate more than
that of a diversified investment company.
Investing in Latin America. The Adviser believes that investment opportunities
may result from
--
9
<PAGE>
recent trends in Latin America encouraging greater market orientation and less
governmental intervention in economic affairs. Investors, however, should be
aware that the Latin American economies have experienced considerable
difficulties in the past decade. Although there have been significant
improvements in recent years, the Latin American economies continue to
experience challenging problems, including high inflation rates and high
interest rates relative to the U.S. The emergence of the Latin American
economies and securities markets will require continued economic and fiscal
discipline which has been lacking at times in the past, as well as stable
political and social conditions. Recovery may also be influenced by
international economic conditions, particularly those in the U.S., and by world
prices for oil and other commodities. There is no assurance that recent economic
initiatives will be successful.
Certain risks associated with international investments and investing in
smaller, developing capital markets are heightened for investments in Latin
American countries. For example, some of the currencies of Latin American
countries have experienced steady devaluations relative to the U.S. dollar, and
major adjustments have been made in certain of these currencies periodically. In
addition, although there is a trend toward less government involvement in
commerce, governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government still owns or controls many companies,
including some of the largest in the country. Accordingly, government actions in
the future could have a significant effect on economic conditions in Latin
American countries, which could affect private sector companies and the Fund, as
well as the value of securities in the Fund's portfolio.
Most Latin American countries have experienced substantial, and in some periods,
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain Latin American
countries.
Certain Latin American countries are among the largest debtors to commercial
banks and foreign governments. Some of these countries have in the past
defaulted on their sovereign debt. Holders of sovereign debt (including the
Fund) may be requested to participate in the rescheduling of such debt and to
extend further loans to governmental entities. There is no bankruptcy proceeding
by which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
The limited size of many Latin American securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities could
cause prices to be erratic for reasons apart from factors that affect the
quality of securities.
The portion of the Fund's assets invested directly in Chile may be less than the
portions invested in other countries in Latin America because, at present,
capital invested in Chile normally cannot be repatriated for as long as five
years.
Foreign securities. Investments in foreign securities involve special
considerations due to more limited information, higher brokerage costs,
different accounting standards, thinner trading markets and the likely impact of
foreign taxes on the income from securities. They may also entail certain other
risks, such as the possibility of one or more of the following: imposition of
dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; expropriation, nationalization, military coups or other
adverse political or economic developments; less government supervision and
regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Further, it may be more
difficult for the Fund's agents to keep
- --
10
<PAGE>
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., increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Certain markets may require payment for securities before delivery.
The Fund's ability and decisions to purchase and sell portfolio securities may
be affected by laws or regulations relating to the convertibility of currencies
and repatriation of assets. Some countries restrict the extent to which
foreigners may invest in their securities markets.
The Fund invests in securities denominated in currencies of Latin American
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Fund's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
Latin American countries may restrict the free conversion of their currencies
into other currencies. Further, it generally will not be possible to reduce the
Fund's Latin American currency risk through hedging. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
Convertible securities. While convertible securities generally offer lower
yields than non-convertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities entail less credit risk than the issuer's common stock.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
of the seller of the securities before repurchase of the securities under a
repurchase agreement, the Fund may encounter delay and incur costs, including a
decline in the value of the securities, before being able to sell the
securities.
Debt securities. 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"). The lower the ratings of such debt securities, the greater their
risks render them like equity securities. The Fund will invest no more than 10%
of its assets in securities rated B or lower by Moody's or S&P, and may invest
in securities rated C by Moody's or D by S&P, which may be in default with
respect to payment of principal or interest. Also, longer maturity bonds tend to
fluctuate more in price as interest rates change than do short-term bonds,
providing both opportunity and risk.
Illiquid investments. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Borrowing. Although the principal of the Fund's borrowing will be fixed, the
Fund's assets may change in value during the time a borrowing is outstanding,
increasing exposure to capital risk.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
--
11
<PAGE>
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 contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's combined Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute dividends from its net investment income and net
realized capital gains after utilization of capital loss carryforwards, if any,
annually in December to prevent application of federal excise tax, although an
additional distribution may be made if required, at a later date. Any dividends
or capital gains distributions declared in October, November or December with a
record date in such month and paid the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. According to preference, shareholders may receive
distributions in cash or have them reinvested in additional shares of the Fund.
If the investment is in the form of a retirement plan, all dividends and capital
gains distributions must be reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individuals at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), regardless of the length
of time shareholders have owned their shares. Short-term capital gains and any
other taxable distributions are taxable as ordinary income.
Shareholders may be able to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the Fund to
foreign countries.
The Fund sends detailed tax information about the amount and type of its
distributions to its shareholders by January 31 of the following year.
- --
12
<PAGE>
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year, and
the life of the Fund as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. Performance will vary based upon, among other things,
changes in market conditions and the level of the Fund's expenses.
Fund organization
Scudder Latin America Fund is a non-diversified series of Scudder International
Fund, Inc. (the "Corporation"), an open-end, management investment company
registered under the 1940 Act. The Corporation was organized as a Maryland
corporation in July 1975.
The Fund's activities are supervised by the Corporation's Board of Directors.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Fund is not required to and has no current intention of
holding annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment advisory contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage its daily investment and business affairs subject to the policies
established by the Board of Directors. The Directors have overall responsibility
for the management of the Fund under Maryland law.
Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
The Fund pays the Adviser an annual fee of 1.25% of the first $1 billion and
1.15% of such assets in excess of $1 billion of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than that charged by many funds which invest primarily in U.S. securities
but not necessarily higher than the fees charged to funds with investment
objectives similar to that of the Fund.
All the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder Kemper Investments, Inc., is located at 345 Park Avenue, New York, New
York.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of
--
13
<PAGE>
the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Custodian
Brown Brothers Harriman & Co. is the Fund's custodian.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member
- --
14
<PAGE>
of the Automated Clearing House for you to use this service. If you did not
elect "QuickBuy," call 1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Directors. Your new
account will have the same registration and address as your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call.
--
15
<PAGE>
"QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations, or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. Each Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and
- --
16
<PAGE>
may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Directors. Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions--Other information" in the Fund's Statement of
Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Corporation has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Shareholder benefits
Experienced professional management
Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
--
17
<PAGE>
Professional management is an important advantage for investors who do not have
the time or expertise to invest directly in individual securities.
A team approach to investing
Scudder Latin America Fund is managed by a team of investment professionals who
each play an important role in the Fund's management process. Team members work
together to develop investment strategies and select securities for the Fund's
portfolio. They are supported by the Adviser's large staff of economists,
research analysts, traders and other investment specialists who work in the
Adviser's offices across the United States and abroad. The Adviser believes its
team approach benefits Fund investors by bringing together many disciplines and
leveraging the Adviser's extensive resources.
Edmund B. Games, Jr., Lead Portfolio Manager, has set the Fund's investment
strategy and overseen its daily operation since the Fund was introduced in 1992.
Mr. Games joined the Adviser's equity research area in 1960 and has focused on
Latin American stocks since 1988. Tara C. Kenney, Portfolio Manager, assists
with the Fund's research and investment strategy. Ms. Kenney, who joined the
Fund's team in 1996, has over ten years of financial industry experience.
Paul Rogers, Portfolio Manager, also joined the Fund's team in 1996 and is
primarily responsible for research on Latin American corporations. Mr. Rogers
joined the Adviser in 1994 and has over ten years of investment experience.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon the Adviser's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
- --
18
<PAGE>
Shareholder statements
You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Investor Centers in Boca Raton,
Boston, Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
--
19
<PAGE>
Purchases
- --------------------------------------------------------------------------------
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or
lower minimums.
See appropriate plan literature.
Make checks o By Mail Send your completed and signed application and
payable to check
"The Scudder
Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
o By Wire Please see Transaction information--Purchasing
shares--By wire for details, including the ABA
wire transfer number. Then call 1-800-225-5163
for instructions.
o By Wire Please see Transaction information--Purchasing
shares-- By wire for details, including the ABA
wire transfer number. Then call 1-800-225-5163
for instructions.
o In Person Visit one of our Investor Centers to
complete your application with the help of a
Scudder representative. Investor Center locations
are listed under Shareholder benefits.
- -------------------------------------------------------------------------- -----
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or
shares lower minimums.
See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or
payable to with a letter of instruction including your account
"The Scudder number and the complete Fund name, to the
Funds." appropriate address listed above.
o By Wire Please see Transaction information--Purchasing
shares--By wire for details, including the ABA
wire transfer number.
o In Person Visit one of our Investor Centers to make an
additional investment in your Scudder fund account.
Investor Center locations are listed under
Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing
shares--By QuickBuy or By telephone order for
more details.
o By Automatic You may arrange to make investments on a regular
Investment basis through automatic deductions from
Plan ($50 your bank checking account. Please call
minimum) 1-800-225-5163 for more information and an
enrollment form.
- --------------------------------------------------------------------------------
- --
20
<PAGE>
Exchanges and redemptions
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
o By Telephone To speak with a service representative, call
1-800-225-5163 from 8 a.m. to 8 p.m. eastern time
or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890
(24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you
are exchanging from;
- your name(s) and address as they appear on your
account;
- the dollar amount or number of shares you wish to
exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account;
and
- a daytime telephone number.
Send your instructions
by regular mail or by express, or by fax to:
to: registered,
or certified
mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA
02107-2291 02184
- --------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call
shares 1-800-225-5163 from 8 a.m. to 8 p.m. eastern time
or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a
day). You may have redemption proceeds sent to your
predesignated bank account, or redemption proceeds
of up to $100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the
or Fax appropriate or Fax address or fax number above and
include:
- the name of the Fund and account number you are
redeeming from;
- your name(s) and address as they appear on your
account;
- the dollar amount or number of shares you wish to
redeem;
- your signature(s) as it appears on your account;
and
- a daytime telephone number.
A signature guarantee is required for redemptions
over $100,000. See Transaction information--
Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments
Withdrawal periodically. Call 1-800-225-5163 for more
Plan information and an enrollment form.
--
21
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even if only
one spouse has earned income). Many people can deduct all or part of their
contributions from their taxable income, and all investment earnings
accrue on a tax-deferred basis. The Scudder No-Fee IRA charges you no
annual custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options. Profit
Sharing and Money Purchase Pension Plans. These plans allow corporations,
partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State,
Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is
the Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
- --
22
<PAGE>
Directors and Officers
Daniel Pierce*
Chairman of the Board and Director
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
Robert W. Lear
Honorary Director; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman Emeritus and Director, Kirby Corporation
Elizabeth J. Allan*
Vice President
Nicholas Bratt*
President
Irene T. Cheng*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
Vice President
John R. Hebble*
Assistant Treasurer
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Treasurer, Vice President and Secretary
Caroline Pearson*
Assistant Secretary
Sheridan Reilly*
Vice President
*Scudder Kemper Investments, Inc.
--
23
<PAGE>
Investment products and services
The Scudder Family of Funds[
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **[[
(a variable annuity)
Education Accounts
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. [Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. [[A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various foreign stock exchanges.
- --
24
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain
an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal CounselSM -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
--
25
<PAGE>
This prospectus sets forth concisely the information about Scudder Pacific
Opportunities Fund, a non-diversified series of Scudder International Fund,
Inc., an open-end management investment company, that a prospective investor
should know before investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated March 1, 1998, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the Securities and Exchange Commission's Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
- ---------------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- ---------------------------------
[LOGO] PRINTED WITH
SOYINK
[LOGO] Printed on recycled paper
SCUDDER
SCUDDER [LOGO]
Scudder
Pacific
Opportunities
Fund
Prospectus
March 1, 1998
A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital through investment primarily in the equity securities of Pacific
Basin companies, excluding Japan.
<PAGE>
- ---------------------------------------
Expense information
- ---------------------------------------
- --------------------------------------------------------------------------------
How to compare a Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Pacific Opportunities Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(TM) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended October 31,
1997.
Investment management fee 1.10%
12b-1 fees NONE
Other expenses 0.84%
----
Total Fund operating expenses 1.94%
====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$20 $61 $105 $226
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction
information--Redeeming shares."
- --------------------------------------------------------------------------------
- --
2
<PAGE>
- ---------------------------------------
Financial highlights
- ---------------------------------------
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated October 31, 1997 which may be obtained without charge
by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the Period
December 8, 1992
(commencement of
operations) to
Years Ended October 31, October 31,
1997(a) 1996(a) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $15.93 $15.59 $17.57 $16.21 $12.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ............. (.04) .02 .10 .04 .04
Net realized and unrealized gain
(loss) on investment transactions...... (4.50) .42 (1.98) 1.41 4.17
------------------------------------------------------------------------
Total from investment operations ......... (4.54) .44 (1.88) 1.45 4.21
------------------------------------------------------------------------
Less distributions from:
Net investment income .................... (.01) (.10) (.10) (.08) --
Net realized gains on investment
transactions........................... -- -- -- (.01) --
------------------------------------------------------------------------
Total distributions ...................... (.01) (.10) (.10) (.09) --
------------------------------------------------------------------------
------------------------------------------------------------------------
Net asset value, end of period ........... $11.38 $15.93 $15.59 $17.57 $16.21
------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total Return (%) ......................... (28.52) 2.76 (10.73) 8.97 35.08**
Ratios and Supplemental Data
Net assets, end of period ($ millions).... 147 329 384 499 270
Ratio of operating expenses, net to
average daily net assets (%)........... 1.94 1.75 1.74 1.81 1.75*
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) .................. 1.94 1.75 1.74 1.81 2.90*
Ratio of net investment income
(loss) to average daily net
assets (%)............................. (.22) .12 .65 .28 1.41*
Portfolio turnover rate (%) .............. 97.2 95.4 64.0 38.5 9.9*
Average commission rate paid (b) ......... $.0094 $.0148 -- -- --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for periods ending on or after October 31, 1996.
* Annualized
** Not annualized
- --------------------------------------------------------------------------------
--
3
<PAGE>
- ---------------------------------------
A message from the President
- ---------------------------------------
[PHOTO]
Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also manage
the mutual funds in a special program for the American Association of Retired
Persons, as well as the fund options available through Scudder Horizon Plan, a
tax-advantaged variable annuity. We also advise The Japan Fund, and numerous
other open and closed-end funds that invest in this country and other countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to shareholders include toll-free access to the professional
service representatives of Scudder Investor Relations, easy exchange among
funds, shareholder reports, informative newsletters and the walk-in convenience
of Scudder Investor Centers.
The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem shares or to exchange from one fund to another. There are no
12b-1 fees either, which many other funds now charge to support their marketing
efforts. All of your investment goes to work for you. We look forward to
welcoming you as a shareholder.
/s/ Edmond D. Villani
- ---------------------------------------
Scudder Pacific Opportunities Fund
- ---------------------------------------
Investment objective
o long-term growth of capital through investment primarily in the equity
securities of Pacific Basin companies, excluding Japan
Investment characteristics
o convenient, low-cost access to investment opportunities in the Pacific
Basin
o participation in a professionally managed portfolio of securities in a
region of the world that few investors have the time, resources or
experience to research
o increased international diversification
o daily liquidity at net asset value
o above-average investment risk
- ---------------------------------------
Contents
- ---------------------------------------
Investment objective and policies ................. 5
Why invest in the Fund? ........................... 6
International investment experience ............... 7
Additional information about policies
and investments ................................ 7
Distribution and performance information .......... 10
Fund organization ................................. 11
Transaction information ........................... 12
Shareholder benefits .............................. 16
Purchases ......................................... 18
Exchanges and redemptions ......................... 19
Directors and Officers ............................ 21
Investment products and services .................. 22
How to contact Scudder ............................ 23
- --
4
<PAGE>
- ---------------------------------------
Investment objective and policies
- ---------------------------------------
Scudder Pacific Opportunities Fund (the "Fund"), a non-diversified series of
Scudder International Fund, Inc., seeks long-term growth of capital through
investment primarily in the equity securities of Pacific Basin companies,
excluding Japan. The Fund's investment program focuses on the smaller, emerging
markets in this region of the world. The Fund is appropriate for no-load
investors seeking to benefit from economic growth in the Pacific Basin, but who
do not want direct exposure to the Japanese market. An investment in the Fund
entails above-average investment risk.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in the Fund's 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 invests, under normal market conditions, at least 65% of its total
assets in the equity securities of Pacific Basin companies. Pacific Basin
countries include Australia, the Peoples Republic of China, India, Indonesia,
Malaysia, New Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as
well as Hong Kong, Singapore, South Korea and Taiwan--the so-called "four
tigers." The Fund may invest in other countries in the Pacific Basin when their
markets become sufficiently developed. The Fund will not, however, invest in
Japanese securities. The Fund intends to allocate investments among at least
three countries at all times.
The Fund defines securities of Pacific Basin companies as follows:
o Securities of companies organized under the laws of a Pacific Basin
country or for which the principal securities trading market is in the
Pacific Basin; or
o Securities of companies, wherever organized, when at least 50% of a
company's non-current assets, capitalization, gross revenue or profit in
any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in the
Pacific Basin.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
illiquid 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.
The Fund may invest up to 35% of its total assets in foreign and domestic debt
securities if the Fund's investment adviser, Scudder Kemper Investments, Inc.
(the "Adviser") determines that the capital appreciation of debt securities is
likely to equal or exceed the capital appreciation of equity securities. The
Fund may purchase bonds rated Aaa, Aa or A by Moody's Investors Service, Inc.
("Moody's"), or AAA, AA or A by Standard & Poor's Corporation ("S&P") or, if
unrated, of equivalent quality as determined by the Adviser. Should the rating
of a security in the Fund's portfolio be downgraded, the Adviser will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.
Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of U.S. and other non-Pacific Basin issuers (excluding Japan).
In evaluating non-Pacific Basin investments, the Adviser seeks investments where
an issuer's Pacific Basin business activities and the impact of developments in
the Pacific Basin may have a positive effect on the issuer's business results.
The Fund may also purchase shares of closed-end investment companies that
--
5
<PAGE>
invest primarily in the Pacific Basin. In addition, the Fund may invest in
when-issued securities and convertible securities, illiquid and restricted
securities, reverse repurchase agreements and may engage in strategic
transactions, including derivaties. For temporary defensive purposes, the Fund
may hold without limit debt instruments as well as cash and cash equivalents,
including foreign and domestic money market instruments, short-term government
and corporate obligations, and repurchase agreements when the Adviser deems such
a position advisable in light of economic or market conditions. It is impossible
to accurately predict how long such alternative strategies may be utilized. More
information about investment techniques is provided under "Additional
information about policies and investments."
Investment strategy
The Adviser seeks to identify companies with favorable potential for
appreciation through growing earnings or market recognition over time. While
these companies may be among the largest in their local markets, they may be
small by the standards of U.S. market capitalization.
The Adviser evaluates investments for the Fund from both a macroeconomic and a
microeconomic perspective, using extensive field research. Macroeconomic
research includes a study of the economic fundamentals of each country and an
examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the Adviser to identify the industries and sectors most likely to
benefit from the political, social and economic changes taking place across the
Pacific Basin. Microeconomic analysis identifies individual companies with
exceptional business prospects, which may be due to market dominance, unique
franchises, high growth potential, or innovative services, products or
technologies.
- ---------------------------------------
Why invest in the Fund?
- ---------------------------------------
The Fund is designed for investors wishing to participate in the investment
opportunities afforded by the Asian markets in the Pacific Basin excluding
Japan. The Adviser believes that the economies of the Pacific Basin, although
experiencing many economic challenges currently, could return to above average
rates of economic growth within a few years. These economies are generally
characterized by large, hard-working labor pools, a well-educated and growing
middle class, high savings rates and a diverse group of entrepreneurial
companies. The Adviser will look for companies with sound balance sheets, low
cost structures, healthy cash flow, U.S. dollar earnings, and strong competitive
positions.
The Fund involves above-average risk. It is designed as a long-term investment
and not for short-term trading purposes, and should not be considered a complete
investment program. However, movements in the Fund's share price may have a low
correlation with movements in the U.S. markets, so adding shares of the Fund to
an investor's portfolio may increase the investor's portfolio diversification,
and moderate overall portfolio risk.
Investing directly in foreign securities is usually impractical for individual
investors. Investors frequently find it difficult to arrange purchases and
sales, obtain current market, industry or corporate information, hold securities
for safekeeping and convert profits from foreign currencies to U.S. dollars. The
Fund manages these tasks for the investor. The Adviser has had many years of
experience in dealing in foreign markets and believes the Fund affords a
convenient and cost-effective method of investing in the more dynamic,
developing countries in the Pacific Basin region. See "Additional information
about policies and investments--Risk factors."
- --
6
<PAGE>
- ---------------------------------------
International investment
experience
- ---------------------------------------
The Adviser, a leader in international investment management, has been investing
in the Pacific Basin for over 35 years. The Adviser manages a number of offshore
and U.S. investment companies that invest in all or select regions of the
Pacific Basin, including two closed-end funds that trade on the New York Stock
Exchange: Scudder New Asia Fund, Inc. and The Korea Fund, Inc. The Adviser also
manages The Japan Fund, Inc., an open-end investment company investing primarily
in securities of Japanese companies.
- ---------------------------------------
Additional information about
policies and investments
- ---------------------------------------
Investment restrictions
The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Fund's Board of Directors. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Fund's combined Statement of Additional Information.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.
When-issued securities
The Fund may purchase equity and debt securities on a when-issued or forward
delivery basis, for payment and delivery at a later date. The price and yield
are generally fixed on the date of commitment to purchase. During the period
between purchase and settlement, no interest accrues to the Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price.
Convertible securities
The Fund may invest in convertible securities which may offer higher income than
the common stocks into which they are convertible. The convertible securities in
which the Fund may invest consist of bonds, notes, debentures and preferred
stocks which may be converted or exchanged at a stated or determinable exchange
ratio into underlying shares of common stock. Prior to their conversion,
convertible securities may have characteristics similar to non-convertible
securities.
Common stocks
Under normal circumstances, the Fund invests in common stocks. Common stock is
issued by companies to raise cash for business purposes and represents a
proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
--
7
<PAGE>
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities subject to the seller's
agreement to repurchase at a specified time and price.
Illiquid securities
The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's total 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 to create leveraged exposure in the Fund. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management
- --
8
<PAGE>
strategies used by the Adviser. The following are descriptions of certain risks
related to the investments and techniques that the Fund may use from time to
time.
Non-diversified investment company. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940 (the "1940 Act"),
which means that the Fund is not limited by the 1940 Act in the proportion of
its assets that it may invest in the obligations of a single issuer. The
investment of a large percentage of the Fund's assets in the securities of a
small number of issuers may cause the Fund's share price to fluctuate more than
that of a diversified investment company.
Investing in the Pacific Basin. The Fund is susceptible to political and
economic factors affecting issuers in Pacific Basin countries. Although the Fund
will not invest in Japanese companies, some Pacific Basin economies are directly
affected by Japanese capital investment in the region and by Japanese consumer
demands. Many of the countries of the Pacific Basin are developing both
economically and politically. Pacific Basin countries may have relatively
unstable governments, economies based on only a few commodities or industries,
and securities markets trading infrequently or in low volumes. Some Pacific
Basin countries restrict the extent to which foreigners may invest in their
securities markets. Securities of issuers located in some Pacific Basin
countries tend to have volatile prices and may offer significant potential for
loss as well as gain. Further, certain companies in the Pacific Basin may not
have firmly established product markets, may lack depth of management, or may be
more vulnerable to political or economic developments such as nationalization of
their own industries.
Foreign securities. Investments in foreign securities involve special
considerations due to more limited information, higher brokerage costs,
different accounting standards, thinner trading markets and the likely impact of
foreign taxes on the income and gains from securities. They may also entail
certain other risks, such as the possibility of one or more of the following:
imposition of dividend or interest withholding or confiscatory taxes; currency
blockages or transfer restrictions; expropriation, nationalization, military
coups or other adverse political or economic developments; less government
supervision and regulation of securities exchanges, brokers and listed
companies; and the difficulty of enforcing obligations in other countries.
Purchases of foreign securities are usually made in foreign currencies and, as a
result, the Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar. Further, 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. Certain markets may require payment for securities before delivery.
The Fund's ability and decisions to purchase and sell portfolio securities may
be affected by laws or regulations relating to the convertibility of currencies
and repatriation of assets.
Currency movements. Purchases of foreign securities are usually made in foreign
currencies and, as a result, the Fund may incur currency conversion costs and
may be affected favorably or unfavorably by changes in the value of foreign
currencies against the U.S. dollar. Should the U.S. dollar appreciate against
foreign currencies, then the value of the Fund's securities holdings would
depreciate, all other things being equal. If the reverse is true, then the
Fund's holdings would appreciate in value.
Convertible securities. While convertible securities generally offer lower
yields than
--
9
<PAGE>
non-convertible debt securities of similar quality, their prices may reflect
changes in the value of the underlying common stock. Convertible securities
entail less credit risk than the issuer's common stock.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
of the seller of the securities before repurchase of the securities under a
repurchase agreement, the Fund may encounter delay and incur costs, including a
decline in the value of the securities, before being able to sell the
securities.
Illiquid investments. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's combined Statement of Additional Information.
- ---------------------------------------
Distribution and performance
information
- ---------------------------------------
Dividends and capital gains distributions
The Fund intends to distribute dividends from its net investment income and net
realized capital gains after utilization of capital loss carryforwards, if any,
annually in December to prevent application of federal excise tax, although an
additional distribution may be made if required, at a later date. Any dividends
or capital
- --
10
<PAGE>
gains distributions declared in October, November or December with a
record date in such month and paid the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. According to preference, shareholders may receive
distributions in cash or have them reinvested in additional shares of the Fund.
If the investment is in the form of a retirement plan, all dividends and capital
gains distributions must be reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individuals at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), regardless of the length
of time shareholders have owned their shares. Short-term capital gains and any
other taxable income distributions are taxable as ordinary income.
Shareholders may be able to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the Fund to
foreign countries.
The Fund sends detailed tax information about the amount and type of its
distributions to its shareholders by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year, and
the life of the Fund as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
additional shares of the Fund. Performance will vary based upon, among other
things, changes in market conditions and the level of the Fund's expenses.
- ---------------------------------------
Fund organization
- ---------------------------------------
Scudder Pacific Opportunities Fund is a non-diversified series of Scudder
International Fund, Inc. (the "Corporation"), an open-end, management investment
company registered under the 1940 Act. The Corporation was organized as a
Maryland corporation in July 1975.
The Fund's activities are supervised by the Corporation's Board of Directors.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Fund is not required to and has no current intention of
holding annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Directors, changing fundamental investment
policies or approving an investment advisory contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Director as if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage its daily investment and business affairs subject to the policies
established by the Board of Directors. The Directors have overall responsibility
for the management of the Fund under Maryland law.
Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global
--
11
<PAGE>
investment organization by combining Scudder's business with that of Zurich's
subsidiary, Zurich Kemper Investments, Inc. and Scudder has changed its name to
Scudder Kemper Investments, Inc. As a result of the transaction, Zurich owns
approximately 70% of the Adviser, with the balance owned by the Adviser's
officers and employees.
The Fund pays the Adviser an annual fee of 1.10% of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than that charged by many funds which invest primarily in U.S. securities
but not necessarily higher than the fees charged to funds with investment
objectives similar to that of the Fund.
All the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder Kemper Investments, Inc., is located at 345 Park Avenue, New York, New
York.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund.
Scudder Investor Relations is a telephone information service provided by
Scudder Investor Services, Inc.
Custodian
Brown Brothers Harriman & Co. is the Fund's custodian.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
- ---------------------------------------
Transaction information
- ---------------------------------------
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
or exchange requests by telephone prior to the expiration of the seven-day
period will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- --
12
<PAGE>
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Directors. Your new
account will have the same registration and address as your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.
--
13
<PAGE>
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations, or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. Each Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time,
- --
14
<PAGE>
on each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Directors. Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
--
15
<PAGE>
"Exchanges and Redemptions--Other information" in the Fund's Statement of
Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Corporation has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
- ---------------------------------------
Shareholder benefits
- ---------------------------------------
Experienced professional management
Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not have
the time or expertise to invest directly in individual securities.
A team approach to investing
Scudder Pacific Opportunities Fund is managed by a team of investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders and other investment specialists
who work in the Adviser's offices across the United States and abroad. The
Adviser believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging its extensive resources.
Elizabeth J. Allan, co-Lead Portfolio Manager, assumed responsibility for the
Fund's day-to-day management and investment strategies in February 1994. Ms.
Allan joined the Adviser in 1987 as a member of the portfolio management team of
a closed-end mutual fund concentrating its investments in Asia. Theresa Gusman,
co-Lead Portfolio Manager, joined the team in 1997 and shares responsibility
with Ms. Allan in the Fund's day-to-day management and investment strategies.
Ms. Gusman joined the Adviser in 1995 after three years as an analyst of Asian
markets at Arhold and S. Beichroeder. Ms. Gusman has 14 years of experience in
international investments. Nicholas Bratt, Portfolio Manager, has been a member
of the Fund's team since 1992 and has over 20 years of experience in global
investing.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
- --
16
<PAGE>
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon the Adviser's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Investor Centers in Boca Raton,
Boston, Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
--
17
<PAGE>
- ---------------------------------------
Purchases
- ---------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
<S> <C> <C>
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
Then call 1-800-225-5163 for instructions.
o In Person Visit one of our Investor Centers to complete your application with the
help of a Scudder representative. Investor Center locations are listed
under Shareholder benefits.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
<S> <C> <C>
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the
Scudder Funds." complete Fund name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By QuickBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on aregular basis regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --
18
<PAGE>
- ---------------------------------------
Exchanges and redemptions
- ---------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
<S> <C> <C>
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- ------------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may
have redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
--
19
<PAGE>
- ---------------------------------------
Scudder tax-advantaged
retirement plans
- ---------------------------------------
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even if only
one spouse has earned income). Many people can deduct all or part of their
contributions from their taxable income, and all investment earnings
accrue on a tax-deferred basis. The Scudder No-Fee IRA charges you no
annual custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State,
Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is
the Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
- --
20
<PAGE>
- --------------------------------------------------------------------------------
Directors and Officers
- --------------------------------------------------------------------------------
Daniel Pierce*
Chairman of the Board and Director
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
Robert W. Lear
Honorary Director; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman Emeritus and Director, Kirby Corporation
Elizabeth J. Allan*
Vice President
Nicholas Bratt*
President
Irene T. Cheng*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
Vice President
John R. Hebble*
Assistant Treasurer
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Treasurer, Vice President and Secretary
Caroline Pearson*
Assistant Secretary
Sheridan Reilly*
Vice President
* Scudder Kemper Investments, Inc.
--
21
<PAGE>
- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------
The Scudder Family of Funds++
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++
(a variable annuity)
Education Accounts
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. ++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various foreign stock exchanges.
- --
22
<PAGE>
- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to
obtain an application
Scudder Brokerage Services* -- 1-800-700-0820 Personal CounselSM --
A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
--
23
<PAGE>
This prospectus sets forth concisely the information about Scudder Greater
Europe Growth Fund, a non-diversified series of Scudder International Fund,
Inc., an open-end management investment company, that a prospective investor
should know before investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated March 1, 1998, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the Securities and Exchange Commission's Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
- ----------------------------
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- ----------------------------
[LOGO] Printed in recycled paper
SCUDDER
[SCUDDER LOGO]
Scudder
Greater Europe
Growth Fund
[GRAPHIC OMITTED]
Prospectus
March 1, 1998
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.
<PAGE>
Expense information
- --------------------------------------------------------------------------------
How to compare a Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Greater Europe Growth Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(TM) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended October 31,
1997.
Investment management fee 1.00%**
12b-1 fees NONE
Other expenses 0.72%
-----
Total Fund operating expenses 1.72% **
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$17 $54 $93 $203
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For additional
information, please refer to "Transaction information--Redeeming shares."
** Until February 28, 1997, the Adviser waived a portion of its investment
management fee to the extent necessary so that the total annualized
expenses of the Fund did not exceed 1.50% of average daily net assets.
Expenses shown above are restated to reflect what the Fund would have paid
during the fiscal year ended October 31, 1997, absent such waiver. Actual
expenses for the fiscal year ended October 31, 1997 were: investment
management fee 0.94%, other expenses 0.72% and total Fund operating
expenses 1.66%.
- --------------------------------------------------------------------------------
2
<PAGE>
Financial highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated October 31, 1997 which may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the Period
October 10,
1994
(commencement
Years Ended October 31, of operations) to
October 31,
1997 (a) 1996 (a) 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period...................... $ 17.20 $ 13.99 $ 12.18 $ 12.00
----------------------------------------------
Income from investment operations:
Net investment income .................................... .03 .13 .13 .01
Net realized and unrealized gain
on investment transactions ............................. 4.14 3.33 1.70 .17
----------------------------------------------
Total from investment operations ......................... 4.17 3.46 1.83 .18
----------------------------------------------
Less distributions from:
Net investment income .................................... (.06) (.11) (.02) --
Net realized gains on investment transactions............. (.14) (.14) -- --
----------------------------------------------
Total distributions ...................................... (.20) (.25) (.02) --
----------------------------------------------
----------------------------------------------
Net asset value, end of period ........................... $ 21.17 $ 17.20 $ 13.99 $ 12.18
- -----------------------------------------------------------------------------------------------------------
Total Return (%) (b) ..................................... 24.47 25.11 15.06 1.50**
Ratios and Supplemental Data
Net assets, end of period ($millions) .................... 196 120 41 8
Ratio of operating expenses, net
to average daily net assets (%)......................... 1.66 1.50 1.50 1.50*
Ratio of operating expenses
before expense reductions, to
average daily net assets (%)............................. 1.72 1.97 2.74 11.46*
Ratio of net investment income
to average daily net assets (%).......................... .16 .82 1.25 2.40*
Portfolio turnover rate (%) ............................... 88.8 39.0 27.9 --
Average commission rate paid (c) ......................... . $ .0562 $ .0509 -- --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after October 31, 1996.
* Annualized
** Not annualized
- --------------------------------------------------------------------------------
3
<PAGE>
A message from the President
[PHOTO OMITTED]
Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also manage
the mutual funds in a special program for the American Association of Retired
Persons, as well as the fund options available through Scudder Horizon Plan, a
tax-advantaged variable annuity. We also advise The Japan Fund, and numerous
other open and closed-end funds that invest in this country and other countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to shareholders include toll-free access to the professional
service representatives of Scudder Investor Relations, easy exchange among
funds, shareholder reports, informative newsletters and the walk-in convenience
of Scudder Investor Centers.
The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem shares or to exchange from one fund to another. There are no
12b-1 fees either, which many other funds now charge to support their marketing
efforts. All of your investment goes to work for you. We look forward to
welcoming you as a shareholder.
/s/ Edward D. Villani
Scudder Greater Europe Growth Fund
Investment objective
o long-term growth of capital through investments primarily in the equity
securities of European companies
Investment characteristics
o focus on well-managed companies standing to benefit from economic growth and
changes underway in Europe
o actively managed by Scudder Kemper Investments, Inc., an investment adviser
with over 35 years of experience investing in Europe
o a pure no-load(TM) fund: no sales charges, redemption fees, or annual 12b-1
payments
Contents
Investment objective and policies .......................................... 5
Why invest in the Fund? .................................................... 6
International investment experience ........................................ 7
Additional information about policies
and investments .......................................................... 7
Distribution and performance information ................................... 11
Fund organization .......................................................... 12
Transaction information .................................................... 13
Shareholder benefits ....................................................... 17
Purchases .................................................................. 19
Exchanges and redemptions .................................................. 20
Directors and Officers ..................................................... 22
Investment products and services ........................................... 23
How to contact Scudder ............................................. Back cover
4
<PAGE>
Investment objective and policies
Scudder Greater Europe Growth Fund (the "Fund"), a non-diversified series of
Scudder International Fund, Inc., seeks 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. If there is a
change in the Fund's 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 total
assets in the equity securities of European companies. The Fund defines a
European company as follows:
o A company organized under the laws of a European country or for which the
principal securities trading market is in Europe; or
o 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.
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 may invest in other countries of Europe when their
markets become sufficiently developed, in the opinion of the Fund's investment
adviser, Scudder Kemper Investments, Inc. (the "Adviser").
The Fund intends to allocate its investments among at least three countries at
all times. The Fund's equity investments are common stock, preferred stock
(convertible or non-convertible), depositary receipts (sponsored or unsponsored)
and warrants. These may be illiquid 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, including derivatives.
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
5
<PAGE>
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"). Such securities may be in default with respect to payment
of principal or interest. See "Risk considerations -- Debt securities."
The Fund may invest in when-issued securities, illiquid and restricted
securities and convertible securities and may enter into repurchase agreements
and reverse repurchase agreements. The Fund may also invest in closed-end
investment companies that invest primarily in Europe.
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. It is impossible to
accurately predict for how long such alternative strategies may be utilized.
More information about investment techniques is provided under "Additional
information about policies and investments."
Investment strategy
The Adviser will conduct regional, country, industry and company analysis in
search of investments likely to benefit from economic, political, industrial and
other changes occurring across Europe. In investigating these four areas, the
Adviser relies heavily on fundamental analysis supplemented by field research.
Regional and country analysis involves evaluating such factors as projected
levels of economic growth, changes in interest rates and inflation, trade
patterns, fluctuations in currencies and political developments within and among
nations. Along with this macroeconomic analysis, the Adviser weighs the
prospects for individual industries and companies. The focus will be on looking
for companies with strong management teams, solid finances, leading products,
franchises or technologies, and market strategies well positioned to benefit
from growth and developments in the region.
Why invest in the Fund?
The goal of Scudder Greater Europe Growth Fund is to provide investors with
long-term growth of capital by participating in investments, primarily in the
form of equity securities, located throughout Greater Europe, which encompasses
both the industrialized nations of Western Europe and the less wealthy or
developed markets in Southern and Eastern Europe. Greater Europe is a region of
more than 3.8 million square miles, 800 million consumers, and has a total
wealth unsurpassed by any other continent. While this region is diverse in
culture, politics and industrial development, it is taking steps to promote
greater economic integration and cooperation.
In selecting investments for the Fund, the Adviser seeks out well-managed
companies, both large multinationals and smaller local firms, standing to
benefit from structural and cyclical changes now underway in Europe. Economic
growth transformation and renewal are taking place in different areas and
different ways including: a trend toward privatizations and corporate
restructurings; deregulation and modernization of securities markets; reduction
in trade barriers and currency restrictions; global expansion by major European
companies of both exports and production; steps toward the broadening of the
European Community; economic reform and modernization of the former communist
countries of Eastern Europe; expected further growth of an already large middle
class and a general increase in consumer confidence; and anticipated labor
market restructurings. The Adviser believes that active management, based
6
<PAGE>
on disciplined fundamental research, will yield promising investment
opportunities for long-term capital appreciation.
The Fund seeks to provide appreciation over time with average international
equity fund risk. It is designed as a long-term investment and not for
short-term trading purposes, and should not be considered a complete investment
program. While the Fund entails stock market and other risks, movements in its
share price may have a low correlation with movements in the U.S. markets, so
adding shares of the Fund to an investor's portfolio may increase the investor's
portfolio diversification, and thus may moderate overall portfolio risk.
The Fund's investments are generally denominated in foreign currencies. The
strength or weakness of the U.S. dollar against these currencies is responsible
for part of the Fund's investment performance. If the dollar falls in value
relative to the German deutschemark, for example, the dollar value of a German
stock held in the portfolio will rise even though the price of the stock remains
unchanged. Conversely, if the dollar rises in value relative to the
deutschemark, the dollar value of the German stock will fall.
Investing directly in foreign securities is usually impractical for individual
investors. Investors frequently find it difficult and expensive to arrange
purchases and sales, obtain current market, industry or corporate information,
hold securities for safekeeping and convert profits from foreign currencies to
U.S. dollars. The Fund manages these tasks for the investor. The Adviser has had
many years of experience in dealing in foreign markets and believes the Fund
affords a convenient and cost-effective method of investing in the European
markets. See "Risk considerations."
International investment experience
The Adviser, a leader in international investment management, has been investing
in Europe for over 35 years. In 1953, the Adviser introduced the first foreign
investment company registered with the United States Securities and Exchange
Commission, Scudder International Fund. As of December 31, 1997, the Adviser was
responsible for managing more than $200 billion in assets globally.
The Adviser also manages a number of offshore and U.S. investment companies
that can invest in all or select regions of Europe, including two closed-end
funds: Scudder New Europe Fund, Inc. and The Spain and Portugal Fund, Inc. The
Adviser maintains an office in London with various contacts there and elsewhere
in Europe.
Additional information about policies and investments
Investment restrictions
The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Fund's Board of Directors. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Fund's combined Statement of Additional Information.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness, or through repurchase agreements. The Fund has
adopted a non-fundamental policy restricting the lending of
7
<PAGE>
portfolio securities to no more than 5% of total assets.
When-issued securities
The Fund may purchase equity and debt securities on a when-issued or forward
delivery basis, for payment and delivery at a later date. The price and yield
are generally fixed on the date of commitment to purchase. During the period
between purchase and settlement, no interest accrues to the Fund. At the time of
settlement, the market value of the security may be more or less than the
purchase price.
Convertible securities
The Fund may invest in convertible securities which may offer higher income than
the common stocks into which they are convertible. The convertible securities in
which the Fund may invest consist of bonds, notes, debentures and preferred
stocks which may be converted or exchanged at a stated or determinable exchange
ratio into underlying shares of common stock. Prior to their conversion,
convertible securities may have characteristics similar to non-convertible
securities.
Common stocks
Under normal circumstances, the Fund invests in common stocks. Common stock is
issued by companies to raise cash for business purposes and represents a
proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase at a specified time and price. The Fund may also enter
into repurchase commitments for investment purposes for periods of 30 days or
more. Such commitments involve investment risk similar to that of debt
securities.
Illiquid securities
The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivatives contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate
8
<PAGE>
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 total 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 to create leveraged exposure in the Fund. Please refer to "Risk
considerations--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Non-diversified investment company. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940 (the "1940 Act"),
which means that the Fund is not limited by the 1940 Act in the proportion of
its assets that it may invest in the securities of a single issuer. The
investment of a large percentage of the Fund's assets in the securities of a
small number of issuers may cause the Fund's share price to fluctuate more than
that of a diversified investment company.
Investing in Europe. The Fund's performance is susceptible to political, social
and economic factors affecting issuers in European countries. Such factors may
include, but are not limited to: growth of GDP or GNP, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position, as well as interest and monetary exchange rates among European
countries.
Eastern European countries and certain Southern European countries are
considered to be emerging markets. Securities traded in certain emerging
European markets may be subject to additional risks due to political and
economic reforms including efforts to decentralize the economic decision-making
process and move toward a market-oriented economy. Additionally, the
inexperience of financial intermediaries, lack of modern technology and the
possibility of permanent or temporary termination of trading of securities may
affect the Fund's performance. To the extent that the Fund purchases equity
securities of smaller companies, such securities may experience greater
volatility and have limited liquidity.
9
<PAGE>
Former communist regimes of a number of Eastern European countries had
expropriated a large amount of property, the claims on which have not been
entirely settled. There can be no assurance that the Fund's investments in
Eastern Europe would not also be expropriated, nationalized or otherwise
confiscated. Finally, any change in the leadership or policies of Eastern
European countries, or the countries that exercise a significant influence over
those countries, may halt the expansion of or reverse the liberalization of
foreign investment policies now occurring and adversely affect existing
investment opportunity.
Although the governments of certain Eastern European countries currently are
implementing or considering reforms directed at political and economic
liberalization, there can be no assurance that these reforms will continue or
achieve their goals.
Currency movements. Purchases of foreign securities are usually made in foreign
currencies and, as a result, the Fund may incur currency conversion costs and
may be affected favorably or unfavorably by changes in the value of foreign
currencies against the U.S. dollar. Should the U.S. dollar appreciate against
foreign currencies, then the value of the Fund's securities holdings would
depreciate, all other things being equal. If the reverse is true, then the
Fund's holdings would appreciate in value.
Foreign securities. Investments in foreign securities involve special
considerations due to more limited information, higher brokerage costs,
different accounting standards, thinner trading markets and the likely impact of
foreign taxes on the income from securities. They may also entail certain other
risks, such as the possibility of one or more of the following: imposition of
dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; expropriation, nationalization or other adverse political
or economic developments; less government supervision and regulation of
securities exchanges, brokers and listed companies; and the difficulty of
enforcing obligations in other countries. Further, 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 United States and foreign countries may be less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Certain markets may require payment for securities before delivery.
The Fund's ability and decisions to purchase and sell portfolio securities may
be affected by laws or regulations relating to the convertibility of currencies
and repatriation of assets. Some countries restrict the extent to which
foreigners may invest in their securities markets.
Convertible securities. While convertible securities generally offer lower
yields than non-convertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities entail less credit risk than the issuer's common stock.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.
Debt securities. The Fund may invest up to 20% of its total assets in debt
securities which are unrated, rated or the equivalent of those rated below
investment-grade. The lower the ratings of such debt securities, the greater
their risks render them like equity securities. The Fund may invest in
securities rated C by Moody's or D by S&P,
10
<PAGE>
which may be in default with respect to payment of principal or interest. Also,
longer maturity bonds tend to fluctuate more in price as interest rates change
than do short-term bonds, providing both opportunity and risk. The trading
market for lower-grade securities is generally less liquid than for higher rated
securities and the Fund may have difficulty disposing of these securities at the
time it wishes to.
Illiquid investments. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Strategic Transactions and derivatives. 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 contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position.
Finally, the daily variation margin requirements for futures contracts would
create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's combined
Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute dividends from its net investment income and net
realized capital gains after utilization of capital loss carryforwards, if any,
annually in December to prevent application of federal excise tax, although an
additional distribution may be made, if required, at a later date. Any dividends
or capital gains distributions declared in October, November or December with a
record date in such month and paid the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. According to preference, shareholders may receive
distributions in cash or
11
<PAGE>
have them reinvested in additional shares of the Fund. If an investment is in
the form of a retirement plan, all dividends and capital gains distributions
must be reinvested into the account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individuals at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), regardless of the length
of time shareholders have owned their shares. Short-term capital gains and any
other taxable income distributions are taxable as ordinary income.
Shareholders may be able to claim a credit or deduction on their income tax
returns for their pro rata portion of qualified taxes paid by the Fund to
foreign countries.
The Fund sends detailed tax information about the amount and type of its
distributions by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year, and
the life of the Fund as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. Performance will vary based upon, among other things,
changes in market conditions and the level of the Fund's expenses.
Fund organization
Scudder Greater Europe Growth Fund is a non-diversified series of Scudder
International Fund, Inc. (the "Corporation"), an open-end, management investment
company registered under the 1940 Act. The Corporation was organized as a
Maryland corporation in July 1975.
The Fund's activities are supervised by the Corporation's Board of Directors.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Corporation is not required to and has no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Directors, changing
fundamental investment policies or approving an investment advisory contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Director as if Section 16(c) of the 1940 Act were
applicable.
Investment adviser
The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage its daily investment and business affairs subject to the policies
established by the Board of Directors. The Directors have overall responsibility
for the management of the Fund under Maryland law.
Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
12
<PAGE>
The Fund pays the Adviser an annual fee of 1.00% of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than that charged by many funds which invest primarily in U.S. securities
but not necessarily higher than the fees charged to funds with investment
objectives similar to that of the Fund.
Until February 28, 1997, the Adviser waived a portion of its management fee to
the extent necessary so that the total annualized expenses of the Fund did not
exceed 1.50% of average daily net assets. Accordingly, for the fiscal year ended
October 31, 1997, the Adviser received an investment management fee of 0.94% of
the Fund's daily net assets.
All the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment services.
Scudder Kemper Investments, Inc., is located at 345 Park Avenue, New York, New
York.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Custodian
Brown Brothers Harriman & Co. is the Fund's custodian.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
or exchange requests by telephone prior to the expiration of the seven-day
period will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s)of the account holder(s).
13
<PAGE>
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Directors. Your new
account will have the same registration and address as your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds
14
<PAGE>
will be mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. Each Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.
15
<PAGE>
Trading in securities on European securities exchanges is normally completed
before the close of regular trading on the Exchange. Trading on these foreign
exchanges may not take place on all days on which there is regular trading on
the Exchange, or may take place on days on which there is no regular trading on
the Exchange. If events materially affecting the value of the Fund's portfolio
securities occur between the time when these foreign exchanges close and the
time when the Fund's net asset value is calculated, such securities will be
valued at fair value as determined by the Corporation's Board of Directors.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Directors. Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred
16
<PAGE>
due to a redemption or exchange out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder. Reductions in value that
result solely from market activity will not trigger an involuntary redemption.
Retirement accounts and certain other accounts will not be assessed the $10.00
charge or be subject to automatic liquidation. Please refer to "Exchanges and
Redemptions--Other information" in the Fund's Statement of Additional
Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Shareholder benefits
Experienced professional management
Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not have
the time or expertise to invest directly in individual securities.
A team approach to investing
Scudder Greater Europe Growth Fund is managed by a team of investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders and other investment specialists
who work in the Adviser's offices across the United States and abroad. The
Adviser believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging its extensive resources.
Carol Franklin, Lead Portfolio Manager, sets Fund investment strategy and
oversees its daily operation. Ms. Franklin joined the Adviser in 1981 and has
over ten years of European research and investment management experience.
Nicholas Bratt, Portfolio Manager, helps set the Fund's general investment
strategies. Mr. Bratt has over 20 years of experience in worldwide investing and
has been with the Adviser since 1976.
Joan Gregory, Portfolio Manager, focuses on stock selection, a role she has
played since she joined the Adviser in 1992. Ms. Gregory has been involved with
investment in global and international stocks since 1989.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should
17
<PAGE>
write to the Fund; please see "How to contact Scudder" for the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon the Adviser's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
ssuch as the Fund's Annual Report, may be mailed to your household (same
surname, same address). Please call 1-800-225-5163 if you wish to receive
additional shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Investor Centers in Boca Raton,
Boston, Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
18
<PAGE>
Purchases
- --------------------------------------------------------------------------------
Opening Minimum initial investment: $2,500; IRAs $1,000
an account
Group retirement plans (401(k), 403(b), etc.) have similar or
lower minimums.
See appropriate plan literature.
Make checks o By Mail Send your completed and signed application and
payable to check
"The Scudder
Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA
02107-2291 02184
o By Wire Please see Transaction information--Purchasing
shares--By wire for details, including the ABA
wire transfer number. Then call 1-800-225-5163
for instructions.
o In Person Visit one of our Investor Centers to complete your
application with the help of a Scudder
representative. Investor Center locations are
listed under Shareholder benefits.
- ------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional
shares Group retirement plans (401(k), 403(b), etc.) have similar or
lower minimums.
See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or
payable to payable to with a letter of instruction including
"The Scudder your "The Scudder account number and the complete
Funds." Fund name, to the Funds." appropriate address
listed above.
o By Wire Please see Transaction information--Purchasing
shares--By wire for details, including the ABA
wire transfer number.
o In Person Visit one of our Investor Centers to
make an additional investment in your Scudder
fund account. Investor Center locations are
listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing
shares--By QuickBuy or By telephone order for
more details.
o By Automatic You may arrange to make investments on a regular
Investment basis through automatic deductions from
Plan ($50 your bank checking account. Please call
minimum) 1-800-225-5163 for more information and an
enrollment form.
- --------------------------------------------------------------------------------
19
<PAGE>
Exchanges and redemptions
- --------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
o By Telephone To speak with a service representative, call
1-800-225-5163 from 8 a.m. to 8 p.m. eastern time
or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890
(24 hours a day).
o By Mail Print or type your instructions and include:
or Fax the name of the Fund and the account number you are
exchanging from;
your name(s)and address as they appear on your
account;
the dollar amount or number of shares you wish to
exchange;
the name of the Fund you are exchanging into;
your signature(s) as it appears on your account;
and a daytime telephone number.
Send your instructions
by regular mail or by express, or by fax to:
to: registered,
or certified
mail to:
The Scudder The Scudder Funds 1-800-821-6234
Funds 66 Brooks Drive
P.O. Box 2291 Braintree, MA
Boston, MA 02184
02107-2291
-------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call
shares 1-800-225-5163 from 8 a.m. to 8 p.m. eastern
time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours
a day). You may have redemption proceeds sent to
your predesignated bank account, or redemption
proceeds of up to $100,000 sent to your address of
record.
o By Mail Send your instructions for redemption to the or Fax
appropriate address or fax number above and include:
the name of the Fund and account number you are
redeeming from;
your name(s) and address as they appear on your
account;
the dollar amount or number of shares you wish to
redeem;
your signature(s) as it appears on your account;
and a daytime telephone number.
A signature guarantee is required for redemptions
over $100,000. See Transaction information--
Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments
Withdrawal periodically. Call 1-800-225-5163 for more
Plan information and an enrollment form.
- --------------------------------------------------------------------------------
20
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up to
$2,000 per individual for married couples filing jointly, even if only one
spouse has earned income). Many people can deduct all or part of their
contributions from their taxable income, and all investment earnings accrue
on a tax-deferred basis. The Scudder No-Fee IRA charges you no annual
custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a traditional
IRA, with a Roth IRA, if you meet the distribution requirements, you can
withdraw your money without paying any taxes on the earnings. No tax
deduction is allowed for contributions to a Roth IRA. The Scudder Roth IRA
charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee communications
and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by the
plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500 or
more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State,
Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is
the Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
21
<PAGE>
Directors and Officers
Daniel Pierce*
Chairman of the Board and Director
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
Robert W. Lear
Honorary Director; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman Emeritus and Director, Kirby Corporation
Elizabeth J. Allan*
Vice President
Nicholas Bratt*
President
Irene T. Cheng*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
Vice President
John R. Hebble*
Assistant Treasurer
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Treasurer, Vice President and Secretary
Caroline Pearson*
Assistant Secretary
Sheridan Reilly*
Vice President
*Scudder Kemper Investments, Inc.
22
<PAGE>
Investment products and services
The Scudder Family of Funds++
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series--Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market
Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++
(a variable annuity)
Education Accounts
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. ++ Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. + A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. * A class of
shares of the Fund. **Not available in all states. +++ A no-load variable
annuity contract provided by Charter National Life Insurance Company and its
affiliate, offered by Scudder's insurance agencies, 1-800-225-2470. # These
funds, advised by Scudder Kemper Investments, Inc., are traded on the New York
Stock Exchange and, in some cases, on various foreign stock exchanges.
23
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain
an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
<PAGE>
This prospectus sets forth concisely the information about Scudder Emerging
Markets Growth Fund, a non-diversified series of Scudder International Fund,
Inc., an open-end management investment company, that a prospective investor
should know before investing. Please retain it for future reference.
If you require more detailed information, a Statement of Additional Information
dated March 1, 1998, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the Securities and Exchange Commission's Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
- ----------------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- ----------------------------------
[LOGO] PRINTED WITH
SOYINK
[LOGO] Printed on recycled paper
SCUDDER
SCUDDER [LOGO]
Scudder
Emerging Markets
Growth Fund
Prospectus
March 1, 1998
A pure no-load(TM) (no sales charges) mutual fund seeking long-term growth of
capital primarily through equity investment in emerging markets around the
globe.
<PAGE>
- ---------------------------------------
Expense information
- ---------------------------------------
- --------------------------------------------------------------------------------
How to compare a Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Emerging Markets Growth Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(TM) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Deferred sales charge NONE
Redemption fees payable to the Fund 2.00%*
Exchange fees payable to the Fund 2.00%*
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended October 31,
1997.
Investment management fee (after waiver) 1.17%**
12b-1 fees NONE
Other expenses (after reimbursements) 1.08%**
----
Total Fund operating expenses (after waiver
and reimbursements) 2.25%**
====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders.
1 Year 3 Year 5 Years 10 Years
------ ------ ------- --------
$23 $70 $120 $258
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* There may be a 2% fee retained by the Fund which is imposed only on
redemptions or exchanges of shares held less than one year. You may redeem
by writing or calling the Fund. If you wish to receive your redemption
proceeds via wire, there is a $5 wire service fee. For additional
information, please refer to "Transaction information--Exchanging and
redeeming shares."
** The Adviser and certain of its subsidiaries agreed not to impose all or a
portion of its management fee until February 28, 1998, in oder to maintain
the annualized expenses of the Fund at not more than 2.00% of average
daily net assets. Due to such waiver and reimbursements for the fiscal
year ended October 31, 1997, the total annualized expenses of the Fund did
not exceed 2.00% of average daily net assets. From March 1, 1998, until
August 31, 1998, the Adviser and certain of its subsidiaries have agreed
to waive and/or reimburse all or portions of their fees and expenses
payable by the Fund to the extent necessary so that the total annualized
expenses of the Fund do not exceed 2.25% of average daily net assets.
Expenses shown above are restated to reflect what the Fund would have paid
during the fiscal year ended October 31, 1997 if expenses had been
maintained at 2.25% throughout the period. If the Adviser and its
subsidiaries had not agreed to waive and/or reimburse all or portions of
their fees and expenses, Fund expenses would have been: investment
management fee 1.25%, other expenses 1.08% and total operating expenses
2.33% for the fiscal year ending October 31, 1997.
- --------------------------------------------------------------------------------
- --
2
<PAGE>
- ---------------------------------------
Financial highlights
- ---------------------------------------
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated October 31, 1997, which may be obtained without
charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the Period
May 8, 1996
Year (commencement)
Ended of operations) to
October 31, October 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
----------------------------------
Net asset value, beginning of period ..................................... $12.85 $12.00
----------------------------------
Income from investment operations:
Net investment income (loss) ............................................. .02 (.02)
Net realized and unrealized gain on investments .......................... 1.67 .86
----------------------------------
Total from investment operations ......................................... 1.69 .84
----------------------------------
Less distributions from net investment income ............................ (.03) --
Redemption fees .......................................................... .05 .01
----------------------------------
Net asset value, end of period ........................................... $14.56 $12.85
----------------------------------
- ------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) (d) ................................................. 13.51 7.08**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ................................... 220 76
Ratio of operating expenses, net to average daily net assets (%) ......... 2.00 2.00*
Ratio of operating expenses before expense reductions,
to average daily netassets (%) ........................................ 2.33 3.79*
Ratio of net investment income (loss) to average daily net assets (%) .... .11 (.32)*
Portfolio turnover rate (%) .............................................. 61.5 19.5*
Average commission rate paid (b) ......................................... $.0013 $.0006
</TABLE>
(a) Based on monthly average of shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks.
(c) Total return is higher due to maintenance of the Fund's expenses.
(d) 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
- --------------------------------------------------------------------------------
--
3
<PAGE>
- ---------------------------------------
A message from the President
- ---------------------------------------
[PHOTO]
Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also manage
the mutual funds in a special program for the American Association of Retired
Persons, as well as the fund options available through Scudder Horizon Plan, a
tax-advantaged variable annuity. We also advise The Japan Fund, and numerous
other open and closed-end funds that invest in this country and other countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to shareholders include toll-free access to the professional
service representatives of Scudder Investor Relations, easy exchange among
funds, shareholder reports, informative newsletters and the walk-in convenience
of Scudder Investor Centers.
The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem shares or to exchange from one fund to another. There are no
12b-1 fees either, which many other funds now charge to support their marketing
efforts. All of your investment goes to work for you. We look forward to
welcoming you as a shareholder.
/s/ Edmond D. Villani
Scudder Emerging Markets Growth Fund
Investment objective
o long-term growth of capital primarily through equity investment in
emerging markets around the globe
Investment characteristics
o access to dynamic investment opportunities in the emerging markets of
Asia, Europe, Africa, the Middle East and Latin America
o opportunity to enhance the return potential and global diversification of
an investment portfolio
o involves above-average investment risk and above-average return potential
o a pure no-load(TM) fund with no sales charges, commissions or 12b-1 fees
o a 2% redemption and exchange fee on shares held less than one year,
retained by the Fund for the benefit of remaining shareholders
- ---------------------------------------
Contents
- ---------------------------------------
Investment objective and policies ............... 5
Why invest in the Fund? ......................... 6
International investment experience ............. 7
Additional information about policies
and investments .............................. 7
Distribution and performance information ........ 12
Fund organization ............................... 13
Transaction information ......................... 14
Shareholder benefits ............................ 18
Purchases ....................................... 21
Exchanges and redemptions ....................... 22
Directors and Officers .......................... 24
Investment products and services ................ 25
How to contact Scudder .......................... 26
- --
4
<PAGE>
- ---------------------------------------
Investment objective and policies
- ---------------------------------------
Scudder Emerging Markets Growth Fund (the "Fund"), a non-diversified series of
Scudder International Fund, Inc., seeks long-term growth of capital primarily
through equity investment in emerging markets around the globe.
The Fund will invest in the Asia-Pacific region, Latin America, less developed
nations in Europe, the Middle East and Africa, focusing investments in countries
and regions where there appears to be the best value and appreciation potential,
subject to considerations of portfolio diversification and liquidity. In the
opinion of the Fund's investment adviser, Scudder Kemper Investments, Inc. (the
"Adviser"), many emerging nations around the globe are likely to continue to
experience economic growth rates well in excess of those found in the U.S.,
Japan and other developed markets. In the opinion of the Adviser, this economic
growth should translate into strong stock market performance over the long term.
While the Fund offers the potential for substantial price appreciation over
time, it also involves above-average investment risk. The Fund is designed as a
long-term investment and not for short-term trading purposes. It should not be
considered a complete investment program. The Fund's net asset value (price) can
fluctuate significantly with changes in stock market levels, political
developments, movements in currencies, investment flows and other factors. To
encourage a long-term investment horizon, a 2% redemption and exchange fee,
described more fully below, is payable to the Fund for the benefit of remaining
shareholders on shares held less than one year.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in the Fund's 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
objectives will be met.
Investments
At least 65% of the Fund's total assets will be invested in the equity
securities of emerging market issuers. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the International Bank for Reconstruction and Development (i.e., the
World Bank), the International Finance Corporation or the United Nations or its
authorities. The Fund intends to allocate its investments among at least three
countries at all times, and does not expect to concentrate in any particular
industry. There is no limitation, however, on the amount the Fund can invest in
a specific country or region of the world.
The Fund deems an issuer to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market country;
o the issuer's principal securities trading market is in an emerging market;
or
o at least 50% of the issuer's non-current assets, capitalization, gross
revenue or profit in any one of the two most recent fiscal years is
derived (directly or indirectly through subsidiaries) from assets or
activities located in emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.
The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures,
--
5
<PAGE>
convertible securities, warrants, bank obligations, short-term paper, loan
participations, loan assignments, and trust interests.
Under normal market conditions, the Fund may invest up to 35% of its assets in
equity securities of issuers in the U.S. and other developed markets. In
evaluating the appropriateness of such investments for the Fund, the Adviser
takes into account the issuer's involvement in the emerging markets and the
potential impact of that involvement on business results. The Fund may also
purchase securities on a when-issued or forward delivery basis, enter into
reverse repurchase agreements and may engage in various strategic transactions,
including derivatives.
For temporary defensive purposes, the Fund may hold, without limit, debt
instruments as well as cash and cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements. It is impossible to accurately predict how long such
alternative strategies will be utilized. The Fund may also invest in closed-end
investment companies investing primarily in the emerging markets. To the extent
the Fund invests in such closed-end investment companies, shareholders will
incur certain duplicate fees and expenses. Such closed-end investment company
investments will generally only be made when market access or liquidity
restricts direct investment in the market.
More information about the investments and policies of the Fund is provided
under "Additional information about policies and investments."
Investment strategy
The Adviser takes a top-down approach to evaluating investments for the Fund,
using extensive fundamental and field research. The process begins with a study
of the economic fundamentals of each country and region as well as an
examination of regional themes such as growing trade, increases in direct
foreign investment and deregulation of capital markets. Understanding regional
themes allows the Adviser to identify the industries and companies most likely
to benefit from the political, social and economic changes taking place in a
given region of the world.
Within a market, the Adviser looks for individual companies with exceptional
business prospects, which may be due to market dominance, unique franchises,
high growth potential, or innovative services, products or technologies. The
Adviser seeks to identify companies with favorable potential for appreciation
through growing earnings or greater market recognition over time. While these
companies may be among the largest in their local markets, they may be small by
the standards of U.S. stock market capitalization.
- ---------------------------------------
Why invest in the Fund?
- ---------------------------------------
This Fund is designed as a convenient, low cost way for investors to participate
in the growth opportunities afforded by a broad range of emerging markets.
Through one actively managed, pure no-loadO fund, investors can tap into
developing regions throughout the world, without the burden of deciding where
and when to invest on their own.
The Adviser believes the emerging markets will continue to experience some of
the fastest rates of economic growth over the next decade and continue to offer
attractive stock market potential. In the Pacific Rim and other parts of Asia,
economies are typically characterized by large, relatively low cost labor pools,
high savings rates and worldwide demand for their products. The Adviser believes
that the economies of the Pacific Basin, although experiencing many economic
challenges currently, could return to above average rates of economic growth
within a few years. In Latin America, the region has benefited from governmental
efforts to reduce inflation and budget deficits, invest in much needed
infrastructure, deregulate or privatize industry and liberalize their capital
markets.
- --
6
<PAGE>
Eastern European countries are experiencing strong economic growth as capitalism
takes hold. Many African and Middle Eastern countries are also benefiting from
the shift to market based economies and from improved fiscal and monetary
discipline. These regions, as a whole, are attracting a growing pool of foreign
investment and benefiting from growing regional trade, which is helping fuel
rapid economic growth. Stock markets in many of these countries have
outperformed our own and those of the other more developed countries.
Investors should be aware that participation in the Fund involves special
considerations and risks not typically associated with a mutual fund investing
principally in the securities of U. S. issuers. However, movements in the Fund's
share price may have a low correlation with movements in the U.S. markets, so
adding shares of the Fund to an investor's portfolio may, over time, increase
the investor's overall diversification, and reduce overall risk.
Investing directly in emerging market securities is usually impractical for
individual investors. Investors frequently find it difficult to arrange
purchases and sales, obtain current market, industry or corporate information,
hold securities for safekeeping, and convert profits from foreign currencies to
U.S. dollars. The Fund offers professional management and administrative
convenience to shareholders wishing to invest in these more dynamic, emerging
markets of the world.
- ---------------------------------------
International investment experience
- ---------------------------------------
The Adviser has been active in international investment management for over four
decades. As of December 31, 1997, the Adviser was responsible for managing more
than $200 billion in assets globally.
The Adviser manages a number of U.S. investment companies that invest in
emerging market equity securities. These include Scudder Pacific Opportunities
Fund, Scudder Latin America Fund and Scudder Greater Europe Growth Fund, as well
as a number of closed-end funds that trade on the New York Stock Exchange.
- ---------------------------------------
Additional information about
policies and investments
- ---------------------------------------
Investment restrictions
The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Fund's Board of Directors. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Fund's combined Statement of Additional Information.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness, or through repurchase agreements. The Fund has
adopted a non-fundamental policy restricting the lending of portfolio securities
to no more than 5% of total assets.
When-issued securities
The Fund may purchase equity and debt securities on a when-issued or forward
delivery basis, for payment and delivery at a later date. The price and yield
are generally fixed on the date of commitment to purchase. During the period
between purchase and settlement, no interest accrues to the Fund. At the time of
settlement,
--
7
<PAGE>
the market value of the security may be more or less than the purchase price.
Convertible securities
The Fund may invest in convertible securities which may offer higher income than
the common stocks into which they are convertible. The convertible securities in
which the Fund may invest consist of bonds, notes, debentures and preferred
stocks which may be converted or exchanged at a stated or determinable exchange
ratio into underlying shares of common stock.
Debt securities
Although the debt securities in which the Fund invests are predominantly
denominated in U.S. dollars, the Fund may also invest in debt securities
denominated in foreign currencies. Such securities may be rated below
investment- grade; that is, rated below Baa by Moody's Investors Service, Inc.
("Moody's") or below BBB by Standard & Poor's Corporation ("S&P"), or may be
unrated but equivalent to those rated below investment- grade by internationally
recognized rating agencies such as S&P or Moody's. The Fund may invest in "Brady
Bonds," which are debt securities issued under the framework of the Brady Plan
as a mechanism for debtor countries to restructure their outstanding bank loans.
Most "Brady Bonds" have their principal collaterized by zero coupon U.S.
Treasury bonds.
Illiquid securities
The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price. Some restricted securities, however, may be considered liquid despite
resale restrictions, since they can be sold to other qualified institutional
buyers under a rule of the Securities and Exchange Commission (Rule 144A). The
Corporation's Board of Directors has delegated to the Adviser the authority to
determine those Rule 144A securities that will be considered liquid.
Common stocks
Under normal circumstances, the Fund invests in common stocks. Common stock is
issued by companies to raise cash for business purposes and represents a
proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase at a specified time and price. The Fund may also enter
into repurchase commitments for investment purposes for periods of 30 days or
more. Such commitments involve investment risk similar to that of debt
securities.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio
- --
8
<PAGE>
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, equity swaps and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various transactions such as interest rate and equity 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 total 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 to create leveraged exposure in the Fund. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Non-diversified investment company. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940 (the "1940 Act"),
which means that the Fund is not limited by the 1940 Act in the proportion of
its assets that it may invest in the obligations of a single issuer. The
investment of a large percentage of the Fund's assets in the securities of a
small number of issuers may cause the Fund's share price to fluctuate more than
that of a diversified investment company.
Investing in emerging markets. Securities of many issuers in emerging markets
may be less liquid and more volatile than securities of comparable domestic
issuers. Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when a portion of the assets of the Fund is uninvested and no return is
earned thereon.
--
9
<PAGE>
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in the value of
those securities or, if the Fund has entered into a contract to sell a security,
in possible liability to the purchaser. Costs associated with transactions in
foreign securities are generally higher than costs associated with transactions
in U.S. securities. Such transactions also involve additional costs for the
purchase or sale of foreign currency.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
Throughout the last decade many emerging markets have experienced, and continue
to experience, high rates of inflation. In certain countries inflation has at
times accelerated rapidly to hyperinflationary levels, creating a negative
interest rate environment and sharply eroding the value of outstanding financial
assets in those countries. Increases in inflation could have an adverse effect
on the Fund's non-dollar denominated securities.
Individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position. The securities markets, values of securities, yields and risks
associated with securities markets in different countries may change
independently of each other.
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 and the lack of a sufficient capital base to expand business
operations. Furthermore, there can be no assurance that the Fund's investments
in Eastern Europe would not be expropriated, nationalized or otherwise
confiscated. Finally, any change in the leadership or policies of Eastern
European countries, or the countries that exercise a significant influence over
those countries, may halt the expansion of or reverse the liberalization of
foreign investment policies and adversely affect existing investment
opportunities. For a more complete description of the risks of investing in
emerging markets, please refer to the Fund's combined Statement of Additional
Information.
Currency movements. Purchases of foreign securities are usually made in foreign
currencies and, as a result, the Fund may incur currency conversion costs and
may be affected favorably or unfavorably by changes in the value of foreign
currencies against the U.S. dollar. Should the U.S. dollar appreciate against
foreign currencies, then the value of the Fund's securities holdings would
depreciate, all other things being equal. If the reverse is true, then the
Fund's holdings would appreciate in value.
Foreign securities. Investments in foreign securities involve special
considerations due to more limited information, higher brokerage costs,
different accounting standards, thinner trading markets, the greater potential
for insider trading and stock price manipulation, and the likely impact of
foreign taxes on the income from securities. They may also entail certain other
risks, such as the possibility of one or more of the following: imposition of
dividend or interest withholding or confiscatory taxes; currency blockages or
transfer restrictions; exchange
- --
10
<PAGE>
closure; expropriation, nationalization, military coups or other adverse
political or economic developments; less government supervision and regulation
of securities exchanges, brokers and listed companies; and the difficulty of
enforcing obligations in other countries. Further, 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., increasing the risk
of delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. The Fund's ability and decisions to purchase and sell
portfolio securities may be affected by laws or regulations relating to the
convertibility of currencies and repatriation of assets. Some countries restrict
the extent to which foreigners may invest in their securities markets.
The Fund invests in securities denominated in currencies of many other
countries. Exchange rate changes or devaluations in the currencies in which the
Fund's portfolio securities are denominated may have a detrimental impact on the
Fund's net asset value.
Some countries also may have managed currencies, which are not free floating
against the U.S. dollar. In addition, there is risk that certain countries may
restrict the free conversion of their currencies into other currencies. Further,
it generally will not be possible to eliminate the Fund's foreign currency risk
through hedging.
Convertible securities. While convertible securities generally offer lower
yields than non-convertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities generally entail less risk than the issuer's common stock.
Debt securities. The Fund may invest in debt securities with varying degrees of
credit quality. High quality bonds (rated AAA or AA by S&P or Aaa or Aa by
Moody's) characteristically have a strong capacity to pay interest and repay
principal. Medium-grade bonds (rated A or BBB by S&P or A or Baa by Moody's) are
defined as having adequate capacity to pay interest and repay principal. In
addition, certain medium-grade bonds are considered to have speculative
characteristics. Debt securities rated below BBB by S&P or below Baa by Moody's
are considered to be below investment-grade. These types of high yield/high risk
debt obligations (commonly referred to as "junk bonds") are predominantly
speculative with respect to the capacity to pay interest and repay principal in
accordance with their terms and generally involve a greater risk of default and
more volatility in price than securities in higher rating categories, such as
investment-grade U.S. bonds. The Fund may invest in securities whose quality is
comparable to securities rated as low as D by S&P or C by Moody's, which may be
in default with respect to payment of principal or interest.
Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for these investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted. In
the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the securities. Also, if a seller defaults, the value
of such securities may decline before the Fund is able to dispose of them.
Borrowing. Although the principal of the Fund's borrowing will be fixed, the
Fund's assets may change in value during the time a borrowing is outstanding,
increasing exposure to capital risk.
--
11
<PAGE>
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's combined Statement of Additional Information.
- ---------------------------------------
Distribution and performance
information
- ---------------------------------------
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment income and
any net realized capital gains after utilization of capital loss carryforwards,
if any, in December. An additional distribution may be made, if necessary. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid the following January will be
treated by shareholders for federal income tax purposes as if received on
December 31 of the calendar year declared. According to preference, shareholders
may receive distributions in cash or have them reinvested in additional shares
of the Fund. Distributions are not subject to the 2% redemption fee, whether
paid in cash or reinvested. If the investment is in the form of a retirement
plan, all dividends and capital gains distributions must be reinvested into the
shareholder's account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
individuals at a maximum 20% or 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain) regardless of the length
of time shareholders have owned their shares. Short-term capital gains and any
other taxable distributions are taxable as ordinary income.
Shareholders may be able to claim a credit or deduction on their income tax
returns for their
- --
12
<PAGE>
pro rata portion of qualified taxes paid by the Fund to foreign countries.
The Fund sends detailed tax information about the amount and type of its
distributions to its shareholders by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for the life of the
Fund as of a stated ending date. "Cumulative total return" represents the
cumulative change in value of an investment in the Fund for various periods. All
types of total return calculations assume that all dividends and capital gains
distributions during the period were reinvested in shares of the Fund.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses.
- ---------------------------------------
Fund organization
- ---------------------------------------
Scudder Emerging Markets Growth Fund is a non-diversified series of Scudder
International Fund, Inc. (the "Corporation"), an open-end, management investment
company registered under the 1940 Act. The Corporation was organized as a
Maryland corporation in July, 1975.
The Fund's activities are supervised by the Corporation's Board of Directors.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Corporation is not required to and has no current
intention of holding annual shareholder meetings, although special meetings may
be called for purposes such as electing or removing Directors, changing
fundamental investment policies or approving an investment advisory contract.
Shareholders will be assisted in communicating with other shareholders in
connection with removing a Director as if Section 16(c) of the 1940 Act were
applicable.
Investment adviser
The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage its daily investment and business affairs subject to the policies
established by the Board of Directors. The Directors have overall responsibility
for the management of the Fund under Maryland law.
Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
The Fund pays the Adviser an annual fee of 1.25% of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than that charged by many funds which invest primarily in U.S. securities
but not necessarily higher than the fees charged by funds with similar
investment objectives.
The Adviser has agreed to maintain the annualized expenses of the Fund at no
more than 2.25% of the average daily net assets of the Fund from March 1, 1998
until August 31, 1998. For the fiscal year ended October 31, 1997 the Adviser
maintained expenses at no more than 2.00% of
--
13
<PAGE>
average daily net assets of the Fund and as a result received an investment
management fee of 0.92% of the Fund's average daily net assets.
All the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder Kemper Investments, Inc., is located at 345 Park Avenue, New York, New
York.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter.
Scudder Investor Services, Inc. confirms, as agent, all purchases of shares of
the Fund. Scudder Investor Relations is a telephone information service
provided by Scudder Investor Services, Inc.
Custodian
Brown Brothers Harriman & Co. is the Fund's custodian.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
- ---------------------------------------
Transaction information
- ---------------------------------------
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment
- --
14
<PAGE>
the order number given at the time the order is placed. If payment by check or
wire is not received within three business days, the order is subject to
cancellation and the shareholder will be responsible for any loss to the Fund
resulting from this cancellation. Telephone orders are not available for shares
held in Scudder IRA accounts and most other Scudder retirement plan accounts.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
Exchanging and redeeming shares
Upon the redemption or exchange of shares held 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 fee is waived for
all shares purchased through certain retirement plans, including 401(k) plans,
403(b) plans, 457 plans, Keogh accounts, and Profit Sharing and Money Purchase
Pension Plans. However, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver.) In addition, this
waiver does not apply to any IRA or SEP-IRA accounts. This fee is intended to
encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions, and to facilitate portfolio management.
The fee is not a deferred sales charge, is not a commission paid to the Adviser
or its subsidiaries, and does not benefit the Adviser in any way. The Fund
reserves the right to modify the terms of or terminate this fee at any time.
The fee applies to redemptions from the Fund and exchanges to other Scudder
Family of Funds, but not to dividend or capital gains distributions which have
been automatically reinvested in the Fund. The fee is applied to the shares
being redeemed or exchanged in the order in which they were purchased. See
"Exchanges and Redemptions" in the Fund's combined Statement of Additional
Information for a more detailed description of the redemption fee.
Exchanges. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless it is otherwise determined by the Board of Directors.
Your new account will have the same registration and address as your existing
account. The exchange requirements for corporations, other organizations,
trusts, fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information,
--
15
<PAGE>
including information about the transfer of special account features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redemptions by telephone. This is the quickest and easiest way to sell Fund
shares. If you provided your banking information on your application, you can
call to request that federal funds be sent to your authorized bank account. If
you did not include your banking information on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. Each Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of
- --
16
<PAGE>
telephone transactions. If a Fund does not follow such procedures, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. Each
Fund will not be liable for acting upon instructions communicated by telephone
that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.
Trading in securities on European and Far Eastern securities exchanges is
normally completed before the close of regular trading on the Exchange. Trading
on these foreign exchanges may not take place on all days on which there is
regular trading on the Exchange, or may take place on days on which there is no
regular trading on the Exchange. If events materially affecting the value of the
Fund's portfolio securities occur between the time when these foreign exchanges
close and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value as determined by the Corporation's Board
of Directors.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Directors. Scudder
--
17
<PAGE>
retirement plans and certain other accounts have similar or lower minimum share
balance requirements. A shareholder may open an account with at least $1,000, if
an automatic investment plan of $100/month is established.
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions--Other information" in the Fund's combined Statement
of Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the Investment Company Act
of 1940, as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning
of the period.
- ---------------------------------------
Shareholder benefits
- ---------------------------------------
Experienced professional management
Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not have
the time or expertise to invest directly in individual securities.
A team approach to investing
Scudder Emerging Markets Growth Fund is managed by a team of investment
professionals, who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders, and other investment
specialists who work in the Adviser's offices across the United States and
abroad.
The Adviser believes its team approach benefits Fund investors by bringing
together many disciplines and leveraging its extensive resources.
Joyce E. Cornell, Lead Portfolio Manager, has 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 firm in 1991 after
eight years of investment experience as a research analyst.
Tara C. Kenney, Portfolio Manager, assists with the Fund's research and
investment strategy by focusing on the Latin American securities in the
- --
18
<PAGE>
portfolio. Ms. Kenney joined the Adviser in 1995 and has over ten years of
financial industry experience. Ms. Kenney was a vice president of corporate
finance for an investment banking firm for seven years, and most recently, a
portfolio manager for two years.
Elizabeth Allan, Portfolio Manager, helps set the Fund's general investment
strategies. Ms. Allan joined the Adviser in 1987, and has numerous years of
Pacific Basin research and investing experience.
Andre J. DeSimone, Portfolio Manager, assists in investment selection. Mr.
DeSimone 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.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon the Adviser's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call
--
19
<PAGE>
1-800-225-5163 if you wish to receive additional shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Investor Centers in Boca Raton,
Boston, Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
- --
20
<PAGE>
- ---------------------------------------
Purchases
- ---------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
<S> <C> <C>
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
Then call 1-800-225-5163 for instructions.
o In Person Visit one of our Investor Centers to complete your application with the
help of a Scudder representative. Investor Center locations are listed
under Shareholder benefits.
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
<S> <C> <C>
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the
Scudder Funds." complete Fund name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By QuickBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on aregular basis regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
--
21
<PAGE>
- ---------------------------------------
Exchanges and redemptions
- ---------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
<S> <C> <C>
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax the name of the Fund and the account number you are exchanging from;
your name(s) and address as they appear on your account;
the dollar amount or number of shares you wish to exchange;
the name of the Fund you are exchanging into;
your signature(s) as it appears on your account; and
a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- ------------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may
have redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
the name of the Fund and account number you are redeeming from;
your name(s) and address as they appear on your account;
the dollar amount or number of shares you wish to redeem;
your signature(s) as it appears on your account; and
a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --
22
<PAGE>
- ---------------------------------------
Scudder tax-advantaged
retirement plans
- ---------------------------------------
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even if only
one spouse has earned income). Many people can deduct all or part of their
contributions from their taxable income, and all investment earnings
accrue on a tax-deferred basis. The Scudder No-Fee IRA charges you no
annual custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State,
Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is
the Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
--
23
<PAGE>
- ---------------------------------------
Directors and Officers
- ---------------------------------------
Daniel Pierce*
Chairman of the Board and Director
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
Robert W. Lear
Honorary Director; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman Emeritus and Director, Kirby Corporation
Elizabeth J. Allan*
Vice President
Nicholas Bratt*
President
Irene T. Cheng*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
Vice President
John R. Hebble*
Assistant Treasurer
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Treasurer, Vice President and Secretary
Caroline Pearson*
Assistant Secretary
Sheridan Reilly*
Vice President
* Scudder Kemper Investments, Inc.
- --
24
<PAGE>
- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------
The Scudder Family of Funds++
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--Managed Shares*
Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++
(a variable annuity)
Education Accounts
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. ++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the Fund. **Not available in all states. +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various foreign stock exchanges.
--
25
<PAGE>
- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163 For 24 hour account
information, fund information, exchanges, and an overview of all the
services available to you
Scudder Electronic Account Services -- http://funds.scudder.com For
personalized information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to
obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
- --
26
<PAGE>
SCUDDER LATIN AMERICA FUND
A Pure No-Load(TM) (No Sales Charges) Mutual Fund Seeking
Long-Term Capital Appreciation Through Investment
Primarily in the Securities of
Latin American Issuers
and
SCUDDER PACIFIC OPPORTUNITIES FUND
A Pure No-Load(TM) (No Sales Charges) Mutual Fund Seeking
Long-Term Growth of Capital Through Investment
Primarily in the Equity Securities of
Pacific Basin Companies,
Excluding Japan
and
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
and
SCUDDER EMERGING MARKETS GROWTH FUND
A Pure No-Load(TM) (No Sales Charges) Mutual Fund
which seeks to provide long-term growth of capital
primarily through equity investment
in emerging markets
around the globe
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1998
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the prospectuses of Scudder Latin America
Fund, Scudder Pacific Opportunities Fund, Scudder Greater Europe Growth Fund and
Scudder Emerging Markets Growth Fund dated March 1, 1998, as amended from time
to time, copies of which may be obtained without charge by writing to Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE OF CONTENTS
Page
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
General Investment Objective and Policies of Scudder Latin America Fund......................................1
Special Considerations.......................................................................................3
General Investment Objective and Policies of Scudder Pacific Opportunities Fund..............................4
Special Considerations.......................................................................................6
General Investment Objective and Policies of Scudder Greater Europe Growth Fund..............................6
Special Considerations.......................................................................................8
General Investment Objectives and Policies of Scudder Emerging Markets Growth Fund..........................10
Special Considerations......................................................................................11
Investing in Foreign Securities.............................................................................15
Specialized Investment Techniques...........................................................................16
Master/feeder structure.....................................................................................28
Investment Restrictions.....................................................................................29
PURCHASES............................................................................................................30
Additional Information About Opening An Account.............................................................30
Additional Information About Making Subsequent Investments..................................................30
Additional Information About Making Subsequent Investments by QuickBuy......................................31
Checks......................................................................................................31
Wire Transfer of Federal Funds..............................................................................32
Share Price.................................................................................................32
Share Certificates..........................................................................................32
Other Information...........................................................................................32
EXCHANGES AND REDEMPTIONS............................................................................................33
Exchanges...................................................................................................33
Special Redemption and Exchange Information for Scudder Emerging Markets Growth Fund........................34
Redemption by Telephone.....................................................................................34
Redemption by QuickSell.....................................................................................35
Redemption by Mail or Fax...................................................................................35
Redemption-in-Kind..........................................................................................36
Other Information...........................................................................................36
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................37
The Pure No-Load(TM) Concept................................................................................37
Internet access.............................................................................................38
Dividend and Capital Gain Distribution Options..............................................................39
Scudder Investor Centers....................................................................................39
Reports to Shareholders.....................................................................................39
Transaction Summaries.......................................................................................39
THE SCUDDER FAMILY OF FUNDS..........................................................................................40
SPECIAL PLAN ACCOUNTS................................................................................................45
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................45
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........45
Scudder IRA: Individual Retirement Account.................................................................45
Scudder 403(b) Plan.........................................................................................46
Scudder Roth IRA: Individual Retirement Account............................................................46
Automatic Withdrawal Plan...................................................................................47
Group or Salary Deduction Plan..............................................................................47
Automatic Investment Plan...................................................................................48
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
Uniform Transfers/Gifts to Minors Act.......................................................................48
Automatic Investment Plan...................................................................................48
Uniform Transfers/Gifts to Minors Act.......................................................................48
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................49
PERFORMANCE INFORMATION..............................................................................................49
Average Annual Total Return.................................................................................49
Cumulative Total Return.....................................................................................50
Total Return................................................................................................51
Comparison of Portfolio Performance.........................................................................51
ORGANIZATION OF THE FUNDS............................................................................................56
INVESTMENT ADVISER...................................................................................................57
Personal Investments by Employees of the Adviser............................................................61
DIRECTORS AND OFFICERS...............................................................................................61
REMUNERATION.........................................................................................................64
Responsibilities of the Board--Board and Committee Meetings.................................................64
Compensation of Officers and Directors......................................................................65
DISTRIBUTOR..........................................................................................................66
TAXES................................................................................................................67
PORTFOLIO TRANSACTIONS...............................................................................................71
Brokerage Commissions.......................................................................................71
Portfolio Turnover..........................................................................................72
NET ASSET VALUE......................................................................................................73
ADDITIONAL INFORMATION...............................................................................................73
Experts.....................................................................................................73
Other Information...........................................................................................74
FINANCIAL STATEMENTS.................................................................................................75
Latin America Fund..........................................................................................75
Pacific Opportunities Fund..................................................................................75
Greater Europe Growth Fund..................................................................................75
Emerging Markets Growth Fund................................................................................75
APPENDIX
ii
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objective and policies" in the Funds' prospectuses.)
Scudder Latin America Fund, Scudder Pacific Opportunities Fund, Scudder
Greater Europe Growth Fund and Scudder Emerging Markets Growth Fund (each a
"Fund," collectively, the "Funds"), are each series of Scudder International
Fund, Inc. (the "Corporation"), a pure no-load(TM), non-diversified, open-end
management investment company which continuously offers and redeems its shares
at net asset value. They are companies of the type commonly known as mutual
funds.
General Investment Objective and Policies of Scudder Latin America Fund
Scudder Latin America Fund's ("Latin America Fund") investment
objective is to seek long-term capital appreciation through investment primarily
in the securities of Latin American issuers.
The Fund seeks to benefit from economic and political trends emerging
throughout Latin America. These trends are supported by governmental initiatives
designed to promote freer trade and market-oriented economies. The Fund's
investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"), believes
that efforts by Latin American countries to, among other things, reduce
government spending and deficits, control inflation, lower trade barriers,
stabilize currency exchange rates, increase foreign and domestic investment and
privatize state-owned companies, will set the stage for attractive investment
returns over time.
The Fund involves above-average investment risk. It is designed as a
long-term investment and not for short-term trading purposes, and should not be
considered a complete investment program.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in the Fund's 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
At least 65% of the Fund's total assets will be invested in the
securities of Latin American issuers, and 50% of the Fund's total assets will be
invested in Latin American equity securities. To meet its objective to provide
long-term capital appreciation, the Fund normally invests at least 65% of its
total assets in equity securities. For purposes of this prospectus, Latin
America is defined as Mexico, Central America, South America and the
Spanish-speaking islands of the Caribbean. The Fund defines securities of Latin
American issuers as follows:
o Securities of companies organized under the laws of a Latin
American country or for which the principal securities trading
market is in Latin America;
o Securities issued or guaranteed by the government of a country in
Latin America, its agencies or instrumentalities, political
subdivisions or the central bank of such country;
o Securities of companies, wherever organized, when at least 50% of
an issuer's non-current assets, capitalization, gross revenue or
profit in any one of the two most recent fiscal years represents
(directly or indirectly through subsidiaries) assets or
activities located in Latin America; or
o Securities of Latin American issuers, as defined above, in the
form of depositary shares.
Although the Fund may participate in markets throughout Latin America,
under present conditions the Fund expects to focus its investments in Argentina,
Brazil, Chile, Colombia, Mexico and Peru. In the opinion of the Adviser, these
six countries offer the most developed capital markets in Latin America. The
Fund may invest in other countries in Latin America when the Adviser deems it
appropriate. The Fund intends to allocate investments among at least three
countries at all times.
<PAGE>
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
illiquid securities and may also be purchased through rights. Securities may be
listed on securities exchanges, traded over-the-counter, or have no organized
market.
The Fund may invest in debt securities when the Adviser anticipates
that the potential for capital appreciation is likely to equal or exceed that of
equity securities. Capital appreciation in debt securities may arise from a
favorable change in relative foreign exchange rates, in relative interest rate
levels, or in the creditworthiness of issuers. Receipt of income from such debt
securities is incidental to the Fund's objective of long-term capital
appreciation. Most debt securities in which the Fund invests are not rated. When
debt securities are rated, it is expected that such ratings will generally be
below investment grade; that is, rated below Baa by Moody's Investors Service,
Inc. ("Moody's") or below BBB by Standard & Poor's Corporation ("S&P"). For more
information about the debt securities in which the Fund may invest, including
risks, please see "Specialized Investment Techniques."
The Fund may invest up to 35% of its total assets in the equity
securities of U.S. and other non-Latin American issuers. In evaluating non-Latin
American investments, the Adviser seeks investments where an issuer's Latin
American business activities and the impact of developments in Latin America may
have a positive effect on the issuer's business results.
In selecting companies for investment, the Fund typically evaluates
industry trends, a company's financial strength, its competitive position in
domestic and export markets, technology, recent developments and profitability,
together with overall growth prospects. Other considerations generally include
quality and depth of management, government regulation, and availability and
cost of labor and raw materials. Investment decisions are made without regard to
arbitrary criteria as to minimum asset size, debt-equity ratios or dividend
history of portfolio companies.
The allocation between equity and debt, and among countries in Latin
America, varies based on a number of factors, including: expected rates of
economic and corporate profit growth; past performance and current and
comparative valuations in Latin American capital markets; the level and
anticipated direction of interest rates; changes or anticipated changes in Latin
American government policy; and the condition of the balance of payments and
changes in the terms of trade. The Fund, in seeking undervalued markets or
individual securities, also considers the effects of past economic crises or
ongoing financial and political uncertainties.
To provide for redemptions, or in anticipation of investment in Latin
American securities, the Fund may hold cash or cash equivalents (in U.S. dollars
or foreign currencies) and other short-term securities, including money market
securities denominated in U.S. dollars or foreign currencies. The Fund may
assume a defensive position when, due to political or other factors, the Adviser
determines that opportunities for capital appreciation in Latin American markets
would be significantly limited over an extended period or that investing in
those markets poses undue risk to investors. The Fund may, for temporary
defensive purposes, invest without limit in cash or cash equivalents and money
market instruments, or invest all or a portion of its assets in securities of
U.S. or other non-Latin American issuers when the Adviser deems such a position
advisable in light of economic or market conditions. It is impossible to
accurately predict how long such alternative strategies may be utilized. The
Fund may also invest in closed-end investment companies investing primarily in
Latin America. In addition, the Fund may invest in loan participations and
assignments, when-issued securities, convertible securities, illiquid and
restricted securities, repurchase agreements, reverse repurchase agreements and
may engage in strategic transactions, including derivatives.
Under exceptional economic or market conditions abroad, the Fund may,
for temporary defensive purposes, until normal conditions return, invest all or
a major portion of its assets in Canadian or U.S. Government obligations or
currencies, or securities of companies incorporated in and having their
principal activities in such countries.
Foreign securities such as those purchased by the Fund may be subject
to foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
2
<PAGE>
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 illiquid 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 15% of the value of the Fund's net assets
would be invested in such illiquid securities.
Special Considerations
Investing in Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to the
volume of trading in the securities of U.S. issuers could cause prices to be
erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market size may
cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The Fund invests in securities denominated in currencies of Latin
American countries. Accordingly, changes in the value of these currencies
against the U.S. dollar will result in corresponding changes in the U.S. dollar
value of the Fund's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
The economies of individual Latin American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain Latin
American countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Fund at a higher rate
than those imposed by other foreign countries. This may reduce the Fund's
investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain Latin American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
3
<PAGE>
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock and agriculture. The
region has a large population (roughly 300 million) representing a large
domestic market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in gross domestic product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly rescheduled. Political turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.
Governments of many Latin American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as the North American Free Trade Agreement ("NAFTA"),
privatization, trade reform and fiscal and monetary reform are among the recent
steps taken to renew economic growth. External debt is being restructured and
flight capital (domestic capital that has left home country) has begun to
return. Inflation control efforts have also been implemented. Latin American
equity markets can be extremely volatile and in the past have shown little
correlation with the U.S. market. Currencies are typically weak, but most are
now relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to changes in
the market.
The Fund is intended to provide individual and institutional investors
with an opportunity to invest a portion of their assets in a broad range of
securities of Latin American issuers. Management of the Fund believes that
allocation of assets on an international basis decreases the degree to which
events in any one country, including the United States, 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 United States 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, it is not intended to provide a complete
investment program for an investor.
General Investment Objective and Policies of Scudder Pacific Opportunities Fund
Scudder Pacific Opportunities Fund's ("Pacific Opportunities Fund")
investment objective is to seek long-term growth of capital through investment
primarily in the equity securities of Pacific Basin companies, excluding Japan.
4
<PAGE>
The Fund's investment program focuses on the smaller, emerging markets
in this region of the world. The Fund is appropriate for no-load investors
seeking to benefit from economic growth in the Pacific Basin, but who do not
want direct exposure to the Japanese market. An investment in the Fund entails
above-average investment risk.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs.
There can be no assurance that the Fund's objective will be met.
The Fund invests, under normal market conditions, at least 65% of its
total assets in the equity securities of Pacific Basin companies. Pacific Basin
countries include Australia, the Peoples Republic of China, India, Indonesia,
Malaysia, New Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as
well as Hong Kong, Singapore, South Korea and Taiwan--the so-called "four
tigers." The Fund may invest in other countries in the Pacific Basin when their
markets become sufficiently developed. The Fund will not, however, invest in
Japanese securities. The Fund intends to allocate investments among at least
three countries at all times.
The Fund defines securities of Pacific Basin companies as follows:
o Securities of companies organized under the laws of a Pacific
Basin country or for which the principal securities trading
market is in the Pacific Basin; or
o Securities of companies, wherever organized, when at least 50% of
a company's non-current assets, capitalization, gross revenue or
profit in any one of the two most recent fiscal years represents
(directly or indirectly through subsidiaries) assets or
activities located in the Pacific Basin.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
illiquid 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.
The Fund may invest up to 35% of its total assets in foreign and
domestic debt securities if the Adviser determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. The Fund may purchase bonds rated Aaa, Aa or A by Moody's, or
AAA, AA or A by S&P or, if unrated, of equivalent quality as determined by the
Adviser. Should the rating of a security in the Fund's portfolio be downgraded,
the Adviser will determine whether it is in the best interest of the Fund to
retain or dispose of such security.
Under normal market conditions, the Fund may invest up to 35% of its
assets in equity securities of U.S. and other non-Pacific Basin issuers
(excluding Japan). In evaluating non-Pacific Basin investments, the Adviser
seeks investments where an issuer's Pacific Basin business activities and the
impact of developments in the Pacific Basin may have a positive effect on the
issuer's business results. The Fund may also purchase shares of closed-end
investment companies that invest primarily in the Pacific Basin. In addition,
the Fund may invest in when-issued securities and convertible securities,
illiquid and restricted securities, reverse repurchase agreements and may engage
in strategic transactions, including derivatives. For temporary defensive
purposes, the Fund may hold without limit debt instruments as well as cash and
cash equivalents, including foreign and domestic money market instruments,
short-term government and corporate obligations, and repurchase agreements when
the Adviser deems such a position advisable in light of economic or market
conditions. It is impossible to accurately predict how long such alternative
strategies may be utilized.
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.")
5
<PAGE>
Special Considerations
Investing in the Pacific Basin. Economies of individual Pacific Basin countries
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, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.
With respect to the Peoples Republic of China and other markets in
which the Fund may participate, there is the possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments that could adversely
impact a Pacific Basin country or the Fund's investment in that country.
Trading volume on Pacific Basin stock exchanges outside of Japan,
although increasing, is substantially less than in the U.S. stock market.
Further, securities of some Pacific Basin companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
Pacific Basin stock exchanges are generally higher than negotiated commissions
on U.S. exchanges, although the Fund endeavors to achieve the most favorable net
results on its portfolio transactions and may be able to purchase securities in
which the Fund may invest on other stock exchanges where commissions are
negotiable.
Foreign companies, including Pacific Basin companies, are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation of Pacific Basin stock exchanges, brokers,
and listed companies than in the U.S.
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 continuous professional management.
Recent conditions in the Pacific Basin region include political
uncertainty, economic overheating, erratic trade policies and extreme currency
fluctuations that have resulted in equity market decline. The conditions that
have given rise to these developments, however, are changeable, and there is no
way to predict if they will continue or the speed at which the economies of that
region will recover.
General Investment Objective and Policies of Scudder Greater Europe Growth Fund
Scudder Greater Europe Growth Fund's ("Greater Europe Growth Fund")
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.
6
<PAGE>
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
'If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
The Fund will invest, under normal market conditions, at least 80% of
its total assets in the equity securities of European companies. The Fund
defines a European company as follows:
o A company organized under the laws of a European country or for
which the principal securities trading market is in Europe; or
o 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.
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 may invest in other countries
of Europe when their markets become sufficiently developed, in the opinion of
the Adviser.
The Fund intends to allocate its investments among at least three
countries at all times. The Fund's equity investments are common stock,
preferred stock (convertible or non-convertible), depositary receipts (sponsored
or unsponsored) and warrants. These may be illiquid 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, including derivatives.
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 or below BBB by S&P. Such securities may be in default with
respect to payment of principal or interest. See "Risk factors -- Debt
securities."
The Fund may invest in when-issued securities, illiquid and restricted
securities and convertible securities and may enter into repurchase agreements
and reverse repurchase agreements. The Fund may also invest in closed-end
investment companies that invest primarily in Europe.
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. It is
impossible to accurately predict how long such alternative strategies may be
utilized.
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.")
7
<PAGE>
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 15% of the value of the Fund's net assets
would be invested in illiquid securities.
Special Considerations
Investing in Greater Europe. Scudder Kemper Investments, Inc. has been managing
European investments for over 35 years. The Adviser 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.
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.
8
<PAGE>
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 European 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
9
<PAGE>
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 "SEC"). In addition, the risk of loss
through government confiscation may be increased in such countries.
General Investment Objectives and Policies of Scudder Emerging Markets Growth
Fund
Scudder Emerging Markets Growth Fund ("Emerging Markets Growth Fund")
seeks long-term growth of capital primarily through equity investment in
emerging markets around the globe.
The Fund will invest in the Asia-Pacific region, Latin America, less
developed nations in Europe, the Middle East and Africa, focusing investments in
countries and regions where there appear to be the best value and appreciation
potential, subject to considerations of portfolio diversification and liquidity.
In the opinion of the Adviser, many emerging nations around the globe are likely
to continue to experience economic growth rates well in excess of those found in
the U.S., Japan and other developed markets. In the opinion of the Adviser, this
economic growth should translate into strong stock market performance over the
long term.
While the Fund offers the potential for substantial price appreciation
over time, it also involves above-average investment risk. The Fund is designed
as a long-term investment and not for short-term trading purposes. It should not
be considered a complete investment program. The Fund's net asset value (price)
can fluctuate significantly with changes in stock market levels, political
developments, movements in currencies, investment flows and other factors. To
encourage a long-term investment horizon, a 2% redemption and exchange fee,
described more fully below, is payable to the Fund for the benefit of remaining
shareholders on shares held less than one year.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in the Fund's 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 objectives will be met.
At least 65% of the Fund's total assets will be invested in the equity
securities of emerging market issuers. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the International Bank for Reconstruction and Development (i.e., the
World Bank), the International Finance Corporation or the United Nations or its
authorities. The Fund intends to allocate its investments among at least three
countries at all times, and does not expect to concentrate in any particular
industry. There is no limitation, however, on the amount the Fund can invest in
a specific country or region of the world.
The Fund deems an issuer to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market
country;
o the issuer's principal securities trading market is in an
emerging market; or
o at least 50% of the issuer's non-current assets, capitalization,
gross revenue or profit in any one of the two most recent fiscal
years is derived (directly or indirectly through subsidiaries)
from assets or activities located in emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.
The Fund may invest up to 35% of its total assets in emerging market
and domestic debt securities if the Adviser determines that the capital
appreciation of debt securities is likely to equal or exceed the capital
10
<PAGE>
appreciation of equity securities. Debt instruments held by the Fund take the
form of bonds, notes, bills, debentures, convertible securities, warrants, bank
obligations, short-term paper, loan participations, loan assignments, and trust
interests.
Under normal market conditions, the Fund may invest up to 35% of its
assets in equity securities of issuers in the U.S. and other developed markets.
In evaluating the appropriateness of such investments for the Fund, the Adviser
takes into account the issuer's involvement in the emerging markets and the
potential impact of that involvement on business results. The Fund may also
purchase securities on a when-issued or forward delivery basis, enter into
reverse repurchase agreements and may engage in various strategic transactions,
including derivatives.
For temporary defensive purposes, the Fund may hold, without limit,
debt instruments as well as cash and cash equivalents, including foreign and
domestic money market instruments, short-term government and corporate
obligations, and repurchase agreements. It is impossible to accurately predict
how long such alternative strategies will be utilized. The Fund may also invest
in closed-end investment companies investing primarily in the emerging markets.
To the extent the Fund invests in such closed-end investment companies,
shareholders will incur certain duplicate fees and expenses. Such closed-end
investment company investments will generally only be made when market access or
liquidity restricts direct investment in the market.
Special Considerations
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less government supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of the Fund is
uninvested and no cash is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in 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. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Certain emerging markets require prior governmental approval of
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain emerging markets
may also restrict investment opportunities in issuers in industries deemed
important to national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
In the course of investment in emerging markets, the Fund will be
exposed to the direct or indirect consequences of political, social and economic
changes in one or more emerging markets. While the Fund will manage its assets
in a manner that will seek to minimize the exposure to such risks, there can be
no assurance that adverse political, social or economic changes will not cause
the Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
11
<PAGE>
may be substantially curtailed and prices for the Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
SEC. Accordingly if the Fund believes that appropriate circumstances exist, it
will promptly apply to the SEC for a determination that an emergency is present.
During the period commencing from the Fund's identification of such condition
until the date of the SEC action, the Fund's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Corporation's Board of Directors.
Volume and liquidity in most foreign markets are less than in the U.S.
and securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect the Fund's investments in those countries. Moreover, individual
emerging market economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The chart below sets forth the risk ratings of selected emerging
market countries' sovereign debt securities.
Sovereign Risk Ratings for Selected Emerging Market Countries as of 1/15/98
(Source: J.P. Morgan Securities, Inc., Emerging Markets Research)
Country Moody's Standard & Poor's
Chile Baa1 A-
Turkey B1 B
Mexico Ba2 BB
Czech Republic Baa1 A
Hungary Baa3 BBB-
Colombia Baa3 BBB-
Venezuela Ba2 B+
Morocco NR NR
Argentina Ba3 BB
Brazil B1 BB-
Poland Baa3 BBB-
Ivory Coast NR NR
A Fund may have limited legal recourse in the event of a default with
respect to certain debt obligations it holds. If the issuer of a fixed-income
security owned by a Fund defaults, the Fund may incur additional expenses to
seek recovery. Debt obligations issued by emerging market country governments
differ from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. A Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is,
therefore, somewhat diminished. Bankruptcy, moratorium and other similar laws
applicable to private issuers of debt obligations may be substantially different
from those of other countries. The political context, expressed as an emerging
market governmental issuer's willingness to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt may not contest
payments to the holders of debt obligations in the event of default under
commercial bank loan agreements. With four exceptions (Panama, Cuba, Costa Rica
and Yugoslavia), no sovereign emerging markets borrower has defaulted on an
external bond issue since World War II.
12
<PAGE>
Income from securities held by a Fund could be reduced by a withholding
tax on the source or other taxes imposed by the emerging market countries in
which the Fund makes its investments. A Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to the Fund
or to entities in which the Fund has invested. The Adviser will consider the
cost of any taxes in determining whether to acquire any particular investments,
but can provide no assurance that the taxes will not be subject to change.
Many emerging markets have experienced substantial, and in some periods
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Investing in Europe. Most Eastern European nations, including Hungary,
Poland, Czechoslovakia, and Romania have had centrally planned, socialist
economies since shortly after World War II. A number of their governments,
including those of Hungary, the Czech Republic, and Poland are currently
implementing or considering reforms directed at political and economic
liberalization, including efforts to foster multi-party political systems,
decentralize economic planning, and move toward free market economies. At
present, no Eastern European country has a developed stock market, but Poland,
13
<PAGE>
Hungary, and the Czech Republic have small securities markets in operation.
Ethnic and civil conflict currently exist within the former Yugoslavia. The
outcome is uncertain.
Both the European Community (the "EC") and Japan, among others, have
made overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.
The conditions that have given rise to these developments are
changeable, and there is no assurance that reforms will continue or that their
goals will be achieved.
Portugal is a genuinely emerging market which has experienced rapid
growth since the mid-1980s, except for a brief period of stagnation over
1990-91. Portugal's government remains committed to privatization of the
financial system away from one dependent upon the banking system to a more
balanced structure appropriate for the requirements of a modern economy.
Inflation continues to be about three times the EC average.
Economic reforms launched in the 1980s continue to benefit Turkey in
the 1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita GDP increasing more than 6% annually. Agriculture remains
the most important economic sector, employing approximately 55% of the labor
force, and accounting for nearly 20% of GDP and 20% of exports. Inflation and
interest rates remain high, and a large budget deficit will continue to cause
difficulties in Turkey's substantial transformation to a dynamic free market
economy.
Like many other Western economies, Greece suffered severely from the
global oil price hikes of the 1970s, with annual GDP growth plunging from 8% to
2% in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of the
conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance. Once
Greece has sorted out its political situation, it will have to face the
challenges posed by the steadily increasing integration of the EC, including the
progressive lowering of trade and investment barriers. Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.
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 and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large amount of property, the
claims of which have not been entirely settled. There can be no assurance that
the Fund's investments in Eastern Europe would not also be expropriated,
nationalized or otherwise confiscated. Finally, any change in leadership or
policies of Eastern European countries, or countries that exercise a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities.
Investing in Africa. Africa is a continent of roughly 50 countries with
a total population of approximately 840 million people. Literacy rates (the
percentage of people who are over 15 years of age and who can read and write)
are relatively low, ranging from 20% to 60%. The primary industries include
crude oil, natural gas, manganese ore, phosphate, bauxite, copper, iron,
diamond, cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.
Many of the countries are fraught with political instability. There has
been a trend over the past five years toward democratization. Many countries are
moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.
14
<PAGE>
Economically, the Northern Rim countries (including Morocco, Egypt and
Algeria) and Nigeria, Zimbabwe and South Africa are the wealthier countries on
the continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.
On the other end of the economic spectrum are countries, such as
Burkinafaso, Madagascar and Malawi, that are considered to be among the poorest
or least developed in the world. These countries are generally landlocked or
have poor natural resources. The economies of many African countries are heavily
dependent on international oil prices. Of all the African industries, oil has
been the most lucrative, accounting for 40% to 60% of many countries' GDP. A
general decline in oil prices may have an adverse impact on many economies.
Economic Growth. Emerging markets are an increasingly important part of the
world's investment activity. The chief rationale for investing in emerging
markets is the dramatic growth rates that these economies continue to enjoy.
Over the past decade, the annual percentage change in the economic growth rates
of emerging market countries has been climbing above that of the mature markets,
as shown in the chart below.1
[OBJECT OMITTED]
This growth translates into an average annual percentage change (as
measured by GDP) of 2.53% for mature economies, compared to 3.89% for developing
countries.2 Emerging market economies are projected to grow at a 6.3% annual
rate -- more than double the expected growth of established countries in Europe,
Asia and North America (2.4%).3
Investing in Foreign Securities
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in United States securities and
which may favorably or unfavorably affect the Funds' performance. As foreign
companies are not generally subject to uniform accounting and auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies, there may be less publicly available
information about a foreign company than about a domestic company. Many foreign
stock markets, while growing in volume of trading activity, have substantially
less volume than the New York Stock Exchange (the "Exchange"), and securities of
some foreign companies are less liquid and more volatile than securities of
domestic companies. Similarly, volume and liquidity in most foreign bond markets
are less than the volume and liquidity in the United States and at times,
volatility of price can be greater than in the United States. 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 a Fund are uninvested and no return is earned thereon. The inability of a
Fund to make intended security purchases due to settlement problems could cause
that Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems either could result in losses to
a Fund due to subsequent declines in value of the portfolio security or, if a
Fund has entered into a contract to sell the security, could result in possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Funds will endeavor to achieve the most favorable net results on
their portfolio transactions. Further, a Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
- --------
1 International Monetary Fund, 1997. OECD Economic Outlook, October 1997.
2 International Monetary Fund, 1995. OECD Economic Outlook, June 1995.
3 IMF World Economic Outlook, 1997.
15
<PAGE>
States. It may be more difficult for the Funds' agents to keep currently
informed about corporate actions such as stock dividends or other matters which
may affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of withholding or confiscatory taxes, political,
social, or economic instability, or diplomatic developments which could affect
United States investments in those countries. Investments in foreign securities
may also entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position.
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 a Fund in Eastern Europe.
The currencies of most Eastern European countries are not freely convertible
into other currencies and are not internationally traded. A 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.
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 each Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, neither Fund will invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because each Fund may hold foreign
currencies and forward contracts, futures contracts and options on futures
contracts on foreign currencies, the value of the assets of a 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 a Fund may incur
costs in connection with conversions between various currencies. In particular,
many Latin American currencies have experienced significant devaluation relative
to the dollar. Although each 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 a Fund at one rate, while offering a lesser rate of exchange should that Fund
desire to resell that currency to the dealer. Each 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 forward or futures contracts to purchase or sell foreign currencies.
Depositary Receipts. Each Fund may invest directly in securities of emerging
country 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
United States banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation. Generally,
Depositary Receipts in registered form are designed for use in the United States
16
<PAGE>
securities markets and Depositary Receipts in bearer form are designed for use
in securities markets outside the United States. For purposes of each Fund's
investment policies, a 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.
Loan Participations and Assignments. Latin America Fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between an
issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). The Fund's investments in Loans in Latin America are
expected in most instances to be in the form of participations in Loans
("Participations") and assignments of portions of Loans ("Assignments") from
third parties. Participations typically will result in the Fund having a
contractual relationship only with the Lender and not with the borrower. The
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund will assume the credit risk
of both the borrower and the Lender that is selling the Participation. In the
event of the insolvency of the Lender selling a Participation, the Fund may be
treated as a general creditor of the Lender and may not benefit from any set-off
between the Lender and the borrower. The Fund will acquire Participations only
if the Lender interpositioned between the Fund and the borrower is determined by
the Investment Manager to be creditworthy.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and
Participations. Because no liquid market for these obligations typically exists,
the Fund anticipates that these obligations could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market will
have an adverse effect on the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations may also make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve each Fund's objective of long-term capital appreciation, a Fund
may invest in debt securities including bonds of foreign governments,
supranational organizations and private issuers. Portfolio debt investments will
be selected on the basis of, among other things, credit quality, and the
fundamental outlooks for currency, economic and interest rate trends, taking
into account the ability to hedge a degree of currency or local bond price risk.
Each Fund may purchase "investment-grade" bonds, rated Aaa, Aa or A by Moody's
or AAA, AA or A by S&P or, if unrated, judged to be of equivalent quality as
determined by the Adviser. Greater Europe Growth Fund may invest up to 20% of
its total assets in European debt securities. Latin America Fund, Greater Europe
Growth Fund (within its 20% limit) and Emerging Markets Growth Fund may also
purchase bonds rated Baa by Moody's or BBB by S&P. Bonds rated Baa or BBB may
have speculative elements as well as investment-grade characteristics.
Latin America Fund, Greater Europe Growth Fund (subject to its 20%
limit) and Emerging Markets Growth Fund may each 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 ("high yield/high risk securities"),
which usually entail greater risk (including the possibility of default or
bankruptcy of the issues 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.
17
<PAGE>
Latin America Fund (subject to a limit of no more than 10% of its total assets),
Greater Europe Growth Fund (subject to its 20% limit) and Emerging Markets
Growth Fund may purchase bonds rated B or lower by Moody's or S&P, and may
invest in securities which are rated C by Moody's or D by S&P or securities of
comparable quality in the Adviser's judgment. Such securities may be in default
with respect to payment of principal or interest. Such securities carry a high
degree of risk and are considered speculative. 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.
The Adviser expects that a significant portion of any of the Emerging
Markets Growth Fund's bond investments will be purchased at a discount to par
value. To the extent developments in emerging markets result in improving credit
fundamentals and rating upgrades for countries in emerging markets, the Adviser
believes that there is the potential for capital appreciation as the improving
fundamentals become reflected in the price of the debt instruments. The Adviser
also believes that a country's sovereign credit rating (with respect to foreign
currency denominated issues) acts as a "ceiling" on the rating of all debt
issuers from that country. Thus, the ratings of private sector companies cannot
be higher than that of their home countries. The Adviser believes, however, that
many companies in emerging market countries, if rated on a stand alone basis
without regard to the rating of the home country, possess fundamentals that
could justify a higher credit rating, particularly if they are major exporters
and receive the bulk of their revenues in U.S. dollars or other hard currencies.
The Adviser seeks to identify such opportunities and benefit from this type of
market inefficiency.
Certain Latin American countries are among the largest debtors to
commercial banks and foreign governments. Trading in debt obligations
("sovereign debt") issued or guaranteed by Latin American governments or their
agencies or instrumentalities ("governmental entities") involves a high degree
of risk. The governmental entity that controls the repayment of sovereign debt
may not be willing or able to repay the principal and/or interest when due in
accordance with the terms of such obligations. A governmental entity's
willingness or ability to repay principal and interest due in a timely manner
may be affected by, among other factors, its cash flow situation, dependence on
expected disbursements from third parties, the governmental entity's policy
towards the International Monetary Fund and the political constraints to which a
governmental entity may be subject. As a result, governmental entities may
default on their sovereign debt. Holders of sovereign debt (including Latin
America Fund) may be requested to participate in the rescheduling of such debt
and to extend further loans to governmental entities. There is no bankruptcy
proceeding by which sovereign debt on which governmental entities have defaulted
may be collected in whole or in part.
High Yield/High Risk Bonds. Within Latin America Fund's 10% limit on investments
in bonds rated B or lower by Moody's or S&P and Greater Europe Growth Fund's 20%
limit of investments in European debt securities, and Emerging Markets Growth
Fund, each Fund may also purchase debt securities which are rated below
investment-grade, commonly referred to as junk bonds, 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 Funds 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.
High-yield, high-risk securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers and to price fluctuations in response to changes in interest
rates. 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 either Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
18
<PAGE>
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 a 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 a Fund to retain or dispose of such
security. For information concerning tax issues related to high yield/high risk
securities, see "TAXES."
Strategic Transactions and Derivatives. The Funds may, but are 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 the fixed-income securities in each Fund's portfolio, or
to enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Funds 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 each Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect a 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 the fixed-income
securities in each 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 a 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 Funds to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Funds 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 derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a 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 a Fund can realize on its
19
<PAGE>
investments or cause a Fund to hold a security it might otherwise sell. The use
of currency transactions can result in a 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 a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a 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, a
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 to create leveraged exposure in the Fund.
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, a 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 Funds
are 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.
Each 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
20
<PAGE>
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. A 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 Funds expect
generally to enter into OTC options that have cash settlement provisions,
although they are 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 a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a 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 Funds will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or are determined to be of equivalent credit
quality by the Adviser. The staff of the "SEC" currently takes the position that
OTC options purchased by a Fund, and portfolio securities "covering" the amount
of a 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
a Fund's limitation on investing no more than 15% of its net assets in illiquid
securities.
If a 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 a Fund's income. The sale of put options can also provide income.
Each 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 a Fund must be "covered" (i.e., a 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 a Fund will receive the option premium to help protect it against
loss, a call sold by a Fund exposes that 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 a Fund to hold a security or
instrument which it might otherwise have sold.
Each 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. Each Fund will not sell put options if, as a result, more
than 50% of a 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 a Fund
21
<PAGE>
may be required to buy the underlying security at a disadvantageous price above
the market price.
General Characteristics of Futures. Each 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 a 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.
Each 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 a Fund. If
a 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.
Each 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 a 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. Each 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. Each 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
22
<PAGE>
or more currencies and operates similarly to an interest rate swap, which is
described below. Each Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or (except for OTC currency options)
are determined to be of equivalent credit quality by the Adviser.
Each 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 a 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.
Each 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.
Each 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 a Fund has or in which a 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 Funds may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a 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 a 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 a 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 a 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 a Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, that 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. Each 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
23
<PAGE>
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of a 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
Funds may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Funds expect to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of their portfolios, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Funds anticipate purchasing at a later date. The Funds intend to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where they do not own securities or other
instruments providing the income stream the Funds may be obligated to pay.
Interest rate swaps involve the exchange by a 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.
Scudder Emerging Markets Growth Fund may also enter into equity swaps.
Equity swaps entail the exchanging of a security for an agreed-upon
consideration with a counterparty who holds the equity security. The Fund then
receives the benefit of ownership of a security that it may not otherwise be
able to obtain, due to lack of a custody relationship.
Each 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 a 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 Funds 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. Each 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. Each 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. Each 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
24
<PAGE>
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 a 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 Funds segregate cash or liquid
assets with their custodian, Brown Brothers Harriman & Company (the "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 a 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 assets 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 a Fund
will require that Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or to
segregate cash or liquid assets -sufficient to purchase and deliver the
securities if the call is exercised. A call option sold by a Fund on an index
will require that Fund to own portfolio securities which correlate with the
index or to segregate liquid assets equal to the excess of the index value over
the exercise price on a current basis. A put option written by a Fund requires
that Fund to segregate cash or liquid assets equal to the exercise price.
Except when a 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 a Fund to buy or sell currency
will generally require a Fund to hold an amount of that currency or liquid
assets denominated in that currency equal to a Fund's obligations or to
segregate cash or liquid assets equal to the amount of a Fund's obligation.
OTC options entered into by a 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 a
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by a 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 a Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, a 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 a Fund other than those
above generally settle with physical delivery, and a Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or 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, each Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. Each 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, a 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 that Fund. Moreover, instead of segregating cash or liquid assets if a
25
<PAGE>
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Convertible Securities. Each Fund may invest in convertible securities which are
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features. Latin
America Fund will limit its purchases of convertible securities to debt
securities convertible into common stocks.
The convertible securities in which a Fund may invest 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 fixed income 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 fixed income 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.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONs). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, any foreign bank or with any
domestic or foreign broker-dealer which is recognized as a reporting government
26
<PAGE>
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 a
Fund may purchase.
A repurchase agreement provides a means for each Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Funds) 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 a Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to a Fund together
with the repurchase price upon repurchase. In either case, the income to a 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 a Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to a Fund's investment restriction applicable
to loans. It is not clear whether a court would consider the Obligation
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a 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, a 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 a Fund has
not perfected a security interest in the Obligation, a 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, a 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 a 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 a Fund
may incur a loss if the proceeds to that 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), a 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 a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities. A repurchase agreement with foreign
banks may be available with respect to government securities of the particular
foreign jurisdiction, and such repurchase agreements involve risks similar to
repurchase agreements with U.S. entities.
Repurchase Commitments. Latin America Fund may enter into repurchase commitments
with any party deemed creditworthy by the Adviser, including foreign banks and
broker/dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
securities which the Fund may purchase. Such transactions may not provide the
Fund with collateral marked-to-market during the term of the commitment.
Borrowing. Each Fund may not borrow money, except as permitted under Federal
law. Each Fund will borrow only when the Adviser believes that borrowing will
benefit the Funds after taking into account considerations such as the costs of
the borrowing. Each Fund does not expect to borrow for investment purposes, to
increase return or leverage the portfolio. Borrowing by a Fund will involve
special risk considerations. Although the principal of a Fund's borrowings will
be fixed, a Fund's assets may change in value during the time a borrowing is
outstanding, thus increasing exposure to capital risk.
Illiquid Securities. Each 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.
27
<PAGE>
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. A 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 a Fund may be liable to purchasers
of such securities if such sale is made in violation of the 1933 Act or if the
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
Each Fund may invest up to 15% of its total net assets in illiquid
securities.
When-Issued Securities. Each 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 a Fund to the issuer and
no interest accrues to a Fund. To the extent that assets of a Fund are held in
cash pending the settlement of a purchase of securities, a Fund would earn no
income; however, it is each 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, each Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time a 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. Each 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.
Lending of Portfolio Securities. Each Fund may seek to increase its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC, such loans
may be made to member firms of the Exchange, and would be required to be secured
continuously by collateral in cash, U.S. Government securities or other high
grade debt obligations maintained on a current basis at an amount at least equal
to the market value and accrued interest of the securities loaned. Each Fund
would have the right to call a loan and obtain the securities loaned on no more
than five days' notice. During the existence of a loan, a Fund would continue to
receive the equivalent of the interest paid by the issuer on the securities
loaned and would also receive compensation based on investment of the
collateral. As with other extensions of credit there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If a Fund determines to make
securities loans, the value of the securities loaned will not exceed 5% of the
value of a Fund's total assets at the time any loan is made.
Master/feeder structure
The Board of Directors has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
28
<PAGE>
Investment Restrictions
The fundamental policies of each Fund set forth below may not be
changed without the approval of a majority of each Fund's outstanding shares. As
used in this Statement of Additional Information, "majority of the Fund's
outstanding shares" means the lesser of (1) more than 50% of the outstanding
shares of the Fund or (2) 67% or more of the shares present at such meeting, if
the holders of more than 50% of the outstanding shares are present or
represented by proxy.
Each Fund has elected to be classified as a non-diversified series of an
open-end investment company.
In addition, as a matter of fundamental policy, each Fund will not:
(1) borrow money, except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940 Act,
as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time
to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages or
investments secured by real estate or interests therein, except
that the Fund reserves freedom of action to hold and to sell real
estate acquired as a result of the Fund's ownership of
securities;
(6) purchase physical commodities or contracts relating to physical
commodities; or
(7) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's objective and policies
may be deemed to be loans.
Nonfundamental policies may be changed without shareholder approval. As a matter
of nonfundamental policy, each Fund may not:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or other
investments or transactions described in the Fund's registration
statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments, (iv)
that transactions in futures contracts and options shall not be
deemed to constitute selling securities short, and (v) that the
Fund may obtain such short-term credits as may be necessary for
the clearance of securities transactions;
29
<PAGE>
(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its
total assets; or sell put options, if as a result, the aggregate
value of the obligations underlying such put options would exceed
50% of its total assets;
(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate
initial margin with respect to such futures contracts entered
into on behalf of the Fund and the premiums paid for such options
on futures contracts does not exceed 5% of the fair market value
of the Fund's total assets; provided that in the case of an
option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of
the value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to
have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
PURCHASES
(See "Purchases" and "Transaction information" in the Funds' prospectuses.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. by letter, 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 ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification or social security number, address and telephone
number. The investor must then call the bank to arrange a wire transfer to The
Scudder Funds, Boston, MA 02110, ABA Number 011000028, DDA Account Number
9903-5552. The investor must give the Scudder fund name, account name and the
new account number. Finally, the investor must send the completed and signed
application to the Fund promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder 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 each 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 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 a Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, each Fund shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
30
<PAGE>
to reimburse a 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 a Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, the Fund may hold the redemption proceeds for a period of
up to seven business days. If you purchase shares and there are insufficient
funds in your bank account the purchase will be canceled and you will be subject
to any losses or fees incurred in the transaction. QuickBuy transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine. and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
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, each Fund reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by a Fund or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, a Fund shall have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse a 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 a Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by the
Custodian of "wired funds," but the right to charge investors for this service
is reserved.
31
<PAGE>
Boston banks are closed on certain local holidays although the Exchange
may be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
funds on behalf of a Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day 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 the Distributor,
it is the responsibility of that member broker, rather than a 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 Fund management to afford ease of redemption,
certificates will not be issued to indicate ownership in a Fund.
Other Information
If purchases or redemptions of a Fund's shares are arranged and
settlement is made through a member of the NASD, other than the Distributor,
that member may, at its discretion, charge a fee for that service. The Board of
Directors and the Distributor, the Funds' principal underwriter, each has the
right to limit the amount of purchases by and to refuse to sell to, any person.
The Directors and the Distributor may suspend or terminate the offering of
shares of a Fund at any time for any reason.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g., certification of exempt status from exempt investors), will
be returned to the investor.
The Funds have authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Funds' shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on each Fund's behalf. Orders for purchase or redemption will be deemed
to have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at that Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Directors and the Distributor, also the Funds' principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Directors and the Distributor may suspend or terminate the
offering of shares of a Fund at any time for any reason.
Each 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 Funds'
prospectuses.)
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
32
<PAGE>
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described
under "Transaction Information-Redeeming shares-Signature guarantees" in each
Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the phone or in writing. Automatic
exchanges will continue until the shareholder requests by phone or in writing to
have the feature removed, or until the originating account is depleted. The
Corporation and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged from Emerging Markets Growth Fund may be
subject to the Fund's 2% redemption fee. (See "Special Redemption and Exchange
Information for Emerging Markets Growth Fund.") 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. Each Fund employ
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 Funds do not follow such
procedures, they may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Fund will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be
genuine. The Funds 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 the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder Funds or classes thereof. For more information,
please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Special Redemption and Exchange Information for Scudder Emerging Markets Growth
Fund
In general, shares of the Fund may be exchanged or redeemed at net
asset value. However, shares of the Fund held for less than one year are
redeemable at a price equal to 98% of the then current net asset value per
share. This 2% discount, referred to in the prospectus and this statement of
additional information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
33
<PAGE>
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.
The redemption discount will not be applied to (a) a redemption of
shares of the Fund outstanding for one year or more, (b) shares purchased
through certain retirement plans, including 401(k) plans, 403(b) plans, 457
plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans, (c)
a redemption of reinvestment shares (i.e., shares purchased through the
reinvestment of dividends or capital gains distributions paid by the Fund), (d)
a redemption of shares due to the death of the registered shareholder of a Fund
account, or, due to the death of all registered shareholders of a Fund account
with more than one registered shareholder, (i.e., joint tenant account), upon
receipt by Scudder Service Corporation of appropriate written instructions and
documentation satisfactory to Scudder Service Corporation, or (e) a redemption
of shares by the Fund upon exercise of its right to liquidate accounts (i)
falling below the minimum account size by reason of shareholder redemptions or
(ii) when the shareholder has failed to provide tax identification information.
However, if shares are purchased for a retirement plan account through a broker,
financial institution or recordkeeper maintaining an omnibus account for the
shares, such waiver may not apply. (Before purchasing shares, please check with
your account representative concerning the availability of the fee waiver.) In
addition, this waiver does not apply to IRA and SEP-IRA accounts. For this
purpose and without regard to the shares actually redeemed, shares will be
treated as redeemed as follows: first, reinvestment shares; second, purchased
shares held one year or more; and third, purchased shares held for less than one
year. Finally, if a redeeming shareholder acquires Fund shares through a
transfer from another shareholder, applicability of the discount, if any, will
be determined by reference to the date the shares were originally purchased, and
not from the date of transfer between shareholders.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may request to have the proceeds mailed
or wired to their predesignated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate section
on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit-Sharing, Scudder 401(k) and Scudder 403(b)
Planholders) who wish to establish telephone redemption to a
predesignated bank account or who want to change the bank account
previously designated to receive redemption 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 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.
34
<PAGE>
Each 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 Funds do not follow such procedures, they may be liable for losses due
to unauthorized or fraudulent telephone instructions. Each Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between a Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net asset
value per share calculated at the close of trading on the day of your call.
QuickSell requests received after the close of regular trading on the Exchange
will begin their processing and be redeemed at the net asset value calculated
the following business day. QuickSell transactions are not available for Scudder
IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account. New investors wishing to establish QuickSell may
so indicate on the application. Existing shareholders who wish to add QuickSell
to their account may do so by completing an QuickSellEnrollment Form. After
sending in an enrollment form, shareholders should allow for 15 days for this
service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request 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 business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven 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.
35
<PAGE>
Redemption-in-Kind
The Corporation reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by a
Fund and valued as they are for purposes of computing a 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
Corporation has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which each 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, fax, 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 a proper original signature
guarantee, as described in the Funds' Prospectuses under "Transaction
information-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. Each Fund does not
impose a 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 and a shareholder's right to
redeem shares and to receive payment 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 a Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for a Fund fairly to determine the value of its net assets, or (d) during which
the SEC 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 SEC (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 Corporation to below $2,500 in value, the Corporation will notify the
shareholder that, unless the account balance is brought up to at least $2,500,
the Corporation 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 $2,500 before any action will be taken by the
Corporation. (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.
36
<PAGE>
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in the Funds' prospectuses.)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based Rule 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Because funds in the Scudder Family of Funds do not pay any asset-based
sales charges or service fees, Scudder developed and trademarked the phrase pure
no-load(TM) to distinguish Scudder funds from other no-load mutual funds.
Scudder pioneered the no-load concept when it created the nation's first no-load
fund in 1928, and later developed the nation's first family of no-load mutual
funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder Family of Funds pure no-load fund over investing
the same amount in a load fund that collects an 8.50% front-end load, a load
fund that collects only a 0.75% 12b-1 and/or service fee, and a no-load fund
charging only a 0.25% 12b-1 and/or service fee. The hypothetical figures in the
chart show the value of an account assuming a constant 10% rate of return over
the time periods indicated and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
======================== ---------------------- ---------------------- ---------------------- ======================
Scudder No-Load Fund with
YEARS Pure No-Load(TM)Fund 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1 Fee
12b-1 Fee
======================== ---------------------- ---------------------- ---------------------- ======================
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>
37
<PAGE>
Investors are encouraged to review the fee tables on page 2 of each
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities - known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be 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 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
Contact Scudder" in the Funds' Prospectuses for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
38
<PAGE>
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Centers maintained by the Distributor
listed in the Funds' prospectuses. 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 prospectuses.
Reports to Shareholders
The Corporation issues to its shareholders audited semiannual financial
statements, including a list of investments held and statements of assets and
liabilities, operations, changes in net assets and financial highlights. The
Corporation presently intends to distribute to shareholders informal quarterly
reports during the intervening quarters, containing a statement of the
investments of a 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 Funds' prospectuses.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital and, consistent therewith, to maintain the liquidity of
capital and to provide current income. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
39
<PAGE>
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
TAX FREE
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
- ----------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
40
<PAGE>
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
- ----------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
41
<PAGE>
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As
a secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
42
<PAGE>
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
SCUDDER CHOICE SERIES
Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.
Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.
Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.
GLOBAL GROWTH
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity
securities.
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
43
<PAGE>
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by
investing primarily in equity securities (including American
Depository Receipts) of Japanese companies.
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. For more information, please call
1-800-225-5163.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases-By
Automatic Investment Plan" and "Exchanges and redemptions-By
Automatic Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state treatment may be different and may
vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and 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.
44
<PAGE>
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- ---------------------------- ------------------------- -------------------------- -------------------------
Starting
Age of Annual Rate of Return
------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</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>
<S> <C> <C> <C>
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%
- ---------------------------- ------------------------- -------------------------- -------------------------
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
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund(s) may be purchased as the underlying investment for
a Roth individual Retirement Account which meets the requirements of Section
408A of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
46
<PAGE>
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and education
expenses.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the 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
47
<PAGE>
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information--Dividends and capital
gains distributions" in the Funds' prospectuses.)
Each 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. A 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, a 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 a Fund does not distribute an amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, it may
be subject to such tax. (See "TAXES.") In certain circumstances, a Fund may
determine that it is in the interest of shareholders to distribute less than
such an amount.
48
<PAGE>
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividend paid deduction on its federal tax return.
The Corporation intends to distribute the Funds' investment company
taxable income and any net realized capital gains in December to avoid federal
excise tax, although an additional distribution may be made if necessary. Both
types of distributions will be made in shares of the Funds 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 Funds issue 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 Funds' prospectuses.)
From time to time, quotations of the Funds' 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 a Fund, ended on the last day
of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Funds' 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:
T = Average Annual Total Return
P = a hypothetical initial payment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Return for the periods ended October 31, 1997
One year Life of Fund
Latin America Fund 23.25% 17.84%(1)
Pacific Opportunities Fund -28.52% -0.72%(1)
Greater Europe Growth Fund 24.47%* 21.58%(2)
Emerging Markets Growth Fund 13.51%** 14.08%(3)
(1) For the period beginning December 8, 1992 (commencement of
operations for Latin America Fund and Pacific Opportunities
Fund).
49
<PAGE>
(2) For the period beginning October 10, 1994 (commencement of
operations for Greater Europe Growth Fund).
(3) For the period beginning May 8, 1996 (commencement of operations
for Emerging Markets Growth Fund).
* If the Adviser had not maintained Fund expenses average annual
total return would have been approximately 24.4%.
** If the Adviser had not maintained Fund expenses average annual
total return would have been approximately 13.2%. Average annual
total return does not reflect the effect of the 2% redemption fee
on shares held less than one year.
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for a Fund will vary based on changes in market conditions and the
level of a Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, a Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the 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 Funds' shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) -1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return for the periods ended October 31, 1997
One year Life of Fund
Latin America Fund 23.25% 123.48% (1)
Pacific Opportunities Fund -28.52% -3.47% (1)
Greater Europe Growth Fund 24.47%* 81.86% (2)
Emerging Markets Growth Fund 13.51%** 21.56% (3)
50
<PAGE>
(1) For the period beginning December 8, 1992 (commencement of
operations for Latin America Fund and Pacific Opportunities
Fund).
(2) For the period beginning October 10, 1994 (commencement of
operations for Greater Europe Growth Fund).
(3) For the period beginning May 8, 1996 (commencement of operations
for Emerging Markets Growth Fund).
* If the Adviser had not maintained Fund expenses cumulative total
return would have been approximately 24.4%.
** If the Adviser had not maintained Fund expenses cumulative total
return would have been approximately 13.2%. Cumulative total
return does not reflect the effect of the 2% redemption fee on
shares held less than one year.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Comparison of Portfolio 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 a 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, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
Index, and statistics published by the Small Business Administration.
Because some or all each 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 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 Funds. 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 either 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, a 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, a 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)
51
<PAGE>
may also be compared to funds with similar volatility, as measured statistically
by independent organizations. In addition, a Fund's performance may also be
compared to the performance of broad groups of comparable mutual funds.
Unmanaged indices with which a Fund's performance may be compared include, but
are not limited to, the following:
The Europe/Australia/Far East (EAFE) Index
International Finance Corporation's Latin America Investable Total
Return Index
Morgan Stanley Capital International World Index
J.P. Morgan Global Traded Bond Index
Salomon Brothers World Government Bond Index
Nasdaq Composite Index
Wilshire 5000 Stock Index
From time to time, in marketing and other Fund literature, Directors
and officers of the Corporation, the Funds' 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 Funds. 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 Funds 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 Funds. The
description may include a "risk/return spectrum" which compares the Funds 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 Funds 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.
52
<PAGE>
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds 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 Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
53
<PAGE>
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
SmartMoney, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
54
<PAGE>
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because
they assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity,
due partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global
stock markets do not move in lock step. When the valuations in one market rise,
there are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S.
investments strike the best balance between risk and reward.
Scudder's 30% Solution
The 30 Percent Solution -- A Global Guide for Investors Seeking Better
Performance With Reduced Portfolio Risk is a booklet, created by Scudder, to
convey its vision about the new global investment dynamic. This dynamic is a
result of the profound and ongoing changes in the global economy and the
financial markets. The booklet explains how Scudder believes an equity
investment portfolio with up to 30% in international holdings and 70% in
domestic holdings can improve long-term performance while simultaneously helping
to reduce overall risk.
ORGANIZATION OF THE FUNDS
(See "Fund organization" in the Funds' prospectuses.)
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
55
<PAGE>
changed to the United States 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 700 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 six series:
Scudder International Fund, the original series; Scudder Latin America Fund and
Scudder Pacific Opportunities Fund, both organized in December, 1992, Scudder
Greater Europe Growth Fund, organized in August, 1994, Emerging Markets Growth
Fund, organized in May 1996 and Scudder International Growth and Income Fund,
organized in June 1997. Each series consists of 100 million shares except for
Scudder International Fund which consists of 200 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 Corporation's Amended and Restated Certificate 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
56
<PAGE>
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 Funds' prospectuses.)
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to each Fund. This organization, the
predecessor of which is Scudder, Stevens & Clark, Inc., is one of the most
experienced investment counsel firms in the U. S. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 the Adviser introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On June 26, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") entered into
an agreement with Zurich Insurance Company ("Zurich") pursuant to which Scudder
and Zurich agreed to form an alliance. On December 31, 1997, Zurich acquired a
majority interest in Scudder, and Zurich Kemper Investments, Inc., a Zurich
subsidiary, became part of Scudder. Scudder's name has been changed to Scudder
Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder Global High Income 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
Pathway Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, The Argentina Fund, Inc., The Brazil
Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and Scudder Spain and
Portugal Fund, Inc. Some of the foregoing companies or trusts have two or more
series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between Scudder Kemper Investments, Inc. and
AMA Solutions, Inc., a subsidiary of the American Medical Association (the
"AMA"), dated May 9, 1997, the Adviser has agreed, subject to applicable state
regulations, to pay AMA Solutions, Inc. royalties in an amount equal to 5% of
the management fee received by the Adviser with respect to assets invested by
AMA members in Scudder funds in connection with the AMA InvestmentLinkSM
Program. The Adviser will also pay AMA Solutions, Inc. a general monthly fee,
currently in the amount of $833. The AMA and AMA Solutions, Inc. are not engaged
in the business of providing investment advice and neither is registered as an
investment adviser or broker/dealer under federal securities laws. Any person
who participates in the AMA InvestmentLinkSM Program will be a customer of the
Adviser (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLinkSM is a service mark of AMA Solutions, Inc.
57
<PAGE>
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 a Fund may invest, the conclusions and
investment decisions of the Adviser with respect to a Fund are based primarily
on the analyses of its own research department.
Certain investments may be appropriate for the Funds and also for other
clients advised by the Adviser. Investment decisions for the Funds 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 a Fund. Purchase and sale orders for a Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to a Fund.
The investment management agreements between the Corporation, on behalf
of each Latin America Fund, Pacific Opportunities Fund, Greater Europe Growth
Fund, Emerging Markets Growth Fund and the Adviser were last approved by the
Directors on September 10-11, 1997. Because the transaction between Scudder and
Zurich resulted in the assignment of the Funds' investment management agreements
with Scudder, those agreements were deemed to be automatically terminated at the
consummation of the transaction. In anticipation of the transaction, however,
new investment management agreements between the Funds and the Adviser were
approved by the Funds' Directors. At the special meeting of the Funds'
stockholders held on October 27, 1997, the stockholders also approved proposed
new investment management agreements. The new investment management agreements
(the "Agreements") became effective as of December 31, 1997, and will be in
effect for an initial term ending on September 30, 1998. The Agreements will
continue in effect from year to year thereafter only if their continuance is
approved annually by the vote of a majority of those Directors who are not
parties to such Agreements or interested persons of the Adviser or the
Corporation, cast in person at a meeting called for the purpose of voting on
such approval, and either by a vote of the Corporation's Directors or of a
majority of the outstanding voting securities of each Fund. The Agreements are
in all material respects on the same terms as the previous investment management
agreements which they supersede. The Agreements incorporate conforming changes
which promote consistency among all of the funds advised by the Adviser and
which permit ease of administration. The Agreements 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 their assignment.
Under the Agreements, the Adviser regularly provides a Fund with
continuing investment management for a Fund's portfolio consistent with each
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of a Fund's assets
shall be held uninvested, subject to a 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
each Fund may from time to time establish.
Under the Agreements, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for a 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 Funds (such as the Funds' transfer agent, pricing
agents, Custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Funds' federal, state and local tax returns; preparing and filing the
Funds' 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 Funds' books and records to
58
<PAGE>
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Funds; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Funds' operating budget;
processing the payment of the Funds' bills; assisting the Funds in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Funds in the conduct of their business, subject to the
direction and control of the Directors.
The Adviser pays the compensation and expenses of all Directors,
officers and executive employees (except expenses incurred attending Board and
committee meetings outside New York, New York or Boston, Massachusetts) of the
Corporation affiliated with the Adviser and makes available, without expense to
the Funds, the services of such Directors, officers and employees of the Adviser
as may duly be elected officers of the Corporation, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Funds'
office space and facilities.
For these services Latin America Fund pays the Adviser an annual fee
equal to 1.25% of the Fund's first $1 billion of average daily net assets, and
1.15 of such assets in excess of $1 billion, 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.
"During the fiscal years ended October 31, 1995, 1996 and 1997, the Adviser did
not impose management fees amounting to $216,058, $0 and $0, respectively.
During the fiscal years ended October 31, 1995, 1996 and 1997, the Adviser did
impose management fees amounting to $7,166,386, $7,493,637 and $11,498,432,
respectively.
For these services Pacific Opportunities Fund pays the Adviser an
annual fee equal to 1.10% of the Fund's average daily net assets payable
monthly, provided the Fund will make 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. For the fiscal years ended October 31, 1995, 1996 and 1997,
the fees imposed amounted to $4,590,699, $4,235,329 and $3,147,986,
respectively, of which $156,290 is unpaid at October 31, 1997.
For these services Greater Europe Growth 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. For the fiscal years ended October 31, 1995 1996 and 1997, the Adviser
did not impose all of its management fee amounting to $274,656, $305,990 and
$100,865, respectively. For the fiscal years ended October 31, 1995, 1996 and
1997, the Adviser did impose management fees amounting to $0, $349,765 and
$1,653,445, respectively.
For these services Emerging Markets Growth Fund pays the Adviser a fee
equal to 1.25% 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 August 31, 1998 to maintain the total
annualized expenses of the Fund at no more than 2.25% of the average daily net
assets of the Fund. For the fiscal year ended October 31, 1996 and 1997, the
Adviser did not impose all of its management fee amounting to $215,973 and
$617,962, respectively. The Adviser did impose management fees amounting to $0
and $1,724,110, respectively.
Under the Agreements the Funds are responsible for all of their other
expenses including: organizational costs, fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the Transfer Agent; 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 Funds 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 Funds
may arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Funds. Each 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 Funds with respect thereto. The
custodian agreement provides that the Custodian shall compute the net asset
value. Each Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of any Fund for portfolio pricing services, if any.
59
<PAGE>
Each Agreement requires the Adviser to reimburse that Fund for all or a
portion of advances of its management fee to the extent annual expenses of a
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 a Fund will be returned as promptly as practicable after the end of
the Funds' 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 identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Fund, has the
non-exclusive right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Corporation's investment products
and services.
In reviewing the terms of the Agreements and in discussions with the
Adviser concerning such Agreements, the Directors of the Corporation who are not
"interested persons" of the Adviser are represented by independent counsel at
the Funds' expense.
The Agreements provide that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Directors of the Corporation may have dealings
with a Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of a Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
60
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DIRECTORS AND OFFICERS
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
Daniel Pierce (63)+*@ Chairman of the Board Managing Director of Scudder Kemper Vice President,
and Director Investments, Inc. Director & Assistant
Treasurer
Paul Bancroft III (67) Director Venture Capitalist and Consultant; --
79 Pine Lane Retired, President, Chief Executive
Snowmass Village, CO 81615 Officer and Director, Bessemer
Securities Corporation
Sheryle J. Bolton (51) Director CEO, Scientific Learning --
Scientific Learning Corporation, Former President and
Corporation Chief Operating Officer, Physicians'
417 Montgomery Street Suite Online, Inc. (electronic
500 transmission of clinical information
San Francisco, CA 94104 for physicians (1994-1995); Member,
Senior Management Team, Rockefeller
& Co. (1990-1993).
William T. Burgin (53) Director General Partner, Bessemer Venture --
83 Walnut Street Partners; General Partner, Deer &
Wellesley, MA 02181 Company; Director, James River
Corp.; Director, Galile
Corp., Director of
various privately held
companies.
Thomas J. Devine (70) Director Consultant --
450 Park Avenue
New York, NY 10022
Keith R. Fox (43) Director President, Exeter Capital Management --
10 East 53rd Street Corporation
New York, NY 10022
William H. Gleysteen, Jr. Director Consultant; Guest Scholar, Brookings --
(71) Institute
4937 Crescent Street
Bethesda, MD 20816
William H. Luers (68) Director President, The Metropolitan Museum --
The Metropolitan of Art (1986 to present)
Museum of Art
1000 Fifth Avenue
New York, NY 10028
61
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
Wilson Nolen (70) Director Consultant (1989 to present); --
1120 Fifth Avenue Corporate Vice President, Becton,
New York, NY 10128 Dickinson & Company (manufacturer of
medical and scientific products)
until 1989
Kathryn L. Quirk (44)#@* Director; Vice Managing Director of Scudder Kemper Director, Senior Vice
President and Investments, Inc. President and Assistant
Assistant Secretary Clerk
Robert G. Stone, Jr. (74) Honorary Director Chairman Emeritus and Director, --
405 Lexington Avenue Kirby Corporation (inland and
New York, NY 10174 offshore marine transportation and
diesel repairs)
Robert W. Lear (80) Honorary Director Executive-in-Residence, --
429 Silvermine Road Visiting Professor,
New Canaan, CT 06840 Columbia University
Graduate School of Business
Elizabeth J. Allan (44) # Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Nicholas Bratt (49) # President Managing Director of Scudder --
Kemper Investments, Inc.
Irene T. Cheng (43) # Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Joyce E. Cornell (53)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Carol L. Franklin (44)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Edmund B. Games, Jr. (60)+ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Jerard K. Hartman (64) # Vice President Managing Director of Scudder Kemper --
Investments, Inc.
John R. Hebble (39) + Assistant Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
Thomas W. Joseph (58)+ Vice President Senior Vice President of Scudder Vice President,
Kemper Investments, Inc. Director, Treasurer &
Assistant Clerk
62
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
Thomas F. McDonough (50)+ Treasurer, Vice Senior Vice President of Scudder Clerk
President and Secretary Kemper Investments, Inc.
Caroline Pearson (35) + Assistant Secretary Director Fund Administration --
Scudder Kemper Investments, Inc.
Sheridan Reilly (46) # Vice President Vice President of Scudder Kemper --
Investments, Inc.
Richard W. Desmond (61)# Assistant Secretary Vice President of Scudder Kemper Vice President
Investments, Inc.
* Mr. Pierce and Ms. Quirk 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 1940 Act.
** 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.
@ Mr. Pierce and Ms. Quirk 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>
As of January 31, 1998, all Directors and officers as a group owned
beneficially (as the term is defined in Section 13(d) under the Securities
Exchange Act of 1934) less than 1% of the shares of Latin America Fund, 272,174
shares, or 2.04% of the shares of Pacific Opportunities Fund, 179,675 shares, or
1.45% of the shares of Greater Europe Growth Fund and 452,190 shares, or 3.16%
of the shares of Emerging Markets Growth Fund on such date.
Certain accounts for the which the Adviser acts as investment adviser
owned 3,241,856 shares in the aggregate, or 22.64% of the outstanding shares of
Emerging Markets Growth Fund on January 31, 1998. The Adviser may be deemed to
be the beneficial owner of such shares but disclaims any beneficial ownership in
such shares.
As of January 31, 1998, 995,225 shares in the aggregate, 7.44% of the
outstanding shares of Pacific Opportunities Fund were held in the name of
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104-4122,
who may be deemed to be the beneficial owner of certain of these shares, but
disclaims any beneficial ownership therein.
As of January 31, 1998, 2,658,452 shares in the aggregate, 21.41% of
the outstanding shares of Greater Europe Growth Fund were held in the name of
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104-4122,
who may be deemed to be the beneficial owner of certain of these shares, but
disclaims any beneficial ownership therein.
As of January 31, 1998, 1,086,040 shares in the aggregate, 8.75% of the
outstanding shares of Greater Europe Growth Fund were held in the name of
Fidelity Investments Institutional Operations Company, 100 Magellan Way,
Covington, KY 41015-1987, who may be deemed to be the beneficial owner of
certain of these shares, but disclaims any beneficial ownership therein.
63
<PAGE>
To the best of each Fund's knowledge, as of January 31, 1998 no person
owned beneficially more than 5% of a Fund's outstanding shares, except as stated
above.
The Directors and officers of the Corporation also serve in similar
capacities with other Scudder funds.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Directors is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. (the "Adviser"). These "Independent Directors"
have primary responsibility for assuring that each Fund is managed in the best
interests of its shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of each Fund and other operational matters, including
policies and procedures designated to assure compliance with various regulatory
requirements. At least annually, the Independent Directors review the fees paid
to the Adviser and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, each Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by each Fund's independent
public accountants and by independent legal counsel selected by the Independent
Directors.
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
The Independent Directors receive the following compensation: an annual
director's fee of $4,000; a fee of $400 for attendance at each Board meeting,
audit committee meeting, or other meeting held for the purposes of considering
arrangements between the Funds and the Adviser or any affiliate of the Adviser;
$150 for any other committee meeting (although in some cases the Independent
Directors have waived committee meeting fees); and reimbursement of expenses
incurred for travel to and from Board Meetings. No additional compensation is
paid to any Independent Director for travel time to meetings, attendance at
directors' educational seminars or conferences, service on industry or
association committees, participation as speakers at directors' conferences,
service on special director task forces or subcommittees or service as lead or
liaison director. Independent Directors do not receive any employee benefits
such as pension, retirement or health insurance.
The Independent Directors also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Director fee schedules. The
following table shows the aggregate compensation received by each Independent
Director during 1997 from the Corporation and from all of the Scudder funds as a
group.
64
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name Scudder International Fund, Inc.* All Scudder Funds
Paul Bancroft III, Director $43,400 $156,922 (20 funds)
Sheryle J. Bolton, Director** $9,285 $86,213 (20 funds)
William T. Burgin, Director** $9,285 $85,950 (20 funds)
Thomas J. Devine, Director $50,400 $187,348 (21 funds)
Keith R. Fox, Director $52,950 $134,390 (18 funds)
William H. Gleysteen, Jr., $48,900 $136,150*** (15 funds)
Director
William H. Luers, Director $49,800 $117,729 (20 funds)
Wilson Nolen, Director $46,900 $189,548 (21 funds)
Dr. Gordon Shillinglaw, Director $42,215 $139,324 (26 funds)
* Scudder International Fund, Inc. consists of six funds: Scudder International Fund, Scudder Latin America Fund,
Scudder Pacific Opportunities Fund, Scudder Greater Europe Growth Fund, Scudder Emerging Markets Growth Fund and
Scudder International Growth and Income Fund.
** Elected as Director on October 27, 1997.
*** This amount does not reflect $6,098 in retirement benefits accrued as part
of Fund Complex expenses, and $3,000 in estimated annual benefits payable
upon retirement. Retirement benefits accrued and proposed are to be paid
to Mr. Gleysteen as additional compensation for serving on the Board of
The Japan Fund, Inc.
</TABLE>
Members of the Board of Directors who are employees of the Adviser or
its affiliates receive no direct compensation from the Corporation, although
they are compensated as employees of the Adviser, or its affiliates, as a result
of which they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
The Corporation has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
subsidiary of the Adviser, a Delaware corporation. The Corporation's
underwriting agreement dated September 17, 1992 will remain in effect until
September 30, 1998 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 each Fund. The underwriting agreement was last approved by
the Directors on September 10-11, 1997.
Under the underwriting agreement, the Funds are responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC 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 each Fund as a broker or dealer in
various states, as required; the fees and expenses of preparing, printing and
65
<PAGE>
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 a 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 Funds 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 each 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 a Fund, unless a Rule 12b-1 Plan is in effect which
provides that a Fund shall bear some or all of such expenses.
Note: Although each Fund does not currently have a 12b-1 Plan, and the
Directors have no current intention of adopting one, a Fund would also
pay those fees and expenses permitted to be paid or assumed by a Fund
pursuant to a 12b-1 Plan, if any, were adopted by a Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent, the Distributor currently offers shares of each Fund on a
continuous basis to investors in all states in which shares of a 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 each Fund.
TAXES
(See "Distribution and performance information--Dividends and capital
gains distributions" and "Transaction information--Tax information, Tax
identification number" in the Funds' prospectuses.)
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
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.
Each 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 a 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 a Fund.
66
<PAGE>
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by a Fund, that 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 taxable to individuals at a maximum 20% or 28% capital gains rate
(depending on the Fund's holding period for the assets giving rise to the gain),
will be able to claim a proportionate share of federal income taxes paid by a
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 a 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 a Fund's gross income. If any such dividends constitute a
portion of a Fund's gross income, a portion of the income distributions of that
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
a 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 shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders at a
maximum 20% or 28% capital gains rate (depending on the Fund's holding period
for the assets giving rise to the gain), regardless of the length of time the
shares of a Fund have been held by such individual 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
$2,000 per individual for married couples if only one spouse has earned income)
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.
67
<PAGE>
Distributions by a Fund result in a reduction in the net asset value of
that 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.
Each 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 a Fund to foreign countries (which
taxes relate primarily to investment income). Each Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of a Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code except in the case of certain
electing individual shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend.
If a 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 a 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 a
Fund will be subject to tax under Section 1234 of the Code. In general, no loss
will be recognized by a 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 a Fund's holding period for the option, and in the case
of the exercise of a put option, on a 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 property
in a Fund's portfolio similar to the property underlying the put option. If a
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 the option is exercised, the character of the gain or
loss depends on the holding period of the underlying stock.
Positions of a 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 that 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 relevant Fund.
Many futures and forward contracts entered into by a Fund and listed
nonequity options written or purchased by a 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
68
<PAGE>
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by a Fund will be treated as ordinary income or loss.
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes that
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. Each Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time that 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 a Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
If a Fund invests in stock of certain foreign investment companies,
that 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 a Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of a Fund, other than the taxable year
of the excess distribution or disposition, would be taxed to that 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 a Fund's investment company taxable income
and, accordingly, would not be taxable to that Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Each Fund may 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, each
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; any mark-to-market losses and any loss from an actual disposition of
stock would be deductible as ordinary losses to the extent of any net
mark-to-market gains previously included in income in prior years. The effect of
this 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 Funds may elect to include as
income and gain their share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.
69
<PAGE>
If a 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 a 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 a
Fund in a written notice to shareholders.
Each Fund will be required to report to the Internal Revenue Service
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 20% 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 each Fund may be subject to state and local taxes on
distributions received from a Fund and on redemptions of a 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 a 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 Commissions
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 a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a 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.
The Funds' purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
70
<PAGE>
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for a Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction on account of execution services and the receipt
of research, market or statistical information. The Adviser will not place
orders with broker/dealers on the basis that the broker/dealer has or has not
sold shares of a Fund. In effecting transactions in over-the-counter securities,
orders are placed with the principal market makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the opinion of
the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than a Fund, and not all such information is used by
the Adviser in connection with a Fund. Conversely, such information provided to
the Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Fund.
The Directors review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable.
For the fiscal years ended October 31, 1995, 1996 and 1997, Latin
America Fund paid brokerage commissions of $1,422,389, $789,007 and $2,026,481,
respectively. For the fiscal year ended October 31, 1997, $2,021,746 (99.8%) of
the total brokerage commissions paid by the Fund resulted from orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research, market and statistical
information to the Fund or the Adviser. The amount of such transactions
aggregated $782,786,191 (99.4%) of all brokerage transactions. Such brokerage
was not allocated to any particular brokers or dealers or with any regard to the
provision of market quotations for purposes of valuing the Fund's portfolio or
to any other special factors.
For the fiscal years ended October 31, 1995, 1996 and 1997, Pacific
Opportunities Fund paid brokerage commissions of $3,060,256, $3,845,527 and
$2,958,875, respectively. For the fiscal year ended October 31, 1997, $2,930,260
(99%) of the total brokerage commissions paid by the Fund resulted from orders
placed, consistent with the policy of obtaining the most favorable net results,
with brokers and dealers who provided supplementary research, market and
statistical information to the Fund or the Adviser. The amount of such
transactions aggregated $600,064,259 (96.8%) of all brokerage transactions. Such
brokerage was not allocated to any particular brokers or dealers or with any
regard to the provision of market quotations for purposes of valuing the Fund's
portfolio or to any other special factors.
For the fiscal years ended October 31, 1995, 1996 and 1997, Greater
Europe Growth Fund paid brokerage commissions of $$297,035 and $819,301,
respectively. For the fiscal year ended October 31, 1997,$815,448 (99.5%) of the
total brokerage commissions paid by the Fund resulted in orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research, market and statistical
information to the Fund or the Adviser. The amount of such transactions
aggregated $284,721,327 (90.4%) of all brokerage transactions. Such brokerage
was not allocated to any particular brokers or dealers or with any regard to the
provision of market quotations for purposes of valuing the Fund's portfolio or
to any other special factors.
For the fiscal years ended October 31, 1996 and 1997, Emerging Markets
Growth Fund paid brokerage commissions of $468,942 and $1,448,573, respectively.
For the fiscal year ended October 31, 1997, $1,385,660 (96%) of the total
brokerage commissions paid by the Fund resulted in orders placed, consistent
71
<PAGE>
with the policy of obtaining the most favorable net results, with brokers and
dealers who provided supplementary research, market and statistical information
to the Fund or the Adviser. The amount of such transactions aggregated
$284,996,582 (91%) of all brokerage transactions. Such brokerage was not
allocated to any particular brokers or dealers or with any regard to the
provision of market quotations for purposes of valuing the Fund's portfolio or
to any other special factors.
The Directors review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable.
Portfolio Turnover
Latin America Fund's average annual portfolio turnover rate, i.e. the
ratio of the lesser of sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less), for the fiscal
years ended October 31, 1995, 1996 and 1997, was 39.5%, 22.4% and 41.8%,
respectively. For the fiscal years ended October 31, 1995, 1996 and 1997,
Pacific Opportunities Fund had a portfolio turnover rate of 64.0%, 95.4% and
97.2%, respectively. For the fiscal years ended October 31, 1995, 1996 and 1997,
Greater Europe Growth Fund had a portfolio turnover rate of 27.9%, 39.0% and
88.8%, respectively. For the fiscal year ended October 31, 1996 and 1997,
Emerging Markets Growth Fund had a portfolio turnover rate of 19.5% and 61.5%,
respectively. Higher levels of activity by the Funds result in higher
transaction costs and may also result in taxes on realized capital gains to be
borne by the Funds' shareholders. Purchases and sales are made for a Fund
whenever necessary, in management's opinion, to meet the Funds' objectives.
NET ASSET VALUE
The net asset value of shares of a 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. 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 Nasdaq
Stock Market ("Nasdaq")"" system is valued at its most recent sale price.
Lacking any sales, the security is valued at the most recent ""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 shall be 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 is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
72
<PAGE>
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 Funds' 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 each Fund included in the Funds'
prospectuses and the financial statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance on the accompanying report of Coopers & Lybrand, L.L.P.,
One Post Office Square, Boston, Massachusetts 02109, independent accountants,
and given upon their authority as experts in accounting and auditing. Coopers &
Lybrand L.L.P. is responsible for performing annual audits of the financial
statements and financial highlights of each Fund in accordance with Generally
Accepted Auditing Standards, and the preparation of federal tax returns.
Other Information
Many of the investment changes in each Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of a 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 Latin America Fund is 811165 20 8.
The CUSIP number of Pacific Opportunities Fund is 811165 30 7.
The CUSIP number of Greater Europe Growth Fund is 811165 40 6.
The CUSIP number of Emerging Markets Growth Fund is 811165 50 5.
Each Fund has a fiscal year end of October 31.
Dechert Price & Rhoads acts as general counsel for the Funds.
Each Fund employs Brown Brothers Harriman & Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian. Brown Brothers Harriman & Company has
entered into agreements with foreign subcustodians approved by the Directors of
the Corporation pursuant to Rule 17f-5 of the 1940 Act.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend disbursing agent for each Fund. Service Corporation also serves as
73
<PAGE>
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Funds pay Service Corporation an annual fee for each account maintained by the
participant. For the fiscal year ended October 31, 1996 and 1997, Latin America
Fund incurred charges of $1,514,806 and $2,362,155, respectively, of which
$189,399 was unpaid at October 31, 1997. For the fiscal year ended October 31,
1996 and 1997, Pacific Opportunities Fund incurred charges of $843,600 and
$1,057,225, respectively, of which $69,912 was unpaid at October 31, 1997. For
the fiscal year ended October 31, 1996 and 1997, Greater Europe Growth Fund
incurred charges of $177,772 and $471,548, respectively, of which $38,097 was
unpaid at October 31, 1997. For the fiscal year ended October 31, 1996 and 1997,
Emerging Markets Growth Fund incurred charges of $7,530 and $58,165 not imposed,
respectively, of which $42,661 was unpaid at October 31, 1997.
The Funds, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Annual service fees are paid by each Fund to Scudder Trust Company, Two
International Place, Boston, Massachusetts, 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts. Each Fund pays Scudder Trust
Company an annual fee of $17.55 per shareholder account. For the fiscal year
ended October 31, 1995, 1996 and 1997, Latin America Fund incurred charges of
$0, $5,093 and $24,787, respectively, of which $2,912 was unpaid at October 31,
1997. For the fiscal year ended October 31, 1995, 1996 and 1997, Pacific
Opportunities Fund incurred charges of $36,281 $38,591 and $56,892,
respectively, of which $3,816 was unpaid at October 31, 1997. For the fiscal
year ended October 31, 1995, 1996 and 1997, Greater Europe Growth Fund incurred
charges of $931, $9,227 and $26,110, respectively, of which $2,289 was unpaid at
October 31, 1997. For the fiscal year ended October 31, 1996 and 1997, Emerging
Markets Growth Fund incurred charges of $178, $1,375 not imposed and $41,624,
respectively, of which $5,496 was unpaid at October 31, 1997.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Adviser, computes net asset values
for the Funds. Each 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 and 0.02% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the fiscal
year ended October 31, 1996 and 1997, Latin America Fund incurred charges of
$318,478 and $447,599, respectively, of which $85,629 was unpaid at October 31,
1997. For the fiscal year ended October 31, 1996 and 1997, Pacific Opportunities
Fund incurred charges of $233,855 and $192,884, respectively, of which $27,593
was unpaid at October 31, 1997. For the fiscal year ended October 31, 1996 and
1997, Greater Europe Growth Fund incurred charges of $66,529 and $135,790,
respectively, of which $24,234 was unpaid at October 31, 1997. For the fiscal
year ended October 31, 1996 and 1997, Emerging Markets Growth Fund incurred
charges of $4,418, $34,122 not imposed and $178,487, respectively, of which
$34,622 was unpaid at October 31, 1997.
The Funds' prospectuses and this Statement of Additional Information
omit certain information contained in the Registration Statement which the Funds
have filed with the SEC under the Securities Act of 1933 and reference is hereby
made to the Registration Statement for further information with respect to a
Fund and the securities offered hereby. This Registration Statement and its
amendments are available for inspection by the public at the SEC in Washington,
D.C.
FINANCIAL STATEMENTS
Latin America Fund
The financial statements, including the Investment Portfolio of Latin
America Fund, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements, attached hereto in the Annual
Report to the Shareholders of the Fund dated October 31, 1997, are incorporated
by reference herein and are hereby deemed to be part of this Statement of
Additional Information.
74
<PAGE>
Pacific Opportunities Fund
The financial statements, including the Investment Portfolio of Pacific
Opportunities Fund, together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements, attached hereto in the
Annual Report to the Shareholders of the Fund dated October 31, 1997, are
incorporated by reference herein and are hereby deemed to be part of this
Statement of Additional Information.
Greater Europe Growth Fund
The financial statements, including the Investment Portfolio of Greater
Europe Growth Fund, together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements, attached hereto in the
Annual Report to the Shareholders of the Fund dated October 31, 1997, are
incorporated by reference herein and are hereby deemed to be part of this
Statement of Additional Information.
Emerging Markets Growth Fund
The financial statements, including the Investment Portfolio of
Emerging Markets Growth Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements, attached
hereto in the Annual Report to the Shareholders of the Fund dated October 31,
1997, are incorporated by reference herein and are hereby deemed to be part of
this Statement of Additional Information.
75
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds.
Ratings of Corporate Bonds
S&P:
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
<PAGE>
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
Scudder
Latin America
Fund
Annual Report
October 31, 1997
Pure No-Load(TM) Funds
For investors seeking long-term capital appreciation through investment
primarily in the securities of Latin American issuers.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
In Brief
o Scudder Latin America Fund provided a total return of 23.25% for the fiscal
year concluded October 31, 1997.
o An October reversal in Latin American stock markets reflected growing concern
among investors for the financial health of all emerging markets in the wake of
the earlier collapse of stock markets and exchange rates in southeast Asia.
o In light of a Brazilian austerity program designed to boost investor
confidence, the Fund took advantage of distressed prices to add to select
holdings in both Brazil and Mexico.
Table of Contents
3 Letter from the Fund's Chairman 18 Notes to Financial Statements
4 Performance Update 22 Report of Independent Accountants
5 Portfolio Summary 23 Tax Information
6 Portfolio Management Discussion 24 Stockholder Meeting Results
11 Investment Portfolio 28 Officers and Directors
14 Financial Statements 29 Investment Products and Services
17 Financial Highlights 30 Scudder Solutions
2 - Scudder Latin America Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
We are pleased to present the annual report for Scudder Latin America Fund,
covering the 12-month period ended October 31, 1997.
As detailed in the management discussion that follows, the Fund provided a
strong total return of 23.25% over the fiscal year, despite a crisis of
confidence in emerging markets that spread to Latin America in October. Recent
volatility in world stock markets has highlighted the importance of maintaining
a diversified investment portfolio. As an investor in Scudder Latin America
Fund, you already know that a well-rounded investment program should include
international stocks, in addition to small- and large-capitalization domestic
equity, fixed-income, and cash holdings. For most investors, a properly
diversified portfolio, combined with a long-term perspective based on one's
financial objectives has proven the best approach. We believe Scudder Latin
America Fund remains well-positioned to capitalize on the opportunities for
long-term capital appreciation to be found in the region's equity markets.
For those of you interested in hearing about new products, we would like to
take this opportunity to introduce Scudder International Growth and Income Fund.
The Fund employs a yield-oriented approach to international investing and seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but who wish to take a more conservative approach or add
balance to more aggressive overseas holdings may appreciate the Fund's emphasis
on the dividend-paying stocks of established companies listed on foreign
exchanges. For a complete listing of Scudder's mutual fund offerings, see page
29.
If you have any questions regarding Scudder Latin America Fund or any other
Scudder fund, please do not hesitate to call Investor Relations at
1-800-225-2470. Thank you for your continued investment in Scudder Latin America
Fund.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder Latin America Fund
3 - Scudder Latin America Fund
<PAGE>
PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- ------------------------------------------------
SCUDDER LATIN AMERICA FUND
TICKER SYMBOL: SLAFX
- ------------------------------------------------
1 Year $ 12,325 23.25% 23.25%
Life of Fund* $ 22,348 123.48% 17.84%
- ------------------------------------------------
IFC LATIN AMERICA INVESTABLE TOTAL RETURN INDEX
- ------------------------------------------------
1 Year $ 12,268 22.68% 22.68%
Life of Fund* $ 16,796 67.96% 11.32%
- ------------------------------------------------
*The Fund commenced operations on December 8, 1992.
Index comparisons begin December 31, 1992.
- ----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER LATIN AMERICA FUND
Year Amount
- ----------------------
12/92* $10,000
4/93 $10,560
10/93 $14,728
4/94 $16,603
10/94 $19,651
4/95 $13,558
10/95 $13,567
4/96 $16,623
10/96 $17,407
4/97 $21,907
10/97 $21,455
IFC LATIN AMERICA INVESTABLE
TOTAL RETURN INDEX
Year Amount
- ----------------------
12/92* $10,000
4/93 $10,047
10/93 $13,041
4/94 $15,042
10/94 $18,352
4/95 $11,760
10/95 $11,480
4/96 $13,412
10/96 $13,691
4/97 $16,928
10/97 $16,796
The IFC Latin America Investable Total Return Index is prepared by
International Finance Corporation. It is an unmanaged, market
capitalization-weighted representation of stock performance in seven Latin
American markets, and measures the returns of stocks that are legally and
practically available to investors. Unlike Fund returns, Index returns do not
reflect fees or expenses.
- ----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- ----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
<TABLE>
<S> <C> <C> <C> <C> <C>
1993* 1994 1995 1996 1997
-----------------------------------------------------------
NET ASSET VALUE......... $ 18.41 $ 24.44 $ 16.22 $ 20.63 $ 25.12
INCOME DIVIDENDS........ $ -- $ .06 $ -- $ .15 $ .26
CAPITAL GAINS
DISTRIBUTIONS........... $ -- $ .06 $ .73 $ -- $ --
FUND TOTAL RETURN (%)... 53.42** 33.43 -30.96 28.31 23.25
INDEX TOTAL RETURN (%).. 28.72 48.17 -37.44 19.26 22.68
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not maintained the
Fund's expenses, the total returns for the life of Fund period would have been
lower.
**Total return does not reflect the effect to the shareholder of the applicable
redemption fees.
4 - Scudder Latin America Fund
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
GEOGRAPHICAL
(Excludes 5% Cash Equivalents)
- ---------------------------------------------------------------------------
Brazil 42%
Mexico 33%
Argentina 17%
Chile 2%
Peru 2%
Other 4%
- --------------------------------------
100%
- --------------------------------------
Holdings in the three major markets of
Brazil, Mexico and Argentina account
for more than 90% of the Fund's equity
position.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS
(Excludes 5% Cash Equivalents)
- --------------------------------------------------------------------------
Consumer Staples 26%
Communications 21%
Energy 12%
Utilities 10%
Financial 9%
Manufacturing 8%
Consumer Discretionary 6%
Other 8%
- --------------------------------------
100%
- --------------------------------------
Latin America has a huge and growing
consumer base, and the region's
industrialization is supporting the
communications, energy, and utility
sectors as well.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(44% of Portfolio)
- --------------------------------------------------------------------------
1. TELEFONOS DE MEXICO S.A. DE C.V.
Telecommunication services in Mexico
2. YPF S.A.
Petroleum company in Argentina
3. TELECOMUNICACOES BRASILEIRAS S.A.
Telecommunication services in Brazil
4. KIMBERLY CLARK DE MEXICO S.A. DE C.V.
Producer of consumer paper products in Mexico
5. COMPANHIA ENERGETICA DE MINAS GERAIS
Electric power utility in Brazil
6. CIFRA S.A. DE C.V.
Discount retailer in Mexico
7. CENTRAIS ELECTRICAS BRASILEIRAS S/A
Electric Utility in Brazil
8. PANAMERICAN BEVERAGES, INC.
Soft drink bottler in Mexico
9. COMPANHIA CERVEJARIA BRAHMA
Leading beer producer and distributor in Brazil
10. BANCO BRADESCO S.A.
Bank in Brazil
Privatization has created
investment opportunities among
telecommunications and utility
companies.
For more complete details about the Fund's investment portfolio, see page 9.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 - Scudder Latin America Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Scudder Latin America Fund provided a total return of 23.25% for the fiscal year
concluded October 31, 1997. This compared with a total return of 22.68% for the
unmanaged International Finance Corporation's Latin America Investable Total
Return Index. Details of the performance of the country components of the IFC
Index for the fiscal year are provided in the adjacent table.
While the Fund's performance for the period was satisfactory, returns to
shareholders would have been dramatically higher were it not for the collapse of
Latin American stock markets during the month of October, as indicated by the
decline of the Fund's net asset value from $31.07 per share at the end of
September to $25.12 on October 31. The 19.2% decrease in net asset value over
October essentially mirrored the fall that month in the IFC-Brazil Index of
24.6%, the 18.9% decline in the IFC-Mexico Index, and the 18.5% reversal in the
IFC-Argentina Index. Holdings in these three important Latin American countries
accounted for 75% of the IFC Investable Index on October 31, and 92% of the
Fund's equity portfolio. It was essentially impossible for any diversified Latin
American equity portfolio to escape the damage to the region's stock prices in
October.
Southeast Asian Difficulties Impact Latin America
October's stock market reversal no doubt reflected growing concern among
investors for the financial health of all emerging markets in the wake of the
collapse of stock markets and exchange rates for the so-called southeast Asian
Tigers: Thailand, Indonesia, Malaysia, Singapore, and the Philippines. Brazil
was especially vulnerable to heightened sensitivity to country risk among
investors due to the country's prominence in the emerging market universe and
its procrastination in dealing forcefully with a sizable budget deficit and
growing current account deficit. As we saw in 1995 following the devaluation of
the Mexican peso, financial shocks in one Latin American market can spill over
into others, even in the absence of any economic logic for this to occur. All of
the other major regional stock markets were caught in the downdraft of the
Brazilian market.
PRINTED DOCUMENT CONTAINS A HORIZONTAL BAR CHART HERE:
CHART TITLE:
Investment Returns in Latin American
Stock Markets
CHART PERIOD:
(12 months ended October 31, 1997)
Argentina +21.5%
Brazil +19.7%
Chile + 3.4%
Colombia +37.3%
Mexiao +36.4%
Peru + 9.7%
Venezuela +52.2%
IFC Latin America +22.7%
Investable Index
Source: IFC Emerging Markets Database.
Past performance is no guarantee of future results.
The linkage between Brazil and the misfortunes of the Asian Tigers is not that
clear on first analysis. Brazil's economy is greater than the combined gross
domestic product of the five Tigers, and it has little in common with their most
publicized sources of vulnerability. The Brazilian banking system, for example,
6 - Scudder Latin America Fund
<PAGE>
is sound, its corporate sector is not highly leveraged, exports are not a
significant source of economic activity, the stock market's capitalization is
not exaggerated relative to the size of the economy, the real estate market is
not a speculative bubble, and the economy is clearly not overheated.
What Brazil has in common with the southeast Asian countries is a fragile
external account position. Brazil's current account deficit for 1997 is
estimated to be $34 billion, equal to about 4.4% of projected gross domestic
product. This is not a danger in and of itself, but the current account deficit
plus the estimated public and private sector debt amortizations of $21 billion
point to a financing requirement for the current year of some $55 billion. This
is approximately $30 billion more than the projected $25 billion inflow from
foreign portfolio and direct investments. In addition, some economists had
forecast a financing requirement of an additional $30 billion for next year.
Closing the gap in the country's 1997-98 external financing requirement would
require either a rolling over of debt and/or interest payments or a drawdown in
the country's foreign exchange reserves (estimated at $62 billion at the end of
September), or some combination of both.
Brazil's ability to persuade investors to rollover maturing debt depends on its
ability to hold investor confidence in the government's management of the
economy. With confidence in scarce supply following the crisis in southeast
Asia, fears of a major currency devaluation took hold, nourished in large part
by the limited room for maneuvering that appeared to characterize the management
of Brazil's external balances.
Brazil Responds to Crisis of Confidence
During the peak of the October crisis, stock prices for many of Brazil's leading
corporations were marked down by 35% to 40% or more in dollar terms. This was,
in effect, a devaluation of the country's productive assets that was well in
excess of any potential devaluation of the exchange rate, and the Fund took
advantage of distressed prices to add to select holdings in Brazil and Mexico. A
similar investment opportunity was presented the Fund in 1995, when Argentina's
stock market was ravaged by fears of an exchange rate devaluation that never
occurred.
It is easy for investors to lose confidence in a government's ability to manage
a crisis when one is in the middle of a financial meltdown, which is what Brazil
experienced during October. Events in southeast Asia were a wake-up call for
Brazil to address its external account imbalances quickly and with credibility.
President Cardoso's administration responded with an austerity plan that
entailed a sharp cut in the fiscal deficit, imposition of sky-high real interest
rates, higher taxes and tariffs, and an acceleration of the privatization
program. As we saw in 1995 in both Mexico and Argentina, a speedy government
response with a tough austerity program quickly soothes a jittery market. Brazil
learned this lesson well.
As a result of the government's austerity program, the Brazilian economy will
grow from 1% to 2% next year, the lowest growth rate within the region. There is
7 - Scudder Latin America Fund
<PAGE>
a chance, in fact, that the economy will show no growth at all in 1998. On the
other hand, demand for imports clearly should decline, and a lower trade deficit
and the receipt of upwards of $40 billion of privatization revenues in 1998,
coupled with a decline in the amortization requirement for external debt, could
bring the external financing gap to less than $10 billion. This funding gap
would be managed without the need for a major currency devaluation. We believe,
in fact, that Brazil will be able to avoid a devaluation. Apart from the tough
measures taken by the Cardoso administration to dampen demand and bolster the
confidence of investors, Congress has at last begun to address the government's
public employment and social security reforms.
Brazil's brush with financial market volatility reminds us how dependent most of
the Latin American countries are on external savings to finance their economic
development. Chile is an important exception to this, due to that country's high
savings rate. To the extent domestic savings are not sufficient to replace a
country's dependence on external funds, except at the cost of lower investment
and economic growth, Latin American governments are not autonomous agents in
setting and executing public policy, even though they may believe otherwise.
Strictly speaking, Latin American governments are free to reject the monetary
and fiscal disciplines foreign investors may from time to time seek to impose as
a condition for their continued willingness to finance the development process.
Such sovereign pride carries a steep cost, as the aftermath of the debt crises
of the 1980s so clearly demonstrated. Mexico and Argentina in 1995 and Brazil in
1997 were willing to impose growth-threatening austerity programs in order to
deal with external account imbalances and the loss of investor confidence
because the longer-term costs of not doing so were greater.
Economic Growth Forecasts (GDP)
-------------------------------
Country 1996 1997* 1998*
------- ---- ----- -----
Argentina 4.4% 6-7% 5-6%
Brazil 2.9% 3-4% 1-2%
Chile 7.2% 5-6% 5-6%
Colombia 2.1% 1-2% 4-5%
Mexico 5.1% 5-6% 5-6%
Peru 2.8% 5-6% 5-6%
Venezuela (1.6%) 4-5% 5-6%
* Estimated. Estimates may prove inaccurate and, even if accurate, may not
correlate with market activity. Source: Scudder Latin America Group.
Austerity Program Supports Outlook in Brazil
Since the Mexican peso devaluation in late 1994, most of the volatility in the
Fund's performance has been attributable to country risk rather than risks
specific to companies held by the portfolio. As long as Latin America depends on
a significant amount of external savings, generally in the form of debt
8 - Scudder Latin America Fund
<PAGE>
financings, to supplement inadequate domestic savings, the region will continue
to be vulnerable to the investment decisions and preferences of investors over
whom local governments have no direct control. The potential for a divergence of
interest between governments and foreign investors will likely remain an
important source of volatility until domestic savings are able to play the
dominant role in financing growth. That may take years to achieve, although the
importance of promoting higher domestic savings rates is well-understood and
reforms are in place in most countries to achieve that goal.
Country Weightings
(October 31, 1997)
------------------------------------
Scudder Latin IFC Index
Country America Fund* Weighting
------- ------------- ---------
Argentina 17% 10.8%
Brazil 42% 32.5%
Chile 2% 15.1%
Colombia 2% 3.6%
Mexico 33% 31.9%
Panama 1% 0%
Peru 2% 3.0%
Venezuela 1% 3.1%
* Excludes Fund's assets in cash equivalents.
Scudder Latin America Fund:
A Team Approach to Investing
Scudder Latin America 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 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 Scudder's offices across the United States and abroad. We believe our
team approach benefits Fund investors by bringing together many disciplines and
leveraging Scudder's extensive resources.
Lead Portfolio Manager Edmund B. Games, Jr. has set the Fund's investment
strategy and overseen its daily operation since the Fund was introduced in 1992.
Mr. Games joined Scudder's equity research area in 1960 and has focused on Latin
American stocks since 1988. Tara C. Kenney, Portfolio Manager, assists with the
Fund's research and investment strategy. Ms. Kenney, who joined the Fund's team
in 1996, has 10 years of financial industry experience. Paul Rogers, Portfolio
Manager, also joined the Fund's team in 1996 and is primarily responsible for
research on Latin American corporations. Mr. Rogers joined Scudder in 1994 and
has over 10 years of investment experience.
9 - Scudder Latin America Fund
<PAGE>
The Fund has pursued a strategy of adding to its equity holdings when periods of
economic stress have required a government to place its country on an austerity
path. Austerity programs seem to work relatively quickly in Latin America for a
variety of historical reasons, and stock markets there also tend to recover
rapidly. Almost all of the Mexican companies which the Fund owned prior to the
1994 devaluation, for example, are currently worth more in dollar terms than
they were prior to the devaluation. We believe the Brazilian portion of the
portfolio will also recover from its recent depressed levels, as that country
manages through its currency crisis. We cannot avoid country risk, of course,
but we can build the portfolio around companies with a demonstrated record of
dealing successfully with the risks of location.
Sincerely,
Your Portfolio Management Team
/s/Edmund B. Games, Jr. /s/Tara C. Kenney
Edmund B. Games, Jr. Tara C. Kenney
/s/Paul H. Rogers
Paul H. Rogers
10 - Scudder Latin America Fund
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount (U.S.$) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 2.5%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/31/97 at 5.7%,
to be repurchased at $21,712,308 on 11/3/97, collateralized by a ------------
$21,434,000 U.S. Treasury Note, 6%, 7/31/02 (Cost $21,702,000) ........................ 21,702,000 21,702,000
------------
Certificates Of Deposit 2.9%
- ------------------------------------------------------------------------------------------------------------------------------
Societe Generale North America, 5.59%, 11/4/97 (Cost $25,000,000) ....................... 25,000,000 25,000,000
------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Equity Securities 94.6%
- ------------------------------------------------------------------------------------------------------------------------------
Argentina 15.9%
Astra CAPSA (Petroleum company) ......................................................... 974,100 1,520,516
BI S.A. "A" (Venture capital company) (b) ............................................... 3,000,000 3,240,000
Bagley y Cia Ltd. S.A. "B" (Producer of cookies and biscuits) ........................... 2,868,651 5,051,882
Nobleza Piccardo S.A. (Tobacco company) ................................................. 1,004,177 5,325,360
Perez Companc S.A. "B" (Industrial conglomerate) ........................................ 3,034,245 19,005,872
Quilmes Industrial S.A. (Leading beer distributor) ...................................... 942,443 11,780,538
Quilmes Industrial S.A. (ADR) ........................................................... 638,500 7,901,438
Telecom Argentina S.A. "B" (Telecommunication services) ................................. 2,007,106 10,041,605
Telecom Argentina S.A. "B" (ADR) ........................................................ 440,000 11,137,500
Telefonica de Argentina S.A. "B" (Telecommunication services) ........................... 1,004,962 2,835,708
Telefonica de Argentina S.A. "B" (ADR) .................................................. 300,000 8,437,500
YPF S.A. "D" (ADR) (Petroleum company) .................................................. 1,600,000 51,200,000
------------
137,477,919
------------
Brazil 39.8%
Aracruz Celulose S.A. "B" (ADR) (Producer of eucalyptus kraft pulp) ..................... 720,400 10,806,000
Banco Bradesco S.A. (pfd.) (Commercial bank) ............................................ 3,736,277,111 27,790,351
Banco Itau S.A. (pfd.) (Bank) ........................................................... 61,009,600 24,626,307
Centrais Eletricas Brasileiras S/A "B" (pfd.) (Electric utility) ........................ 75,000,000 32,450,451
Cia. Brasileira de Distribuicao Grupo Pao de Acucar (ADR) (Operator of
hypermarkets, supermarkets and convenience stores) .................................... 304,800 5,638,800
Companhia Cervejaria Brahma (pfd.) (Leading beer producer and distributor) .............. 47,026,569 29,432,929
Companhia Energetica de Minas Gerais (pfd.) (Electric power utility) .................... 925,875,000 36,952,696
Companhia Paranaense de Energia (pfd.) (Electric utility) ............................... 370,400,000 4,471,880
Companhia Paranaense de Energia (voting) ................................................ 678,600,400 7,940,446
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Latin America Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Companhia Petroquimica do Sul S.A. (voting) (Chemical producer) ......................... 65,808,000 2,357,854
Companhia Suzano de Papel e Celulose S.A. (pfd.) (Paper products) ....................... 2,995,840 6,494,678
Companhia Vale do Rio Doce (pfd.) (Diverse mining and industrial complex) ............... 300,800 5,866,207
Empresa Brasileira de Compressores S.A. (pfd.) (Manufacturer of electrical
equipment) ............................................................................ 3,469,000 1,195,719
Industrias Klabin de Papel e Celulose S.A. (pfd.) (Producer of paper and
paper products, newsprint, and cardboard boxes) ....................................... 15,480,000 11,935,235
Lojas Americanas S.A. (pfd.)* (Discount department store chain) ......................... 157,100,000 1,282,507
Lojas Americanas S.A. (voting)* (b) ..................................................... 438,708,380 3,979,395
Petroleo Brasileiro S.A. (pfd.) (Petroleum company) ..................................... 140,000,000 26,032,927
S/A White Martins (voting) (Chemical company) ........................................... 4,056,655 6,807,391
Telecomunicacoes Brasileiras S.A. (ADR) (Telecommunication services) .................... 500,000 50,750,000
Telecomunicacoes de Sao Paulo S.A. (pfd.) (Telecommunication services) .................. 80,410,000 21,006,014
Telecomunicacoes de Sao Paulo S.A. Rights* ............................................. 4,193,409 1,997
Telecomunicacoes do Parana S.A. (pfd.) (Telecommunication services) ..................... 14,131,986 7,370,630
Usinas Siderurgicas de Minas Gerais S.A. (pfd.) (Non-coated flat products and
electrolytic galvanized products) ..................................................... 2,730,000 19,810,422
------------
345,000,836
------------
Chile 2.1%
Compania de Telefonos de Chile, S.A. (ADR) (Telecommunication services) ................. 432,500 12,001,875
Santa Isabel S.A. (ADR) (Supermarket chain) ............................................. 330,000 6,105,000
------------
18,106,875
------------
Colombia 1.9%
Bavaria S/A (Producer and distributor of beer and other malt beverages,
mineral water and soft drinks) ........................................................ 801,761 8,469,196
Colombiana de Tabaco S.A. (Tobacco producer) ............................................ 821,871 3,011,338
Compania Nacional de Chocolates (Chocolate and coffee producer) ......................... 406,643 3,265,190
Industrias Alimenticias Noel (Food products company) .................................... 502,816 1,959,914
------------
16,705,638
------------
Mexico 31.0%
Apasco, S.A. de C.V. (Cement producer) .................................................. 1,908,000 11,618,866
Cifra S.A. de C.V. "A" (Discount retailer) .............................................. 1,182,623 2,171,790
Cifra S.A. de C.V. "C" .................................................................. 17,801,000 30,819,642
Grupo Continental, S.A. "B" (Soft drink bottler) ........................................ 7,005,750 19,239,672
Grupo Embotellador de Mexico S.A. de C.V. "B" (Soft drink bottler) (b) .................. 6,544,500 5,704,460
Grupo Embotelladora Unidas S.A. de CV "B"* (Soft drink producer) ........................ 1,859,134 3,995,751
Grupo Financiero Inbursa, S.A. de C.V. "B" (Brokerage, insurance, banking and
leasing services) ..................................................................... 3,334,000 11,743,642
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Latin America Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Grupo Industrial Bimbo, S.A. de C.V. "A" (Producer of bread and other baked
goods) ................................................................................ 1,810,000 13,637,134
Grupo Industrial Maseca S.A. de C.V. (ADR) (Food producer) .............................. 822,600 11,979,113
Grupo Modelo S.A. "C" (Leading brewery) ................................................. 2,303,000 17,324,060
Kimberly Clark de Mexico S.A. de C.V. "A" (Consumer paper products and
newsprint) ............................................................................ 9,213,000 40,427,194
Organizacion Soriana S.A. de CV "A" (Retailer) ......................................... 3,947,022 13,148,885
Panamerican Beverages Inc. "A" (Soft drink bottler) ..................................... 991,600 30,739,600
TV Azteca, S.A. de C.V.* (Owner and operator of television networks) .................... 331,024 1,581,010
Telefonos de Mexico S.A. de C.V. "L" (ADR) (Telecommunication services) ................. 1,200,000 51,900,000
Tubos de Acero de Mexico SA* (New) (Manufacturer of various types of pipes,
casings and tubing) ................................................................... 125,000 2,523,438
------------
268,554,257
------------
Panama 1.1%
Banco Latinoamericano de Exportaciones, S.A. "E" (Bank) ................................. 245,700 9,766,575
------------
Peru 2.2%
Cementos Lima S.A. "T" (Cement producer) ................................................ 1,478,352 3,055,842
Embotellador Latinoamericana S.A. "T"* (Soft drink bottler) ............................. 6,834,249 4,595,617
Industrias Pacocha S.A. "T" (Food producer) ............................................. 4,755,022 2,225,084
Union de Cerveceria Backus & Johnston S.A. "T" (Producer of malted,
nonalcoholic and carbonated drinks) ................................................... 9,435,397 8,621,881
------------
18,498,424
------------
Venezuela 0.6%
Mavesa S.A. (ADR) (Food processor) ...................................................... 682,875 5,121,563
- ------------------------------------------------------------------------------------------------------------------------------
Total Equity Securities (Cost $713,440,030) 819,232,087
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $760,142,030) (a) 865,934,087
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $763,202,132. At October 31,
1997, net unrealized appreciation for all securities based on tax cost was
$102,731,955. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $155,047,738 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$52,315,783.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $12,923,855 (1.46% 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, 1997 aggregated $19,211,045. These
securities may also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
13 - Scudder Latin America Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments, at market (identified cost $760,142,030) .................. $ 865,934,087
Foreign currency holdings, at market (identified cost
$5,925,521) ............................................................ 5,925,915
Receivable for investments sold ........................................ 19,595,046
Receivable for Fund shares sold ........................................ 2,617,098
Dividends and interest receivable ...................................... 1,308,124
Deferred organization expenses ......................................... 1,544
Other assets ........................................................... 20,052
----------------
Total assets ........................................................... 895,401,866
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 5,567,395
Payable for Fund shares redeemed ....................................... 5,037,662
Accrued management fee ................................................. 1,186,601
Other payables and accrued expenses .................................... 1,055,159
----------------
Total liabilities ...................................................... 12,846,817
--------------------------------------------------------------------------------------------
Net assets, at market value $ 882,555,049
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 5,604,292
Unrealized appreciation (depreciation) on:
Investments ......................................................... 105,792,057
Foreign currency related transactions ............................... (61,232)
Accumulated net realized gain .......................................... 35,934,603
Paid-in capital ........................................................ 735,285,329
--------------------------------------------------------------------------------------------
Net assets, at market value $ 882,555,049
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($882,555,049 / 35,131,733 shares of capital stock
outstanding, $.01 par value, 100,000,000 shares ----------------
authorized) ......................................................... $25.12
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Latin America Fund
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dividends (net of foreign taxes withheld of $851,259) .................. $ 22,783,195
Interest ............................................................... 3,617,820
----------------
26,401,015
----------------
Expenses:
Management fee ......................................................... 11,527,321
Services to shareholders ............................................... 2,835,182
Custodian and accounting fees .......................................... 2,418,626
Directors' fees and expenses ........................................... 63,327
Reports to shareholders ................................................ 293,300
Auditing ............................................................... 84,172
Legal .................................................................. 17,897
Registration fees ...................................................... 103,664
Amortization of organization expenses .................................. 16,093
Other .................................................................. 76,995
----------------
Total expenses before reductions ....................................... 17,436,577
Expense reductions ..................................................... (28,889)
----------------
Expenses, net .......................................................... 17,407,688
--------------------------------------------------------------------------------------------
Net investment income 8,993,327
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................ 109,466,337
Foreign currency related transactions (net of CPMF tax
of $374,347) ........................................................... (1,270,623)
----------------
108,195,714
----------------
Net unrealized appreciation (depreciation) during the period
on:
Investments ............................................................ 26,945,985
Foreign currency related transactions .................................. (37,673)
----------------
26,908,312
--------------------------------------------------------------------------------------------
Net gain on investment transactions 135,104,026
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 144,097,353
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Latin America Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ....................................... $ 8,993,327 $ 7,818,361
Net realized gain (loss) from investment transactions ....... 108,195,714 (6,217,760)
Net unrealized appreciation (depreciation) on investment
transactions during the period ........................... 26,908,312 136,952,370
-------------- --------------
Net increase in net assets resulting from operations ........ 144,097,353 138,552,971
-------------- --------------
Distributions to shareholders from net investment income .... (7,655,243) (4,560,568)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................... 737,548,712 119,002,707
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 7,123,139 4,261,866
Cost of shares redeemed ..................................... (620,473,602) (154,821,892)
Redemption fees ............................................. -- 226,801
-------------- --------------
Net increase (decrease) in net assets from Fund share
transactions ............................................. 124,198,249 (31,330,518)
-------------- --------------
Increase (decrease) in net assets ........................... 260,640,359 102,661,885
Net assets at beginning of period ........................... 621,914,690 519,252,805
Net assets at end of period (including undistributed net
investment income of $5,604,292 and $5,240,925, -------------- --------------
respectively) ............................................ $882,555,049 $621,914,690
-------------- --------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 30,148,974 32,011,664
-------------- --------------
Shares sold ................................................. 27,610,297 6,222,218
Shares issued to shareholders in reinvestment of
distributions ............................................... 334,106 250,550
Shares redeemed ............................................. (22,961,644) (8,335,458)
-------------- --------------
Net increase (decrease) in Fund shares ...................... 4,982,759 (1,862,690)
-------------- --------------
Shares outstanding at end of period ......................... 35,131,733 30,148,974
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Latin America Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
December 8, 1992
(commencement
of operations) to
Years Ended October 31, October 31,
1997 (a) 1996 (a) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net asset value, beginning of period ......... $20.63 $16.22 $24.44 $18.41 $12.00
Income from investment operations: --------------------------------------------------------------------------
Net investment income (loss) ................. .26 .25 .09 (.03) .03
Net realized and unrealized gain (loss) on
investment transactions ................... 4.49 4.30 (7.62) 6.10 6.36
--------------------------------------------------------------------------
Total from investment operations ............. 4.75 4.55 (7.53) 6.07 6.39
--------------------------------------------------------------------------
Less distributions:
From net investment income ................... (.26) (.15) -- -- --
In excess of net investment income ........... -- -- -- (.06) --
From net realized gains on investment
transactions .............................. -- -- (.73) (.06) --
--------------------------------------------------------------------------
Total distributions .......................... (.26) (.15) (.73) (.12) --
--------------------------------------------------------------------------
Redemption fees (c) .......................... -- .01 .04 .08 .02
--------------------------------------------------------------------------
Net asset value, end of period ............... $25.12 $20.63 $16.22 $24.44 $18.41
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............................. 23.25 28.31(d) (30.96)(d) 33.43(d) 53.42**(d)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....... 883 622 519 809 261
Ratio of operating expenses, net to
average daily net assets (%) .............. 1.89 1.96 2.08 2.01 2.00*
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) ...................... 1.89 1.96 2.11 2.05 2.69*
Ratio of net investment income (loss) to
average daily net assets (%) .............. .98 1.32 .52 (.20) .44*
Portfolio turnover rate (%) .................. 41.8 22.4 39.5 22.4 4.6*
Average commission rate paid (b) ............. $.0002 $.0001 $ -- $ -- $ --
</TABLE>
(a) Based on monthly average of shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after October 31, 1996.
(c)Until September 5, 1996, upon the redemption or exchange of shares held by
shareholders for less than one year, a fee of 2% was assessed and retained by
the Fund for the benefit of the remaining shareholders.
(d)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
17 - Scudder Latin America Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Latin America 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 consistently 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 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 most recent 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 other than money market securities are valued by
pricing agents approved by the officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the daily 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 and payment dates on dividends,
interest and foreign withholding taxes.
18 - Scudder Latin America Fund
<PAGE>
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.
Taxation. The Fund's policy is to comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
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.
Distribution of Income and Gains. Distribution of net investment income is 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 returns.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in foreign denominated investments,
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.
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 and initial registration of shares have been deferred and are being
amortized on a straight-line basis over a five-year period.
19 - Scudder Latin America Fund
<PAGE>
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. Dividend
income from certain portfolio companies may fluctuate significantly from year to
year due to dividend distribution policies of such companies.
B. Purchases and Sales of Securities
For the year ended October 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $441,643,000 and
$347,157,403, respectively.
C. Related Parties
On September 11, 1997, the Fund's Board of Directors approved a new Investment
Management Agreement (the "Agreement") with Scudder, Stevens & Clark, Inc. (the
"Adviser"). As manager of the assets of the Fund, the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 1.25% on the first $1
billion of the Fund's average daily net assets, and 1.15% of such net assets in
excess of $1 billion, computed and accrued daily and payable monthly. Under the
Investment Management Agreement between the Fund and the Adviser which was in
effect prior to September 11, 1997 (the "Prior Agreement"), the Fund agreed to
pay the Adviser an annual rate of 1.25% of the Fund's average daily net assets.
For the period July 1, 1997 to September 11, 1997, the Adviser agreed to waive a
portion of its management fee amounting to 0.10% of average daily net assets
over $1 billion. For the year ended October 31, 1997, the fee pursuant to both
the Agreement and the Prior Agreement amounted to $11,498,432, which was
equivalent to an annual effective rate of 1.25% of the Fund's average daily net
assets.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
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, 1997, the amount charged to the Fund by SSC aggregated
$2,362,155, of which $189,399 is unpaid at October 31, 1997.
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
20 - Scudder Latin America Fund
<PAGE>
invested in the Underlying Funds. For the year ended October 31, 1997, the
Special Servicing Agreement expense charged to the Fund amounted to $8,913.
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,
1997, the amount charged to the Fund by STC aggregated $24,787, of which $2,912
is unpaid at October 31, 1997.
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, 1997, the amount charged to the Fund by SFAC aggregated $447,599, of
which $85,629 is unpaid at October 31, 1997.
The Fund pays each of its Director not affiliated with the Adviser $4,000
annually, plus specified amounts for attended board and committee meetings. For
the year ended October 31, 1997, Directors' fees and expenses aggregated
$63,327.
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.
E. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 25 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
21 - Scudder Latin America Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder International Fund, Inc. and to the
Shareholders of Scudder Latin America Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Latin America Fund including the investment portfolio, as of October 31, 1997,
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 four years in the period then ended
and for the period December 8, 1992 (commencement of operations) to October 31,
1993. 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
October 31, 1997, 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 Latin America Fund as of October 31, 1997, 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 four
years in the period then ended and for the period December 8, 1992 (commencement
of operations) to October 31, 1993 in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 15, 1997
22 - Scudder Latin America Fund
<PAGE>
TAX INFORMATION
The Fund paid foreign taxes of $851,259 and the Fund recognized $8,439,908 of
foreign source income during the fiscal year ended October 31, 1997. Pursuant to
section 853 of the Internal Revenue Code, the Fund designates $.0242 per share
of foreign taxes and $.240 of income from foreign sources as having been paid in
the fiscal year ended October 31, 1997.
Pursuant to section 852 of the Internal Revenue Code of 1986, as amended, the
Fund designates $38,726,806 as a long-term capital gain dividend for the fiscal
year ended October 31, 1997.
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.
23 - Scudder Latin America Fund
<PAGE>
Stockholder Meeting Results
A Special Meeting of Stockholders (the "Meeting") of Scudder Latin America Fund
(the "Fund") was held on October 27, 1997, at the offices of Scudder, Stevens &
Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street), New York, New York
10154. At the Meeting, as adjourned and reconvened, the following matters were
voted upon by the stockholders (the resulting votes for each matter are
presented below.) With regard to certain proposals, it was recommended that the
Meeting be reconvened in order to provide stockholders with an additional
opportunity to return their proxies. The date of the reconvened meeting at which
the matters were decided is noted after the proposed matter.
1. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Paul Bancroft III 19,945,904 930,220
Sheryle J. Bolton 19,954,373 921,751
William T. Burgin 19,963,209 912,915
Thomas J. Devine 19,937,091 939,033
Keith R. Fox 19,977,483 898,641
William H. Gleysteen, Jr. 19,938,774 937,350
William H. Luers 19,947,896 928,228
Wilson Nolen 19,953,978 922,145
Daniel Pierce 19,965,716 910,408
Kathryn L. Quirk 19,945,558 930,566
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
<TABLE>
<CAPTION>
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
<S> <C> <C> <C>
19,259,365 936,296 680,463 1,187,750
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
18,621,515 2,177,635 1,043,445 1,123,443
24 - Scudder Latin America Fund
<PAGE>
4. To approve the revision of certain fundamental investment policies.
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
4.1 Diversification 17,120,134 1,529,079 1,039,161 1,187,750
4.2 Borrowing 16,993,639 1,655,808 1,038,927 1,187,750
4.3 Senior securities 17,069,665 1,577,124 1,041,585 1,187,750
4.4 Purchase of physical 17,050,997 1,589,387 1,047,990 1,187,750
commodities
4.5 Concentration 17,071,417 1,576,333 1,040,624 1,187,750
4.6 Underwriting of securities 17,103,474 1,539,574 1,045,326 1,187,750
4.7 Investment in real estate 17,109,234 1,548,839 1,030,301 1,187,750
4.8 Lending 17,064,544 1,415,114 1,208,716 1,187,750
</TABLE>
5. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
19,753,989 391,831 730,304
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
25 - Scudder Latin America Fund
<PAGE>
This Page
intentionally
left blank.
26 - Scudder Latin America Fund
<PAGE>
This Page
intentionally
left blank.
27 - Scudder Latin America Fund
<PAGE>
Officers and Directors
Daniel Pierce*
Chairman of the Board and
Director
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
Robert W. Lear
Honorary Director;
Executive-in-Residence, Visiting
Professor, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Elizabeth J. Allan*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
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
*Scudder, Stevens & Clark, Inc.
28 - Scudder Latin America Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International 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.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
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. +++ +++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, Stevens & Clark, Inc., are traded on various stock exchanges.
29 - Scudder Latin America 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 you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
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 Latin America 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 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder 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
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
31 - Scudder Latin America Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 over 40 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 us 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 long-standing
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.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
[LOGO]
<PAGE>
Scudder
Pacific
Opportunities
Fund
Annual Report
October 31, 1997
Pure No-Load(TM) Funds
Seeks long-term growth of capital through investment primarily in the equity
securities of Pacific Basin companies, excluding Japan.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER [IMAGE]
<PAGE>
In Brief
o The Southeast Asian currency and equity markets experienced a severe downturn
during the last quarter of the twelve-month period ended October 31, 1997.
o The devaluation of the Thai baht had a ripple effect, as one Southeast Asian
currency after another declined. The currency crisis and subsequent sky-high
interest rates had a powerful negative impact on equity markets in the region.
o For this period, Scudder Pacific Opportunities Fund returned -28.52%, slightly
better than the -30.52% return of the MSCI All Country Asia Free Index
(excluding Japan).
o While near-term prospects for growth have been revised downward, we believe
long-term growth in the Pacific Basin should continue to be fueled by a
combination of huge, growing domestic markets and emerging Asia's role as an
important production base for the developed world.
Table of Contents
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Glossary of Investment Terms
11 Investment Portfolio
15 Financial Statements
18 Financial Highlights
19 Notes to Financial Statements
23 Report of Independent Accountants
24 Tax Information
25 Stockholder Meeting Results
28 Officers and Directors
29 Investment Products and Services
30 Scudder Solutions
2-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Letter from the Fund's President
Dear Shareholders,
Just as the prospects for Southeast Asia appeared to be turning positive,
the markets were roiled by the devaluation of the Thai baht on July 2. What was
initially perceived as a mild contagion spread quickly to other markets around
the globe, including the United States. While the effects on the region's
economy are still being sorted out, the Fund's return was slightly better than
its benchmark index.
As patient, long-term investors in the Pacific Basin, we believe that the
prosperity of this dynamic region is dependent on sound fiscal policies and
market-based reforms. Clearly, there is room for improvement in this area. In
the near-term, the investment environment appears uncertain and growth will
likely slow. However, turnarounds in the Pacific Basin have been led by the
investment markets and tend to be dramatic. In the months ahead, we will attempt
to position the Fund for a rebound by continuing with our individual stock
selection approach. For a further discussion of the market environment and your
Fund's activities during the period, please turn to page 4.
For those of you who are interested in new Scudder products, we recently
introduced Scudder International Growth and Income Fund, which pursues a
yield-oriented approach to investing in international equities. The Fund seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but wish to take a conservative approach may appreciate
the Fund's emphasis on dividend-paying stocks of established companies listed on
foreign exchanges. For further information on this new fund, please turn to
page.
We appreciate your continued investment in Scudder Pacific Opportunities
Fund. If you have any questions about your investment, please call Scudder
Investor Relations at 1-800-225-2470, or visit our Internet Web site
(http://funds.scudder.com) for frequent updates on your Fund and other Scudder
products and services.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pacific Opportunities Fund
3-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER PACIFIC OPPORTUNITIES FUND
- --------------------------------------------
1 Year $ 7,148 -28.52% -28.52%
Life of Fund* $ 9,653 -3.47% -.72%
- --------------------------------------------
MSCI ALL COUNTRY ASIA FREE INDEX
(EXCLUDING JAPAN)
- --------------------------------------------
1 Year $ 6,948 -30.52% -30.52%
Life of Fund* $ 12,871 28.71% 5.36%
- --------------------------------------------
* The Fund commenced operations on December 8, 1992.
Index comparisons begin December 31, 1992.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER PACIFIC OPPORTUNITIES FUND
Year Amount
- ------------------------
12/92* $10,000
10/93 $13,542
10/94 $14,757
10/95 $13,174
10/96 $13,538
10/97 $ 9,677
MSCI ALL COUNTRY ASIA FREE INDEX
(EXCLUDING JAPAN)
Year Amount
- ------------------------
12/92* $10,000
10/93 $16,472
10/94 $19,062
10/95 $17,131
10/96 $18,525
10/97 $12,871
YEARLY PERIODS ENDED OCTOBER 31
The Morgan Stanley Capital International (MSCI) All Country Asia Free Index
is an unmanaged capitalization-weighted measure of stock markets in the Pacific
Region, excluding Japan. Index returns assume dividends reinvested and, unlike
Fund returns, do not reflect any fees or expenses.
- --------------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- --------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED OCTOBER 31
1993* 1994 1995 1996 1997
-----------------------------------------------
NET ASSET VALUE... $ 16.21 $ 17.57 $ 15.59 $ 15.93 $ 11.38
INCOME DIVIDENDS.. $ -- $ .08 $ .10 $ .10 $ .01
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .01 $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 35.08 8.97 -10.73 2.76 -28.52
INDEX TOTAL
RETURN (%)........ 64.72 15.73 -10.14 8.15 -30.52
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not maintained the
Fund's expenses, the total returns for the life of Fund period would have
been lower.
4-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
GEOGRAPHICAL
(Excludes 9% Cash Equivalents)
- ---------------------------------------------------------------------------
Hong Kong 30%
Taiwan 21%
Australia 13%
Indonesia 11%
New Zealand 8%
Malaysia 5%
India 4%
Philippines 3%
China 1%
Other 4%
- --------------------------------------
100%
- --------------------------------------
The Fund's three largest country
weightings were not hurt as much
by the downturn as other markets
in the region.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS
(Excludes 17% Cash Equivalents)
- --------------------------------------------------------------------------
Financial 32%
Manufacturing 16%
Technology 12%
Consumer Staples 8%
Transportation 6%
Energy 6%
Construction 4%
Metals & Minerals 4%
Media 4%
Other 8%
- --------------------------------------
100%
- --------------------------------------
Significant weightings in the financial
and manufacturing sectors are representative
of the predominance of these companies in
the Pacific Basin.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(30% of Portfolio)
- --------------------------------------------------------------------------
1. COMMONWEALTH BANK OF AUSTRALIA
Bank in Australia
2. DELTA ELECTRONICS, INC.
Manufacturer of power supply equipment and
monitors in Taiwan
3. TELEVISION BROADCASTS, LTD.
Television broadcasting in Hong Kong
4. ASUSTEK COMPUTER INC.
Manufacturer of computer mainboards,
audio/video cards and network cards in Taiwan
5. ASIA PACIFIC RESOURCES INTERNATIONAL HOLDINGS LTD.
Manufacturer of rayon fiber for Asian textile markets
in Indonesia
6. NEW WORLD DEVELOPMENT CO., LTD.
Property investment and development, construction
and engineering, hotels and restaurants,
telecommunications in Hong Kong
7. FLETCHER CHALLENGE ENERGY LTD.
Oil and gas exploration and development in
New Zealand
8. HUTCHISON WHAMPOA, LTD.
Container terminal and real estate company in
Hong Kong
9. FLETCHER CHALLENGE BUILDING CORP.
Commercial, industrial and residential
construction in New Zealand
10. HSBC HOLDINGS LTD.
Bank holding company in Hong Kong
We pursue an individual stock
selection approach, which we believe
is the key to outperformance in the
Pacific Basin over the long term.
For more complete details about the Fund's investment portfolio, see page 11.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Portfolio Management Discussion
We asked Elizabeth J. Allan and Theresa M. Gusman, co-lead portfolio managers of
Scudder Pacific Opportunities Fund, to discuss the market environment and the
Fund's investment strategy for the twelve-month period ended October 31, 1997.
Q. How did the Fund perform over the twelve months?
A. The Fund returned -28.52%, which was better than the -30.52% return of the
Fund's benchmark, the unmanaged MSCI All Country Asia Free Index (excluding
Japan). Our sizable holdings in Taiwan, Australia, New Zealand, India, and
selected Hong Kong companies helped us weather the storm in Southeast Asia. We
trimmed our exposure in Indonesia, Malaysia, Singapore, and Korea in the third
quarter of 1997, which enabled the Fund to enter the most recent downturn with a
larger than usual cash position. This should allow us to take advantage of
attractive opportunities when the time is right.
Q. In July, the Thai baht, Indonesian rupiah, Malaysian ringgit, and the
Philippine peso plunged, and interest rates soared throughout the region. How
did this affect the investment markets?
A. This was not good news for the markets. Sharply higher interest rates
decreased the attractiveness of equities versus fixed income securities and
lowered growth expectations. Stocks fell in response led by the Philippines,
Indonesia, and Malaysia, and followed by Thailand (which had already fallen
sharply), Singapore, and Korea. Australia and India escaped the carnage
relatively unscathed during this difficult period, and the China block held up
through September (see chart).
Q. How long will this downturn last?
A. It's hard to tell. The duration of the slide in Asian equity and currency
markets will be determined by government and corporate responses to the crisis,
as well as the speed with which stock valuations adjust to the changing rules
for investment in the region. Clearly, proactive and pro- market responses will
enable economic and structural problems to be overcome, which could lead to a
quick rebound in the equity and currency markets. However, we are still looking
for leadership and concrete responses from policymakers in the region.
THE ORIGINAL BAR CHART CONTAINS A CHART HERE
BAR CHART TITLE:
Market Performance
10/31/96 to 10/31/97
BAR CHART DATA:
--------------------------------------------
India +18.05%
--------------------------------------------
China +10.69%
--------------------------------------------
Taiwan -1.81%
--------------------------------------------
New Zealand -4.80%
--------------------------------------------
Australia -6.73%
--------------------------------------------
Hong Kong -17.50%
--------------------------------------------
Singapore -32.18%
--------------------------------------------
Indonesia -41.08%
--------------------------------------------
Korea -44.77%
--------------------------------------------
Philippines -54.47%
--------------------------------------------
Malayasia 57.10%
--------------------------------------------
Thailand -68.46%
--------------------------------------------
Source: Morgan Stanley Capital International indices in U.S. dollars
6-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Q. What went wrong?
A. Thailand provides a good example of what went wrong. Rather than establish
proper monetary policy frameworks, improve banking sector supervision, introduce
deregulation and liberalization measures, improve corporate and banking sector
reporting, and undertake confidence-building initiatives, the Thai debacle was
marked by a spate of botched policy responses. Precious central bank reserves
were frittered away in defense of an indefensible currency, the financial system
nearly collapsed, and the IMF (International Monetary Fund) package likely will
prove inadequate. We liquidated our Thai holdings following an early March trip
to Bangkok during which we concluded that the economic crisis would
significantly worsen before it improved; currently we see no reason to return to
the market.
Q. You would think the lessons learned in Thailand would prompt its neighbors to
seize the opportunity created by market volatility to undertake necessary
reforms.
A. One would think so. We saw an important first step with the flotation of the
Indonesian, Malaysian, and Philippine currencies following the baht devaluation.
Unfortunately, the move toward market opening came to an abrupt halt in
Malaysia. On August 28, in an effort to restrict selling by foreigners, Prime
Minister Mahathir Mohamad introduced prohibitive trade settlement rules on the
100 Kuala Lumpur Stock Exchange (KLSE) index stocks, effectively putting capital
controls on equities. By subjecting Malaysia's most liquid stocks to delivery
before sale, bottlenecking the delivery process, and committing "billions of
ringgit...if necessary" to bolster share prices, Dr. Mahathir hoped to stabilize
stocks, thereby preventing the collapse of Malaysia's equity-market-geared
economy. The response of the global investment community was sudden and massive
capital flight, underscoring the futility of his effort.
On September 4 -- in a major policy reversal -- Malaysia lifted the trading
restrictions imposed the previous week, and announced a series of steps toward
restoring fiscal balance. For example, the massive Bakun project was put on hold
indefinitely, as well as Kuala Lumpur Linear City (the world's longest
building), a new airport, and several road projects. The previous day, Indonesia
announced that it would relax foreign ownership limits on equities, cut
government expenditures by postponing selected capital projects, accelerate
economic reform in an effort to stimulate export growth by reducing impediments
to low-cost production, and gradually lower interest rates. A similar "rescue
package" has since been introduced in the Philippines, and Singapore has
indicated that it too could move toward market-opening.
Q. Have any additional steps been taken to help stem the tide?
A. To date, policy measures have been largely inadequate, although IMF-related
policies in Indonesia are a step in the right direction. In our view, the window
to implement aggressive policy responses, reduce interest rates, and forestall
financial crises in Indonesia, Malaysia, the Philippines, and South Korea is
closing rapidly. The next "domino" to fall may be Singapore, where consumption
will be hurt by the negative wealth effect of the decline of the Malaysian
second board shares. In addition, the pristine reputation of the Singapore banks
7-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
and property companies may be damaged as the extent of their exposure to the
region is unveiled. Unlike Indonesia, Malaysia, and the Philippines, the
Singapore equity and currency markets have not yet begun to reflect the "bad
news" that we are expecting over the next several months.
Q. How did the events in Southeast Asia affect other markets in the Pacific,
such as Hong Kong and Japan?
A. Selling pressure has spilled over into Hong Kong, emerging Asia's most liquid
market, although it is economically sound due to its link with the Chinese
economic cycle. In addition, the Hong Kong dollar is unlikely to suffer a
devaluation in the near term. In north Asia, Korea continues to suffer the
aftereffects of gross capital misallocation, and Japan will hardly go unscathed
in both the banking and export sectors, as Asian growth slows. Taiwan remains a
bright spot due largely to its booming technology sector as well as Australia,
India, and New Zealand. These markets are marching to their own economic
drummers and offer extremely attractive valuations.
Q. How did you manage the portfolio in this volatile environment?
A. Now, more than ever, we are convinced that superior stock selection is the
key to superior performance. Our proprietary, forward-looking fundamental equity
research remains the cornerstone of the Fund's investment strategy. We look for
companies that are undervalued, fast-growing, exceptionally well managed
entities with dominant positions in clearly identifiable market niches and a
clear competitive advantage.
Q. Do you have some good examples of companies that met this criteria?
A. We have several, including selected Taiwanese technology companies, such as
ASE Test and Delta Electronics, which are among our top holdings. ASE Test is
one of the largest independent IC (integrated circuit) testers in the world. The
company is leveraged to the electronics "boom" and the trend toward outsourcing
testing. We believe ASE Test is poised for earnings per share growth of 35%-40%
per year over the next five years, and the stock is trading at 20 times
estimated 1998 earnings.
Delta Electronics is the leading producer of uninterruptible power supplies in
the world, with low-cost operations in China. We expect this well-managed,
niche-oriented electronic components producer to provide earnings per share
growth of 20%-25% per year, and the stock is trading at 17 times estimated 1998
earnings.
Q. Were there a few holdings that didn't work out as well as expected?
A. Yes. In a sense, we overstayed our welcome in selected banks and property
companies, particularly in Malaysia and Hong Kong, as the regional contagion
affected even the premier financial and property companies.
Q. What is Scudder's outlook for the Pacific Basin region?
A. In our view, the change in currency policies has altered the way Southeast
Asian economies and equity markets operate. We believe that the basis for
8-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
investment has shifted -- perhaps only for a one- or two-year period -- from
growth to value. We anticipate continued near-term weakness, as market
participants and stock valuations adjust to the changing rules for investment in
the region and government and corporate policies evolve.
Over the long-term, the case for investing in the Pacific Basin rests on rapid
growth and reasonable valuations relative to investment alternatives. This
region has been one of the fastest growing in the world over the past 20 years,
and we believe that growth will resume following an adjustment period. Growth
has been (and will continue to be) fueled by the combination of huge, growing
domestic markets and emerging Asia's role as an important production base for
the developed world.
Q. How do you expect your individual stock selection strategy will unfold over
the next several months?
A. We expect to place increased emphasis on valuation analyses based on cash
flow, non-property asset backing and "normalized" earnings (i.e. we expect
temporary shocks to earnings in the current environment, which may present
buying opportunities), as well as low debt levels and export-oriented companies
with local-currency costs. This approach should help us to determine the proper
re-entry price points for high-quality companies throughout the region, and
enable us to accumulate the shares of what we believe are the best industrial,
consumer-oriented, and natural resources companies in the Pacific Basin at
favorable prices.
Scudder Pacific
Opportunities Fund: A Team
Approach to Investing
Scudder Pacific Opportunities 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 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 Scudder's offices across the United States and abroad. We believe our
team approach benefits Fund investors by bringing together many disciplines
and leveraging Scudder's extensive resources.
Co-Lead Portfolio Manager Elizabeth J. Allan assumed responsibility for the
Fund's day-to-day management and investment strategies in February 1994. Ms.
Allan joined Scudder in 1987 as a member of the portfolio management team
concentrating in Asia. Co-Lead Portfolio Manager Theresa Gusman joined the
team in 1997 and shares responsibility with Ms. Allan in the Fund's day-to-day
management and investment strategies. Ms. Gusman joined Scudder in 1995 and
has 13 years of experience in Pacific Basin investments. Nicholas Bratt,
Portfolio Manager, has been a member of the Fund's team since 1992 and has
over 20 years of experience in global investing.
9-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
<TABLE>
<CAPTION>
Glossary of Investment Terms
<S> <C>
CURRENCY DEVALUATION A significant decline of a currency's value relative to other currencies,
such as the U.S. dollar. This may be prompted by trading or central bank
intervention (or the lack of intervention) in the currency markets. For U.S.
investors who are investing overseas, a devaluation of a foreign currency can
have the effect of reducing total return.
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 stock that is liquid has enough shares outstanding and a substantial enough
market capitalization to allow large purchases and sales to occur without
causing a significant change in its market price.
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 MSCI All
Country Asia Free Index [excluding Japan]) or an investment universe.
PRICE-EARNINGS RATIO (P-E) (also A widely used gauge of a stock's valuation that indicates what investors are
"earnings multiple") 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 strong in developing
markets where disclosure requirements may be less stringent, and
protectionism, subsidies, and cronyism may distort the business environment.
</TABLE>
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
10-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 5.9%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/31/97 at 5.7%,
to be repurchased at $8,256,920 on 11/3/97, collateralized by a $8,108,000 -------------
U.S. Treasury Note, 6%, 5/31/98 (Cost $8,253,000) ................................... 8,253,000 8,253,000
-------------
Short Term Notes 10.7%
- ------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Discount Note, 11/3/97 (Cost $14,995,292) ............ 15,000,000 14,995,292
-------------
Bonds 0.1%
- ------------------------------------------------------------------------------------------------------------------------------
Malaysia 0.1% -------------
AMMB Holdings Berhad, 5%, 5/13/02 (Cost $249,060) ..................................... MYR 616,000 133,066
-------------
Convertible Bonds 1.3%
- ------------------------------------------------------------------------------------------------------------------------------
Cayman Islands 0.8%
APP Global Finance Ltd., 2%, 7/25/00 .................................................. 1,260,000 1,184,400
-------------
Philippines 0.5%
International Container Terminal, Inc., 1.75%, 3/13/04 ................................ 851,000 702,075
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $2,266,375) 1,886,475
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 82.0%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Australia 10.8%
Australia & New Zealand Banking Group Ltd. (General trading and savings bank) ......... 381,800 2,663,529
C R A Ltd. (Mining, manufacturing and development)* ................................... 112,900 1,373,567
Commonwealth Bank of Australia (Bank) ................................................. 487,832 5,609,161
QBE Insurance Group Ltd. (Commercial, industrial and individual insurance
underwriter) ........................................................................ 625,493 2,925,189
Woodside Petroleum Ltd. (Major oil and gas producer) .................................. 303,500 2,563,372
-------------
15,134,818
-------------
China 1.0%
Jiangsu Expressway Co., Ltd. (Builder and manager of the Shanghai-Nanjing
expressway)* ........................................................................ 3,608,000 835,326
Shenzhen Expressway Co. (Highway developer)* .......................................... 2,452,000 526,459
-------------
1,361,785
-------------
Hong Kong 24.7%
Cheung Kong Holdings Ltd. (Real estate company) ....................................... 412,000 2,877,579
China Light & Power Co., Ltd. (Electric utility) ...................................... 315,000 1,654,142
China Southern Airlines Co., Ltd. (Commercial airline service in southeast Asia)* ..... 4,460,000 2,004,592
Citic Pacific Ltd. (Diversified holding company) ...................................... 247,000 1,182,047
First Pacific Co., Ltd. (International management and investment company) ............. 2,309,849 1,463,915
Great Eagle Holdings Ltd. (Property development) ...................................... 757,000 1,155,351
</TABLE>
The accompanying notes are an integral part of the financial statements.
11-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Guoco Group Ltd. (Investment holding company) ......................................... 711,000 1,540,354
HSBC Holdings Ltd. (Bank holding company) ............................................. 146,190 3,299,509
Hutchison Whampoa, Ltd. (Container terminal and real estate company) .................. 526,000 3,656,794
Kerry Properties, Ltd. (Real estate company) .......................................... 1,582,888 3,275,717
Li & Fung Ltd. (Investment holding company, engaged in export trading) ................ 1,386,000 1,389,316
Liu Chong Hing Bank Ltd. (Commercial bank) ............................................ 333,000 439,320
New World Development Co., Ltd. (Property investment and development,
construction and engineering, hotels and restaurants, telecommunications) ........... 1,090,000 3,834,702
Sino Land Co. Warrants ................................................................ 800,000 1,035
Sino Land Co. Warrants (b) ............................................................ 36,400,000 0
Television Broadcasts, Ltd. (Television broadcasting) ................................. 1,878,000 5,222,399
Zhejiang Expressway Co., Ltd. (Road construction and management)* ..................... 8,334,000 1,606,116
-------------
34,602,888
-------------
India 3.8%
Bajaj Auto (GDR) (Maker of two and three wheel vehicles) .............................. 10,705 190,550
Crompton Greaves Ltd. (GDR) (Manufacturer of electrical equipment) .................... 922,689 1,891,512
HDFC Bank Ltd. (Corporate banking and financial services) ............................. 683,000 1,525,832
State Bank of India (GDR) (Bank) ...................................................... 91,300 1,679,920
-------------
5,287,814
-------------
Indonesia 9.2%
Asia Pacific Resources International Holdings Ltd. (Manufacturer of rayon
fiber for Asian textile markets, owner of world's leading paper pulp mill)* ......... 1,011,850 3,984,159
Astra International Inc. (Foreign registered) (Distributor of automobiles,
motorcycles and related spare parts) ................................................ 3,923,000 2,910,964
Gudang Garam (Foreign registered) (Cigarette producer) ................................ 1,078,000 3,050,097
Gulf Indonesia Resources Ltd. (Independent oil and gas producer)* ..................... 36,300 762,300
Indorama Synthetics (Foreign registered) (Producer of polyester fiber, yarn
and fabric) ......................................................................... 3,715,300 2,241,547
-------------
12,949,067
-------------
Korea 0.0%
Hyundai Engineering & Construction Co. (Leading general contractor) ................... 1,320 19,561
-------------
Malaysia 4.1%
Berjaya Sports Toto Berhad (Operator of betting pool, property developer) ............. 50,000 136,493
KFC Holdings (Malaysia) Berhad (Operator of fast-food restaurants) .................... 400,000 803,960
Malakoff Berhad (Cultivation and processing of natural rubber, oil palm and
cocoa) .............................................................................. 280,000 671,966
Malaysia Assurance Alliance Berhad (Multiline insurance company) ...................... 105,100 189,171
Malaysian Resources Corp. (Property development and investment) ....................... 437,000 259,565
Oriental Holdings Berhad (Investment holding company) ................................. 510,720 1,041,817
</TABLE>
The accompanying notes are an integral part of the financial statements.
12-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PPB Oil Palms Berhad (Refiner and marketer of palm oils and related products)* ........ 12,000 11,879
Tenaga Nasional Berhad (Electric power generator and distributor) ..................... 137,000 295,905
United Plantations Berhad (Cultivation and processing of oil palm, copra and
cocoa) .............................................................................. 1,650,000 2,276,886
-------------
5,687,642
-------------
New Zealand 6.3%
Air New Zealand Ltd. "B" (Scheduled commercial airline) ............................... 831,200 1,759,658
Fletcher Challenge Building Corp. (Commercial, industrial and residential
construction) ....................................................................... 1,125,700 3,399,447
Fletcher Challenge Energy Ltd. (Oil and gas exploration and development) .............. 179,500 807,894
Fletcher Challenge Energy Ltd. ........................................................ 644,500 2,889,345
-------------
8,856,344
-------------
Philippines 2.3%
Aboitiz Equity Ventures Inc. (Conglomerate: electricity, infrastructure,
shipbuilding)* ...................................................................... 13,309,270 435,508
First Philippine Holdings Corp. "B" (Holding company involved in electric power
distribution, construction services and passenger bus transportation) ............... 1,292,550 1,075,606
International Container Terminal Services, Inc. (Containerized cargo handling
firm)* .............................................................................. 6,860,300 1,354,643
Petron Corp. (Refiner and marketer of petroleum products) ............................. 3,379,200 357,461
-------------
3,223,218
-------------
Singapore 0.0%
Oversea-Chinese Banking Corp., Ltd. (Foreign registered) (Provider of banking
and financial services) ............................................................. 600 3,333
-------------
Taiwan 17.7%
ASE Test Ltd. (Testing services to semiconductor manufacturers)* ...................... 60,200 3,295,950
Acer Peripherals Inc. (Developer of computer peripherals and communication
products) (b) ....................................................................... 1,656,034 3,210,405
Asustek Computer Inc. (Manufacturer of computer mainboards, audio/video cards
and network cards)* ................................................................. 357,300 4,479,237
China Development Corp. (Leading venture capital firm and investment bank) ............ 1,113,125 3,146,961
Chung Hwa Pulp Corp. (Manufacturer of pulp and paper) ................................. 94,500 51,906
Compeq Manufacturing Co., Ltd. (Manufacturer of multi-layer double-sided printed
circuit boards) ..................................................................... 139,000 669,176
Delta Electronic Industrial (Manufacturer of power supply equipment) .................. 6,600 21,005
Delta Electronics, Inc. (Manufacturer of power supply equipment and monitors) (b) ..... 1,459,256 5,374,966
Far East Textile Ltd. (Manufacturer of natural and synthetic textile products) ........ 744,500 697,593
Hon Hai Precision Industry Co., Ltd. (Manufacturer of electronic connectors,
cable assemblies and memory chips)* ................................................. 129,000 546,010
Pacific Construction Co. (Land development and public works construction)* ............ 2,915,900 1,818,316
Synnex Technology International Corp. (GDR) (Retailer of personal computers and
peripherals)* ....................................................................... 87,400 1,525,130
-------------
24,836,655
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States 2.1%
Freeport McMoRan Copper & Gold, Inc. "A" (U.S. company mining in Indonesia) ........... 125,500 2,894,345
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $136,834,455) 114,857,470
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $162,598,182) (a) 140,125,303
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $164,850,995. At October 31,
1997, net unrealized depreciation for all securities based on tax cost was
$24,725,692. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $5,745,378 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$30,471,070
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $8,585,371 (5.83% of net assets).
Their values have been estimated by the Board of Directors in the absence
of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at October 31, 1997 aggregated $9,926,725. These
securities may also have certain restrictions as to resale.
(c) Principal amount stated in U.S. dollars unless otherwise noted.
* Non-income producing security
Currency Abbreviations
MYR Malaysian Ringgits
The accompanying notes are an integral part of the financial statements.
14-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $162,598,182) ................ $ 140,125,303
Cash ................................................................. 804,363
Foreign currency holdings, at market (identified cost $6,321,995) .... 6,032,849
Receivables for investments sold ..................................... 610,430
Dividends and interest receivable .................................... 329,569
Receivables for Fund shares sold ..................................... 4,479,477
Foreign taxes recoverable ............................................ 20,929
Deferred organization expense ........................................ 1,141
Other assets ......................................................... 5,141
----------------
Total assets ......................................................... 152,409,202
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................... 4,431,272
Payable for Fund shares redeemed ..................................... 182,258
Accrued management fee ............................................... 156,290
Other payables and accrued expenses .................................. 362,690
----------------
Total liabilities .................................................... 5,132,510
--------------------------------------------------------------------------------------------
Net assets, at market value $ 147,276,692
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................. 2,615,133
Unrealized depreciation on:
Investments ....................................................... (22,472,879)
Foreign currency related transactions ............................. (298,947)
Accumulated net realized loss ........................................ (18,499,064)
Paid-in capital ...................................................... 185,932,449
--------------------------------------------------------------------------------------------
Net assets, at market value $ 147,276,692
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($147,276,692 / 12,936,930 shares of capital stock ----------------
outstanding, $.01 par value, 100,000,000 shares authorized) ....... $11.38
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $414,679) ................ $ 3,696,247
Interest (net of foreign taxes withheld of $2,011) ................... 1,227,337
-----------------
4,923,584
-----------------
Expenses:
Management fee ....................................................... 3,147,986
Services to shareholders ............................................. 1,256,944
Custodian and accounting fees ........................................ 728,892
Directors' fees and expenses ......................................... 63,485
Reports to shareholders .............................................. 113,001
Auditing ............................................................. 91,303
Registration fees .................................................... 68,864
Legal ................................................................ 15,259
Amortization of organization expenses ................................ 11,626
Other ................................................................ 52,698
-----------------
5,550,058
---------------------------------------------------------------------------------------------
Net investment loss (626,474)
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .......................................................... (1,244,368)
Foreign currency related transactions ................................ (548,236)
-----------------
(1,792,604)
-----------------
Net unrealized appreciation (depreciation) during the period on:
Investments .......................................................... (49,447,513)
Foreign currency related transactions ................................ (358,542)
-----------------
(49,806,055)
---------------------------------------------------------------------------------------------
Net loss on investment transactions (51,598,659)
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (52,225,133)
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ................................... $ (626,474) $ 460,669
Net realized gain (loss) from investment transactions .......... (1,792,604) 2,141,153
Net unrealized appreciation (depreciation) on investment
transactions during the period .............................. (49,806,055) 9,929,700
-------------- --------------
Net increase (decrease) in net assets resulting from
operations .................................................. (52,225,133) 12,531,522
-------------- --------------
Distributions to shareholders from net investment income ....... (208,281) (2,376,933)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ...................................... 389,468,297 339,049,361
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 183,112 2,101,548
Cost of shares redeemed ........................................ (519,332,843) (405,479,114)
-------------- --------------
Net decrease in net assets from Fund share transactions ........ (129,681,434) (64,328,205)
-------------- --------------
Decrease in net assets ......................................... (182,114,848) (54,173,616)
Net assets at beginning of period .............................. 329,391,540 383,565,156
Net assets at end of period (including undistributed net -------------- --------------
investment income of $2,615,133, and $33,023, respectively) . $147,276,692 $329,391,540
-------------- --------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ...................... 20,682,798 24,595,415
-------------- --------------
Shares sold 24,241,782 20,929,794
Shares issued to shareholders in reinvestment of
distributions ............................................... 10,985 133,516
Shares redeemed ................................................ (31,998,635) (24,975,927)
-------------- --------------
Net decrease in Fund shares .................................... (7,745,868) (3,912,617)
-------------- --------------
Shares outstanding at end of period ............................ 12,936,930 20,682,798
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
December 8,
1992
(commencement
of operations) to
Years Ended October 31, October 31,
1997(a) 1996(a) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
Net asset value, beginning of period ..... $15.93 $15.59 $17.57 $16.21 $12.00
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ............. (.04) .02 .10 .04 .04
Net realized and unrealized gain
(loss) on investment transactions ..... (4.50) .42 (1.98) 1.41 4.17
-----------------------------------------------------------------------------
Total from investment operations ......... (4.54) .44 (1.88) 1.45 4.21
-----------------------------------------------------------------------------
Less distributions from:
Net investment income .................... (.01) (.10) (.10) (.08) --
Net realized gains on investment
transactions .......................... -- -- -- (.01) --
-----------------------------------------------------------------------------
Total distributions ...................... (.01) (.10) (.10) (.09) --
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Net asset value, end of period ........... $11.38 $15.93 $15.59 $17.57 $16.21
- --------------------------------------------------------------------------------------------------------------------------
Total Return (%) ......................... (28.52) 2.76 (10.73) 8.97 35.08**
Ratios and Supplemental Data
Net assets, end of period
($ millions) .......................... 147 329 384 499 270
Ratio of operating expenses, net to
average daily net assets (%) .......... 1.94 1.75 1.74 1.81 1.75*
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) .................. 1.94 1.75 1.74 1.81 2.90*
Ratio of net investment income
(loss) to average daily net
assets (%) ............................ (.22) .12 .65 .28 1.41*
Portfolio turnover rate (%) .............. 97.2 95.4 64.0 38.5 9.9*
Average commission rate paid (b) ......... $.0094 $.0148 -- -- --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is
calculated for periods ending on or after October 31, 1996.
* Annualized
** Not annualized
18-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Pacific Opportunities 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 consistently 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 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 most recent 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 other than money market securities are valued by
pricing agents approved by the officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
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.
19-SCUDDER PACIFIC OPPORTUNITIES 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 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 and payment dates on dividends,
interest, and foreign withholding taxes.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes, and no federal
income tax provision was required.
At October 31, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $17,198,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2003 ($12,714,000), and October 31, 2005 ($4,484,000), the respective expiration
dates, whichever occurs first.
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.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in passive foreign investment
companies and investments in 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.
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 and initial registration of shares 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. All original issue discounts are accreted for both tax and
financial reporting purposes. Interest income is recorded on the accrual basis.
20-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
B. Purchases and Sales of Securities
For the year ended October 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $254,871,803 and
$399,103,521, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Management Agreement") with
Scudder, Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Management Agreement. The
management fee payable under the Management Agreement is equal to an annual rate
of 1.10% of the Fund's average daily net assets, computed and accrued daily and
payable monthly. For the year ended October 31, 1997, the fee pursuant to the
Agreement amounted to $3,147,986 of which $156,290 is unpaid at October 31,
1997.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
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, 1997, the amount charged to the Fund by SSC aggregated
$1,057,225, of which $69,912 is unpaid at October 31, 1997.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans for the Fund. For the year ended October 31, 1997, the
amount charged to the Fund by STC aggregated $56,892, of which $3,816 is unpaid
at October 31, 1997.
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, 1997, the amount charged to the Fund by SFAC aggregated $192,884, of
which $27,593 is unpaid at October 31, 1997.
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 period ended October
31, 1997, the Special Servicing Agreement expense charged to the Fund amounted
to $7,723.
21-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
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 October 31, 1997, Directors' fees and expenses aggregated $63,485.
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.
E. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 25 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
22-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder International Fund, Inc. and to the
Shareholders of Scudder Pacific Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Pacific Opportunities Fund, including the investment portfolio, as of October
31, 1997, 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 four years in the period
then ended, and for the period December 8, 1992 (commencement of operations) to
October 31, 1993. 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
October 31, 1997, 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 Pacific Opportunities Fund as of October 31, 1997, 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 four years in the period then ended, and for the period December 8, 1992
(commencement of operations) to October 31, 1993, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 8, 1997
23-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Tax Information
The Fund paid foreign taxes of $416,690 and the Fund recognized $1,863,003 of
foreign source income during the taxable year ended October 31, 1997. Pursuant
to section 853 of the Internal Revenue Code, the Fund designates $.0322 per
share of foreign taxes and $.145 of income from foreign sources as having been
paid in the taxable year ended October 31, 1997.
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.
24-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Stockholder Meeting Results
A Special Meeting of Stockholders (the "Meeting") of Scudder Pacific
Opportunities Fund (the "Fund") was held on October 27, 1997, at the offices of
Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street),
New York, New York 10154. At the Meeting, as adjourned and reconvened, the
following matters were voted upon by the stockholders (the resulting votes for
each matter are presented below). With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide stockholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Paul Bancroft III 7,708,191 446,349
Sheryle J. Bolton 7,779,244 375,296
William T. Burgin 7,780,619 373,921
Thomas J. Devine 7,778,545 375,995
Keith R. Fox 7,713,522 441,018
William H. Gleysteen, Jr. 7,703,922 450,618
William H. Luers 7,777,307 377,233
Wilson Nolen 7,772,987 381,553
Daniel Pierce 7,779,240 375,300
Kathryn L. Quirk 7,694,131 460,409
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
7,626,875 315,729 211,936 643,763
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
7,388,060 652,763 365,392 673,196
25-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
4. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
<S> <C> <C> <C> <C>
4.1 Diversification 6,704,710 499,405 306,662 643,763
4.2 Borrowing 6,664,006 539,149 307,622 643,763
4.3 Senior securities 6,696,547 507,877 306,353 643,763
4.4 Purchase of commodities 6,700,919 503,683 306,175 643,763
4.5 Concentration 6,691,994 508,772 310,011 643,763
4.6 Underwriting of securities 6,702,170 502,020 306,587 643,763
4.7 Investment in real estate 6,712,281 495,881 302,615 643,763
4.8 Lending 6,698,965 450,945 360,867 643,763
</TABLE>
5. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
7,774,028 136,387 244,125
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
26-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
This Page
intentionally
left blank.
27-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Officers and Directors
Daniel Pierce*
Chairman of the Board and Director
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
Robert W. Lear
Honorary Director; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman Emeritus and Director, Kirby Corporation
Elizabeth J. Allan*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
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
*Scudder, Stevens & Clark, Inc.
28-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International 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.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
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. +++ +++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, Stevens & Clark, Inc., are traded on various stock exchanges.
29-SCUDDER PACIFIC OPPORTUNITIES 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 you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
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 PACIFIC OPPORTUNITIES 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 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder 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
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
31-SCUDDER PACIFIC OPPORTUNITIES FUND
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 over 40 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 us 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 long-standing
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.
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]
Scudder
Greater Europe
Growth Fund
Annual Report
October 31, 1997
Pure No-Load(TM) Funds
For investors seeking long-term growth of capital through investment primarily
in the equity securities of European companies.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
In Brief
o Scudder Greater Europe Growth Fund provided a strong total return of 24.47%
for the fiscal year ended October 31, 1997. For the three-year period ended
October 31, 1997, the Fund was ranked second out of 37 European Region funds
tracked by Lipper Analytical Services, with an average annual return of 21.46%
versus 16.04% over the same period for the Lipper average. Moreover, the only
fund in the Lipper peer group to outperform Scudder Greater Europe Growth Fund
over the period was a fund that focuses its investments in a single country (the
Netherlands), rather than a broad-based regional vehicle such as your Fund.
o Recent stock market performance has been led by the "peripheral" markets of
Spain, Portugal, and Italy, where interest rates continued to converge towards
the lower rates of "core" European countries Germany and France.
o Morningstar assigned the Fund an overall rating of 5-stars (out of five stars)
for its risk-adjusted performance among 637 international equity funds as of
October 31, 1997^1.
^1 Source: Morningstar. Ratings are subject to change monthly and are
calculated from the Fund's three-, five-, and ten-year average annual
returns in excess of 90-day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects Fund performance below 90-day
T-bill returns. The Fund received a 5-star rating for the three-year period
among 637 international equity funds. In an investment category, the top
10% of funds receive 5 stars and the next 22.5% receive 4 stars. Past
performance is no guarantee of future results.
Table of Contents
3 Letter from the Fund's Chairman 21 Notes to Financial Statements
4 Performance Update 25 Report of Independent Accountants
5 Portfolio Summary 26 Tax Information
6 Portfolio Management Discussion 26 Officers and Directors
10 Glossary of Investment Terms 27 Stockholder Meeting Results
12 Investment Portfolio 29 Investment Products and Services
17 Financial Statements 30 Scudder Solutions
20 Financial Highlights
2 - Scudder Greater Europe Growth Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
We are pleased to present the annual report for Scudder Greater Europe
Growth Fund, covering the 12-month period ended October 31, 1997.
As detailed in the management discussion that follows, the Fund provided a
strong total return for the period of 24.47%. Moreover, Scudder Greater Europe
Growth Fund recently attained its three-year anniversary, and the Fund has
received strong ratings for long-term performance versus its peers, including a
five-star rating from Morningstar (please see In Brief on page 2 for more
details).
Many governments in Europe are exercising fiscal discipline in preparation
for the region's monetary union, scheduled for the beginning of 1999. In
addition, the economies and corporate sectors of Europe are at varying stages in
the process of reform and restructuring, providing a range of opportunities to
invest for growth. We believe your Fund is well-positioned to capitalize on the
economic changes sweeping across Europe, and thank you for your continued
investment in Scudder Greater Europe Growth Fund.
Recent volatility in world stock markets has highlighted the importance of
maintaining a diversified investment portfolio. As an investor in Scudder
Greater Europe Growth Fund, you already know that a well-rounded investment
program should include international stocks, in addition to domestic equity,
fixed-income, and cash holdings. For most investors, a properly diversified
portfolio combined with a long-term perspective based on one's financial
objectives has proven the best approach.
If you have any questions regarding Scudder Greater Europe Growth Fund or
any other Scudder fund, please do not hesitate to call Investor Relations at
1-800-225-2470.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder Greater Europe Growth Fund
3 - Scudder Greater Europe Growth Fund
<PAGE>
PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- ---------------------------------------------
SCUDDER GREATER EUROPE GROWTH FUND
TICKER SYMBOL: SCGEX
- ---------------------------------------------
1 Year $ 12,447 24.47% 24.47%
Life of Fund* $ 18,186 81.86% 21.58%
- ---------------------------------------------
MORGAN STANLEY CAPITAL INTERNATIONAL
(MSCI) EUROPE INDEX
- ---------------------------------------------
1 Year $ 12,599 25.99% 25.99%
Life of Fund* $ 16,754 67.54% 18.75%
- ---------------------------------------------
*The Fund commenced operations on October 10, 1994.
Index comparisons begin October 31, 1994.
- ----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Greater Europe Growth Fund
Year Amount
- ----------------------
10/94* $10,000
4/95 $10,371
10/95 $11,506
4/96 $12,981
10/96 $14,395
4/97 $15,767
10/97 $17,917
Morgan Stanley Capital International
(MSCI) Europe Index
Year Amount
- ----------------------
10/94* $10,000
4/95 $10,597
10/95 $11,321
4/96 $12,288
10/96 $13,299
4/97 $14,863
10/97 $16,754
The Morgan Stanley Capital International (MSCI) Europe Index is
an unmanaged capitalization-weighted measure of 14 stock markets
in Europe. Index returns assume dividends reinvested net of
withholding tax and, unlike Fund returns, do not reflect any
fees or expenses.
- ----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- ----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED OCTOBER 31
1994* 1995 1996 1997
---------------------------------------------
NET ASSET VALUE......... $12.18 $13.99 $17.20 $21.17
INCOME DIVIDENDS........ $ -- $ .02 $ .11 .06
CAPITAL GAINS
DISTRIBUTIONS........... $ -- $ -- $ .14 .14
FUND TOTAL RETURN (%)... 1.50 15.06 25.11 24.47
INDEX TOTAL RETURN (%).. -- 13.21 17.47 25.99
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may be
worth more or less than when purchased. If the Adviser had not maintained the
Fund's expenses, the total returns for the one year and life of Fund periods
would have been lower.
4 - Scudder Greater Europe Growth Fund
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
GEOGRAPHICAL
(Excludes 0.3% Cash Equivalents)
- ---------------------------------------------------------------------------
United Kingdom 24%
France 20%
Germany 12%
Switzerland 9%
Italy 8%
Portugal 6%
Netherlands 6%
Finland 5%
Spain 4%
Other 6%
- --------------------------------------
100%
- --------------------------------------
More than half of the Fund's equity
holdings are in the large markets of
the UK, France and Germany.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS
(Excludes 0.3% Cash Equivalents)
- --------------------------------------------------------------------------
Financial 29%
Manufacturing 13%
Service Industries 9%
Health 8%
Durables 7%
Technology 7%
Consumer Discretionary 5%
Energy 5%
Communications 4%
Other 13%
- --------------------------------------
100%
- --------------------------------------
The European financial sector's ongoing
consolidation in preparation for EMU
presents a number of opportunities.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(19% of Portfolio)
- --------------------------------------------------------------------------
1. MISYS PLC
Software and hardware computer solutions, support
and data services for various industries
2. AVIS EUROPE PLC
Car rental services
3. DASSAULT SYSTEMES S.A.
Computer aided design, manufacturing and
engineering software products
4. SKANDIA FOERSAEKRINGS AB
Financial conglomerate
5. NOVARTIS AG
Pharmaceutical company
6. ACCOR SA
Catering, hotels, travel services
7. ASSURANCES GENERALES DE FRANCE
Health, life, fire, accident and special
risk insurance
8. ASSICURAZIONI GENERALI SPA
Life and property insurance company
9. BARCLAYS PLC
Commercial and investment banking,
insurance and other financial services
10. PHILIPS ELECTRONICS NV
Leading manufacturer of electrical equipment
Top holdings include major financial
companies and business software
developers.
For more complete details about the Fund's investment portfolio, see page 12.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 -- Scudder Greater Europe Growth Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Scudder Greater Europe Growth Fund provided a total return of 24.47% for the
fiscal year ended October 31, 1997. While the Fund's return slightly lagged the
MSCI Europe Index return of 25.99% for the 12 months under review, Scudder
Greater Europe Growth Fund ranked in the top third of European regional funds
for the period. Moreover, the Fund held up well during the last quarter's
weakness, which saw European markets lose ground as concerns over the
difficulties of Asian markets infected global equity markets. The MSCI index of
European markets fell 1.65% for the quarter ending October 31, 1997, while the
Fund managed to post a positive return of 0.38% for the period.
Review: Smaller Markets
Lead Performance
Favorable interest rates, a strong U.S. dollar (which helps the competitiveness
of European exporters) and rising corporate earnings underpinned the upward move
of European equities over the last 12 months. Stock market performance was led
by the "peripheral" markets of Spain, Portugal, and Italy, where interest rates
continued to converge toward the lower rates of "core" European countries
Germany and France. The southern countries benefited from the growing conviction
that they would participate in the first wave of European Monetary Union (EMU)
set to begin on January 1, 1999. Both Spain and Portugal have put their fiscal
houses in order and will comfortably meet the Maastricht criteria. Italy is
facing more of a struggle with budget issues, but has demonstrated broad-based
commitment to joining EMU in the first round. All three of these southern
European countries continued to move ahead in the privatization process with
great success this year, as domestic investors showed high enthusiasm,
oversubscribing many of the issues on offer. The Fund's longer term
privatization holdings of Telefonica de Espana, Portugal Telecom, and Telecom
Italia turned in outstanding performances ranging from 36% to 95% (in U.S.
dollar terms). The Fund's more recent participations in new offerings Aeroporti
di Roma and EDP have also outperformed the averages thus far.
At the northern periphery of Europe, Finland stood out in performance this year,
jumping 47% in U.S. dollar terms. Nokia, the globally important manufacturer of
cellular telecommunications equipment, accounted in large part for this rise, as
it constitutes over 35% of the Finnish market and shot up some 90% over the
period. The Fund has had a longstanding position in Nokia, and we took some
profits in late October as its share price surged to new highs.
Two of the largest European markets, France and Germany, failed to keep pace
with many of the smaller markets over the last twelve months. France, suffering
from an unpopular government, fiscal restraint, high unemployment, and a general
lack of confidence, was surprised by a snap election in late spring that
resulted in a change of government with Socialist Lionel Jospin taking charge as
Prime Minister. The new government did not justify the worst fears or fulfill
the best hopes of investors. Public confidence rose and the economy began to
pick up, as Prime Minister Jospin confirmed his support of the euro and allowed
6 - Scudder Greater Europe Growth Fund
<PAGE>
some privatizations to proceed. However, the Socialists disappointed the markets
with an increase in corporate taxation and a program to shorten the work week to
35 hours. Despite the difficult market background, a number of the Fund's best
performing stocks over the last year were French, including Cap Gemini (+63%),
Rhone Poulenc (+49%) and Total (+42%).
The German market was buoyant earlier in the year, with the DAX index hitting
new highs in July, propelled by a rising U.S. dollar, merger activity, corporate
restructurings, and the prospect of structural economic reform. But as the year
progressed, two critical elements of structural change required in Germany --
pension and tax reform -- stalled in the legislature. In addition, still rising
unemployment and falling tax receipts have hindered Germany's efforts to meet
the Maastricht criteria. Against this discouraging background, the German equity
market began to lose steam. The spreading financial problems of the Asian and
other emerging markets coupled with the retreat of the U.S. dollar aroused
further fears and the German market tumbled nearly 10% in the last quarter.
The Fund suffered limited damage from Germany's decline, having cut back to an
underweighted position in that country. But Volkswagen, a highly profitable
holding for the Fund, fell sharply during this last quarter due to concerns over
the company's exposure to the Brazilian markets and the company's proposed
equity rights issue. A bright spot was SAP, the software company and long
established Fund holding, which managed to rise by 20% even in the last quarter,
contributing to a return of 121% over the last twelve months.
Strengthening Economies Support European Equities
There are a number of encouraging factors shaping the European investment
environment as we look toward 1998. Economic indicators are strengthening, with
growth broadening from the smaller peripheral economies and the United Kingdom
to the large, lagging economies of France, Italy and Germany. Business and
consumer confidence is on the rise. European export growth has been robust for
some time, but domestic demand is also picking up as unemployment is stabilizing
and fiscal policies are turning more accommodative. Recent concerns that
developments in Asia may cut off the European economic upturn appear overblown
at this stage. On an overall basis, Europe's direct exposure is limited, as
exports to Asia account for less than 7% of the region's GDP. With stronger
domestic economies supported by benign fiscal and monetary policies, Europe
should be able to withstand a limited decline in external demand. It is the
linkage with the U.S. which is most sensitive. If the U.S. dollar weakens
importantly or the U.S. economy grinds to a halt as a result of Asian events,
Europe would be adversely impacted.
The next year will be a watershed with the move to EMU proceeding from the
decision on participants in the spring of 1998 to implementation on January 1,
1999. It now appears that EMU will be broadly based with 11 members, including
Spain, Portugal, and Italy. Greece will not make the criteria for the
7 - Scudder Greater Europe Growth Fund
<PAGE>
first round, and Denmark and Sweden remain unwilling to participate. The U.K.
government, under the new leadership of Tony Blair, has formally announced that
Britain will not join before the next general election but will work to prepare
for membership thereafter.
Portfolio Focus on Growth and Change
The Fund's strategy is focused on identifying companies in Europe poised for
growth on the basis of effective positioning in new or growing markets, as well
as companies restructuring or undergoing change in which a new focus consistent
with public shareholder interests may enhance returns.
The sector weightings of the Fund reflect our focus on growth and change.
Currently, finance is the largest industry weighting, accounting for nearly 30%
of the portfolio. The European banking and insurance scene is undergoing
tremendous change, as consolidation is pushed forward by the opportunity and
threat of EMU, and the need to cut costs given increased competition and
structurally declining margins. From a growth perspective, banking and insurance
companies will serve burgeoning demand for savings and investment products from
aging European populations faced with shrinking social welfare benefits. The
consolidation of this industry is gathering pace. Three major European
transactions in banking and insurance were announced in just a single day in
October. The Fund profited from its holdings in four of the companies involved:
AGF (France), Generali (Italy), BAT (UK), and Merita (Finland). Earlier this
year, Bayerische Vereinsbank, another Fund holding, merged with another German
bank, creating scale and cost advantages.
Most of the Fund's holdings in the technology area are companies that are
involved in rapidly growing segments and are in many cases global industry
leaders. These include CAD/CAM provider Dassault Systemes (France),
telecommunications companies Ericsson (Sweden) and Nokia (Finland), and software
manufacturers SAP (Germany) and Misys (UK). The fund also holds positions in
leading investment technology consultancy firms Cap Gemini (France) and
Getronics (Netherlands), which are enjoying booming business as European
industries face up to the dual challenges of the Euro and the millennium.
Positive Outlook for
European Equities
We remain optimistic about the prospects for European equity markets. Corporate
earnings have been expanding at an impressive rate, often exceeding
expectations, and look set to record further strong increases next year.
European economic growth is accelerating. Investment spending -- which has
lagged in recent years -- is picking up. Still, there are concerns to monitor.
The path to the Euro may not be a smooth one, and a substantial fall in the U.S.
dollar or global deflationary impulses emanating from Asia may disturb markets.
Nevertheless, there should be underlying support for healthy equity markets from
the mergers and acquisition boom. In addition, the development of a more
equity-oriented culture in Europe, with managements newly attuned to shareholder
8 - Scudder Greater Europe Growth Fund
<PAGE>
interests and increasing numbers of Europeans interested in investing in
equities, suggests a marketplace of increasing opportunities for all investors
in Europe.
Sincerely,
Your Portfolio Management Team
/s/Carol L. Franklin /s/Joan R. Gregory
Carol L. Franklin Joan R. Gregory
/s/Nicholas Bratt
Nicholas Bratt
Scudder Greater Europe
Growth Fund:
A Team Approach to Investing
Scudder Greater Europe Growth 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 together to develop investment strategies and
select securities for the Fund's portfolio. They are supported by Scudder's
large staff of economists, research analysts, traders and other investment
specialists who work in Scudder's offices across the United States and abroad.
Scudder believes its team approach benefits Fund investors by bringing
together many disciplines and leveraging Scudder's extensive resources.
Carol L. Franklin, Lead Portfolio Manager, sets Fund investment strategy and
oversees its daily operation. Ms. Franklin joined Scudder in 1981 and has ten
years of European research and investment management experience. Nicholas
Bratt, Portfolio Manager, helps set the Fund's general investment strategies.
Mr. Bratt has over 20 years of experience in worldwide investing and has been
with Scudder since 1976. Joan R. Gregory, Portfolio Manager, focuses on stock
selection, a role she has played since she joined Scudder in 1992. Ms. Gregory
has been involved with investment in global and international stocks as an
assistant portfolio manager since 1989.
9 - Scudder Greater Europe Growth Fund
<PAGE>
Glossary of Investment Terms
CURRENCY EXCHANGE RATE The price at which one country's currency can be
exchanged into another currency. When a country's
currency rises relative to other currencies, this
decreases the buying power of foreign purchasers
of that country's goods and services and tends to
hurt the earnings of companies that export; by
contrast, a weak currency promotes exports. From
the perspective of a U.S. investor in overseas
securities, a weakening U.S. dollar adds to total
returns, as assets denominated in foreign
currencies then translate into more in dollar
terms; a strengthening dollar relative to foreign
currencies reduces returns to U.S. investors.
DIVIDEND YIELD With stocks, a company's payment out of earnings
to shareholders divided by its share price. For
example, a stock that sells for $10 and pays
annual dividends totaling $1 has a yield of 10%;
if the stock price goes up to $20, the yield would
fall to 5%.
EMU (EUROPEAN MONETARY A proposed integration of European economies
UNION) involving among other changes a move to a single
currency for member nations. To qualify for EMU
membership, nations will be required to meet
certain guidelines concerning total governmental
debt and annual budget deficits, designed to
ensure a strong common currency.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and
earnings on their 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.
GROWTH STOCK Stock of a company that has displayed above
average earnings growth and is expected to
continue to increase profits rapidly going
forward. Stocks of such companies usually trade at
higher multiples to earnings (see price/earnings
ratio) and experience more price volatility than
the market as a whole. Distinct from value stock.
LIQUIDITY A stock that is liquid has enough shares
outstanding and a substantial enough market
capitalization to allow large purchases and sales
to occur without causing a significant move in its
market price as a result.
10 - Scudder Greater Europe Growth Fund
<PAGE>
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by the number of shares
outstanding multiplied by the share price (shares
x price = market capitalization). The universe of
publicly traded companies is frequently divided
into large-, mid-, and small-capitalization.
"Large-cap" stocks tend to be more liquid.
PRICE/EARNINGS RATIO A widely used gauge of a stock's valuation, that
indicates what investors are paying for a
company's earning power at the current stock
price. May be based on a company's projected
earnings for the coming 12 months. A higher
"earnings multiple" indicates higher expected
earnings growth, along with greater risk of
earnings disappointments.
VALUE STOCK A company whose stock price does not fully reflect
its intrinsic value, as indicated by
price/earnings ratio, price/book value ratio,
dividend yield, or some other valuation measure,
relative to its industry or the market overall.
Value stocks tend to display less price volatility
and may carry higher dividend yields. Distinct
from growth stock.
WEIGHTING (OVER/UNDER) Refers to the allocation of assets -- usually in
terms of sectors, industries, or countries --
within a portfolio relative to the portfolio's
benchmark index or investment universe.
(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)
11 - Scudder Greater Europe Growth Fund
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 0.3%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/31/97 at 5.7%, to be
repurchased at $605,287 on 11/3/97, collateralized by a $615,000 U.S. Treasury ---------
Note, 5.875%, 10/31/98 (Cost $605,000) ........................................................... 605,000 605,000
---------
Shares
- -----------------------------------------------------------------------------------------------------------------------------
Common Stocks 99.7%
- -----------------------------------------------------------------------------------------------------------------------------
Austria 0.7%
Schoeller-Bleckmann Oilfield Equipment AG* (Manufacturer of components for oil and
gas drilling equipment) .......................................................................... 11,000 1,300,944
---------
Finland 4.9%
Merita Ltd. "B" (Financial services group) ......................................................... 410,100 1,979,553
Metsa-Serla Oy "B" (Manufacturer of papers, corrugated and paper board, soft and
hardwood pulp) ................................................................................... 172,000 1,511,044
Nokia AB Oy "A" (Leading manufacturer of telecommunications equipment and
cellular telephones) ............................................................................. 16,260 1,419,045
Pohjola Insurance Co., Ltd. "B" (Insurance company) ................................................ 58,000 2,217,331
TT Tieto Oy "B" (Manufacturer of computer software) ................................................ 19,000 2,127,742
---------
9,254,715
---------
France 19.7%
Accor SA (Catering, hotels, travel services) ....................................................... 18,450 3,435,236
Alcatel Alsthom (Manufacturer of transportation, telecommunication and energy equipment) ........... 16,985 2,049,419
Altran Technologies, SA (Engineering and consulting services for aerospace, telecommunications
and electronics fields) .......................................................................... 3,300 881,030
Assurances Generales de France* (Health, life, fire, accident and special risk insurance) .......... 59,000 3,104,321
Banque Nationale de Paris SA (CI) (Bank) ........................................................... 27,000 1,193,603
Cap Gemini Sogeti SA (Software consultants) ........................................................ 29,635 2,353,024
Compagnie Financiere de Paribas (Finance and investment company) ................................... 18,000 1,307,190
Compagnie Generale des Eaux (Water utility) ........................................................ 11,050 1,285,407
Compagnie Generale des Eaux Warrants ............................................................... 14,800 7,826
Comptoirs Modernes (Operator of supermarkets, grocery and department stores) ....................... 2,830 1,285,416
Dassault Systemes S.A. (Computer aided design, manufacturing and engineering
software products) ............................................................................... 130,400 3,910,926
Le Carbone-Lorraine (Manufacturer of industrial and technological systems and components) .......... 8,240 2,185,620
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Greater Europe Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pinault-Printemps, SA (Distributor of consumer goods) ...................................... 2,796 1,278,698
Rhone-Poulenc SA "A"* (Medical, agricultural and consumer chemicals) ....................... 38,567 1,681,550
Schneider SA (Manufacturer of electronic components and automated manufacturing systems) ... 37,592 2,007,253
Scor SA (Property, casualty and life reinsurance company) .................................. 44,100 2,048,176
Societe Lyonnaise des Eaux SA (Water utility) .............................................. 13,100 1,360,361
Societe Nationale Elf Aquitaine (Petroleum company) ........................................ 16,125 1,995,969
Synthelabo SA (Pharmaceutical and biomedical company) ...................................... 11,200 1,318,389
Total SA "B" (International oil and gas exploration, development and production) ........... 18,323 2,032,977
----------
36,722,391
----------
Germany 11.7%
Allianz AG (Multi-line insurance company) .................................................. 8,100 1,803,862
Bayerische Vereinsbank AG (Commercial bank) ................................................ 30,600 1,774,633
Commerzbank AG (Worldwide multi-service bank) .............................................. 73,300 2,486,835
Deutsche Bank AG (Bank) .................................................................... 22,800 1,491,527
Dresdner Bank AG (Universal bank) .......................................................... 30,000 1,226,585
Fresenius AG (pfd.) (Manufacturer and distributor of pharmaceutical and medical
systems products) ........................................................................ 1,153 194,585
Fresenius AG (pfd.) ........................................................................ 10,380 1,589,236
RWE AG (pfd.) (Producer and marketer of petroleum and chemical products) ................... 31,150 1,123,662
SAP AG (pfd.) (Computer software manufacturer) ............................................. 7,450 2,218,625
SGL Carbon AG (Manufacturer of specialized graphite products) .............................. 13,600 1,908,717
Schering AG (Pharmaceutical and chemical producer) ......................................... 14,150 1,371,261
Siemens AG (Leading electrical engineering and electronics company) ........................ 23,000 1,415,241
VIAG AG (Provider of electrical power and natural gas services, aluminum products,
chemicals, ceramics and glass) ........................................................... 2,100 974,917
Volkswagen AG (pfd.) (Manufacturer of automobiles) ......................................... 5,385 2,442,191
----------
22,021,877
----------
Hungary 0.6%
Graboplast Rt (Producer of home improvement materials, artificial leather and
book bindings) ........................................................................... 20,500 1,105,632
----------
Ireland 1.5%
Bank of Ireland PLC (Bank) ................................................................. 100,000 1,265,863
Irish Life PLC (Provider of life and disability insurance and pensions) .................... 294,718 1,550,777
----------
2,816,640
----------
Italy 7.8%
Aeroporti di Roma SpA* (Management of Fiumicino and Ciampino airports) ..................... 206,000 1,867,806
Alleanza Assicurazioni (Life insurance company) ............................................ 155,000 1,333,082
Assicurazioni Generali SpA* (Life and property insurance company) .......................... 137,000 3,061,972
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Greater Europe Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Banca Popolare di Brescia (Cooperative bank) ............................................... 266,000 1,994,804
La Rinascente SpA (Department store chain) ................................................. 77,000 570,623
La Rinascente SpA di Risparmio ............................................................. 665,000 2,198,996
Saipem SpA (International contractor in oil and gas exploration and drilling, construction
of refineries and pipelines) ............................................................. 260,000 1,459,286
Telecom Italia SpA*(Telecommunications, electronics, network construction) ................. 550,000 2,221,435
----------
14,708,004
----------
Netherlands 5.9%
Akzo-Nobel NV (Chemical producer) .......................................................... 12,500 2,198,812
Getronics NV (Provider of computer installation and maintenance services) .................. 60,584 1,996,830
Koninklijke Nedlloyd Groep NV (Container shipping and transportation) ...................... 54,000 1,602,118
Philips Electronics NV (Leading manufacturer of electrical equipment) ...................... 36,130 2,823,817
Unilever NV (Producer of packaged consumer goods, food, detergent, personal care items) .... 28,480 1,511,279
Vedior NV CVA (Temporary employment services) .............................................. 41,808 857,743
----------
10,990,599
----------
Poland 0.4%
Computerland Poland S.A.* (Provider of computer services and systems) ...................... 44,356 789,117
----------
Portugal 5.7%
Banco Comercial Portugues (Commercial bank) ................................................ 75,000 1,526,869
Cimentos de Portugal S.A. (Manufacturer of cement, ready mix concrete and aggregates) ...... 85,000 2,150,981
Electricidade de Portugal* (Transmits and distributes electricity) ......................... 96,500 1,695,678
Portugal Telecom SA (Telecommunication services) ........................................... 56,900 2,334,566
Semapa S.A. (Cement producer) .............................................................. 53,000 1,223,657
Telecel-Comunicacoes Pessoais, S.A.* (Cellular communication services) ..................... 18,583 1,680,237
----------
10,611,988
----------
Spain 4.0%
Banco Bilbao Vizcaya SA (Commercial bank) .................................................. 81,000 2,166,014
Compania Telefonica Nacional de Espana S.A. (Telecommunication services) ................... 67,000 1,828,487
Tabacalera, S.A. "A" (Manufactures, sells, imports and exports tobacco products) ........... 21,000 1,512,889
Telepizza, S.A.* (Operator of fast-food pizza restaurants in Spain, Portugal, Poland, Mexico
and Chile) ............................................................................... 29,100 1,998,412
----------
7,505,802
----------
Sweden 3.1%
L.M. Ericsson Telephone Co. "B" (ADR) (Leading manufacturer of cellular telephone equipment) 48,220 2,133,735
Skandia Foersaekrings AB (Free) (Financial conglomerate) ................................... 80,300 3,745,685
----------
5,879,420
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Greater Europe Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Switzerland 9.1%
Ciba Specialty Chemical (Registered)* (Manufacturer of chemical products for plastics, coatings,
fibers and fabrics) .......................................................................... 10,237 1,004,845
Clariant AG (Registered) (Manufacturer of color chemicals) ..................................... 2,683 2,062,815
Credit Suisse Group (Registered)* (Provider of bank services, management services and
life insurance) .............................................................................. 17,835 2,511,389
Holderbank Financiere Glaris AG (Bearer) (Cement producer) ..................................... 958 770,750
Novartis AG (Bearer) (Pharmaceutical company) .................................................. 938 1,478,515
Novartis AG (Registered) ....................................................................... 1,345 2,105,643
Roche Holdings AG (PC) (Producer of drugs and medicines) ....................................... 226 1,985,244
Schweizerische Lebensversicherungs und Rentenanstalt AG (Global life insurance company) ........ 3,300 2,233,295
Swiss Bank Corp. (Registered) (Universal bank) ................................................. 5,300 1,424,507
Union Bank of Switzerland (Bearer) (Universal bank) ............................................ 1,350 1,553,541
----------
17,130,544
----------
United Kingdom 23.8%
Avis Europe PLC (Car rental services) .......................................................... 1,665,000 4,162,123
B.A.T. Industries PLC (Tobacco, retailing, and financial services) ............................. 114,000 997,410
BOC Group PLC (Producer of industrial gases) ................................................... 129,618 2,181,125
Barclays PLC (Commercial and investment banking, insurance and other financial services) ....... 117,216 2,936,034
British Petroleum PLC (Major integrated world oil company) ..................................... 137,040 2,014,030
Compass Group PLC (International catering group) ............................................... 172,400 1,822,184
General Electric Co., PLC (Manufacturer of power, communications and defense equipment
and other various electrical components) ..................................................... 332,000 2,120,765
Glaxo Wellcome PLC (Pharmaceutical company) .................................................... 81,218 1,730,495
Granada Group PLC (Television systems and broadcast, travel and leisure services, entertainment
and theme park operator) ..................................................................... 174,500 2,406,477
Lloyds TSB Group PLC (Banking and financial services) .......................................... 167,000 2,087,311
Misys (Jersey) Ltd. (Software and hardware computer solutions, support and data services for
various industries) .......................................................................... 21,914 545,043
Misys PLC ...................................................................................... 168,700 4,279,384
Next PLC (Retailer of clothing, accessories and fashion jewelry, also through home shopping) ... 94,000 1,119,697
Norwich Union PLC* (Multi-line insurance company) .............................................. 402,750 2,297,360
Pearson PLC (Diversified media and entertainment holding company) .............................. 167,000 2,157,355
PowerGen PLC (Electric utility) ................................................................ 249,164 2,771,489
Royal & Sun Alliance Insurance Group PLC (Multi-line insurance holding company) ................ 243,000 2,329,898
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare products) ................. 216,764 2,054,707
WPP Group PLC (Advertising agency) ............................................................. 496,000 2,263,419
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Greater Europe Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Zeneca Group PLC (Holding company, manufacturing and marketing of pharmaceutical and
agrochemical products and specialty chemicals) ................................... 77,600 2,448,865
----------
44,725,171
----------
United States 0.8%
Autoliv Inc. (Manufacturer of automobile safety bags) .............................. 39,700 1,565,669
- -----------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $149,149,541) 187,128,513
- -----------------------------------------------------------------------------------------------------------------
Principal
Amount
- -----------------------------------------------------------------------------------------------------------------
Purchased Options 0.0%
- -----------------------------------------------------------------------------------------------------------------
France
----------
Put on French Francs, strike price FRF 6.32, expire 2/17/98 (Cost $670,950) .... FRF 213,000,000 59,325
----------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $150,425,491) (a) 187,792,838
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $150,461,277. At October 31,
1997, net unrealized appreciation for all securities based on tax cost was
$37,331,561. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $39,459,214 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$2,127,653.
Transactions in written call options on currencies during the year ended October
31, 1997 were:
Principal Amount Premiums
(000s) Received ($)
----------------------------------------
Outstanding at
October 31, 1996 ........... FRF -- --
Contracts written .......... FRF 213,000 670,950
Contracts closed ........... FRF -- --
----------------------------------------
Outstanding at
October 31, 1997
(strike price FRF 5.983,
expires 2/17/98) ........... FRF 213,000 670,950
============= ==========
Currency Abbreviations:
FRF French Franc
The accompanying notes are an integral part of the financial statements.
16 - Scudder Greater Europe Growth Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
<CAPTION>
Assets
- ---------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $150,425,491) ........... $187,792,838
Cash ............................................................ 17,177
Receivable for investments sold ................................. 5,629,550
Receivable for Fund shares sold ................................. 4,448,437
Dividends and interest receivable ............................... 132,947
Foreign taxes recoverable ....................................... 245,884
Deferred organization expenses .................................. 22,836
Other assets .................................................... 2,120
-------------
Total assets .................................................... 198,291,789
Liabilities
- ---------------------------------------------------------------------------------------
Payable for investments purchased ............................... 15,690
Payable for Fund shares redeemed ................................ 640,060
Written options, at value (premiums received $670,950) .......... 1,743,011
Accrued management fee .......................................... 174,973
Other accrued expenses and payables ............................. 203,720
-------------
Total liabilities ............................................... 2,777,454
----------------------------------------------------------------------------------
Net assets, at market value $195,514,335
----------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ............................. 5,207,695
Unrealized appreciation (depreciation) on:
Investments .................................................. 37,367,347
Written options .............................................. (1,072,061)
Foreign currency related transactions ........................ 6,057
Accumulated net realized gain ................................... 12,354,089
Paid-in capital ................................................. 141,651,208
----------------------------------------------------------------------------------
Net assets, at market value $195,514,335
----------------------------------------------------------------------------------
Net Asset Value
- ---------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($195,514,335 / 9,234,823 shares of capital stock outstanding, ------------
$.01 par value, 100,000,000 shares authorized) ................ $21.17
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 -- Scudder Greater Europe Growth Fund
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<CAPTION>
Investment Income
- -------------------------------------------------------------------------------------
<S> <C>
Dividends (net of foreign taxes withheld of $408,107) .......... $2,569,379
Interest ....................................................... 617,376
------------
3,186,755
------------
Expenses:
Management fee ................................................. 1,754,310
Services to shareholders ....................................... 619,060
Custodian and accounting fees .................................. 354,027
Directors' fees and expenses ................................... 63,400
Auditing ....................................................... 53,666
Reports to shareholders ........................................ 75,863
Amortization of organization expense ........................... 11,855
Registration fees .............................................. 27,573
Legal .......................................................... 13,134
Other .......................................................... 40,962
------------
Total expenses before reductions ............................... 3,013,850
Expense reductions ............................................. (100,865)
------------
Expenses, net .................................................. 2,912,985
--------------------------------------------------------------------------------
Net investment income 273,770
--------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- -------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 12,446,393
Foreign currency related transactions .......................... 4,955,407
------------
17,401,800
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... 19,821,704
Written options ................................................ (1,072,061)
Foreign currency related transactions .......................... 3,224
------------
18,752,867
--------------------------------------------------------------------------------
Net gain on investment transactions 36,154,667
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase in net assets resulting from operations $36,428,437
--------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Greater Europe Growth Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 273,770 $ 537,629
Net realized gain from investment transactions ............... 17,401,800 986,362
Net unrealized appreciation on investment transactions
during the period .......................................... 18,752,867 13,130,041
------------- -------------
Net increase in net assets resulting from operations ......... 36,428,437 14,654,032
------------- -------------
Distributions to shareholders from:
Net investment income ........................................ (490,975) (320,199)
------------- -------------
Net realized gains ........................................... (1,145,609) (427,101)
------------- -------------
Fund share transactions:
Proceeds from shares sold .................................... 279,382,379 110,490,941
Net asset value of shares issued to shareholders in
reinvestment of distributions .............................. 1,574,869 727,064
Cost of shares redeemed ...................................... (240,534,824) (45,416,671)
------------- -------------
Net increase in net assets from Fund share transactions ...... 40,422,424 65,801,334
------------- -------------
Increase in net assets ....................................... 75,214,277 79,708,066
Net assets at beginning of period ............................ 120,300,058 40,591,992
Net assets at end of period (including undistributed net ------------- -------------
investment income of $5,207,695 and $459,368, respectively) $195,514,335 $120,300,058
------------- -------------
Other Information
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................... 6,993,392 2,901,077
------------- -------------
Shares sold .................................................. 14,311,846 6,939,733
Shares issued to shareholders in reinvestment of distributions 88,625 52,194
Shares redeemed .............................................. (12,159,040) (2,899,612)
------------- -------------
Net increase in Fund shares .................................. 2,241,431 4,092,315
------------- -------------
Shares outstanding at end of period .......................... 9,234,823 6,993,392
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder Greater Europe Growth Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
October 10,
1994
(commencement
of operations) to
Years Ended October 31, October 31,
1997 (a) 1996 (a) 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
---------------------------------------------
Net asset value, beginning of period .......... $17.20 $13.99 $12.18 $12.00
---------------------------------------------
Income from investment operations:
Net investment income ......................... .03 .13 .13 .01
Net realized and unrealized gain on investment
transactions ............................... 4.14 3.33 1.70 .17
---------------------------------------------
Total from investment operations .............. 4.17 3.46 1.83 .18
---------------------------------------------
Less distributions from:
Net investment income ......................... (.06) (.11) (.02) --
Net realized gains on investment transactions . (.14) (.14) -- --
---------------------------------------------
Total distributions ........................... (.20) (.25) (.02) --
---------------------------------------------
---------------------------------------------
Net asset value, end of period ................ $21.17 $17.20 $13.99 $12.18
- ---------------------------------------------------------------------------------------------------
Total Return (%) (b) .......................... 24.47 25.11 15.06 1.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........ 196 120 41 8
Ratio of operating expenses, net to average
daily net assets (%) ....................... 1.66 1.50 1.50 1.50*
Ratio of operating expenses before expense
reductions, to average daily net assets (%). 1.72 1.97 2.74 11.46*
Ratio of net investment income to average daily
net assets (%) ............................. .16 .82 1.25 2.40*
Portfolio turnover rate (%) ................... 88.8 39.0 27.9 --
Average commission rate paid (c) .............. $.0562 $.0509 $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after October 31, 1996.
* Annualized
** Not annualized
20 - Scudder Greater Europe Growth Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Greater Europe 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 consistently 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 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 most recent 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. Money market
investments having 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.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased put options and wrote call options on currencies
primarily as a hedge against potential adverse price movements in the value of
portfolio assets.
If the Fund writes an option and 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 Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
21 - Scudder Greater Europe Growth Fund
<PAGE>
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the 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. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities
at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
22 - Scudder Greater Europe Growth Fund
<PAGE>
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, 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.
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 difference
primarily relates to investments in foreign denominated investments, 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.
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 and initial registration of shares 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, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $186,940,306 and
$144,351,268, respectively.
C. Related Parties
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund has agreed to pay to the Adviser
a fee equal to an annualized rate of 1.00% 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 objectives, policies, and restrictions. The Adviser determines
the securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement. The Adviser agreed not to impose all or a portion of its
management fee until February 28, 1997, and during such period to maintain the
annualized expenses of the Fund at not more than 1.50% of average daily net
assets. For the year ended October 31, 1997, the Adviser did not impose a
portion of its management fee amounting to $100,865, and the amount imposed
amounted to $1,653,445.
23 - Scudder Greater Europe Growth Fund
<PAGE>
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
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, 1997, the amount charged by SSC aggregated $471,548, of
which $38,097 was unpaid at October 31, 1997.
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,
1997, the Special Servicing Agreement expense charged to the Fund amounted to
$2,683.
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,
1997, the amount charged by STC aggregated $26,160, of which $2,340 was unpaid
at October 31, 1997.
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 for the Fund. For the year ended
October 31, 1997, the amount charged by SFAC aggregated $135,790, of which
$24,234 was unpaid at October 31, 1997.
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 October 31, 1997, Directors' fees and expenses aggregated $63,400.
D. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
24 - Scudder Greater Europe Growth Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder International Fund, Inc. and to the
Shareholders of Scudder Greater Europe Growth Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Greater Europe Growth Fund, including the investment portfolio, as of October
31, 1997, and the related statements 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 three years in the period
then ended, and for the period October 10, 1994 (commencement of operations) to
October 31, 1994. 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
October 31, 1997, 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 Greater Europe Growth Fund as of October 31, 1997, 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 three years in the period then ended, and for the period October 10, 1994
(commencement of operations) to October 31, 1994, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 19, 1997
25 - Scudder Greater Europe Growth Fund
<PAGE>
Tax Information
The Fund will mail shareholders IRS Form 1099-Div in late January, summarizing
all taxable distributions paid for 1997.
The Fund paid distributions of $0.01 per share from net long-term capital gains
during its fiscal year ended October 31, 1997.
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$9,888,827 as capital gain dividends for its fiscal year ended October 31, 1997.
The Fund paid foreign taxes of $408,107 and the Fund recognized $1,983,159 of
foreign source income during the fiscal year ended October 31, 1997. Pursuant to
section 853 of the Internal Revenue Code, the Fund designates $0.04 per share of
foreign taxes and $0.21 of income from foreign sources as having been paid in
the fiscal year ended October 31, 1997.
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 Investor Relations
Representative at 1-800-225-5163.
Officers and Directors
Daniel Pierce*
Chairman of the Board and
Director
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
Robert W. Lear
Honorary Director;
Executive-in-Residence, Visiting
Professor, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Elizabeth J. Allan*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
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
*Scudder, Stevens & Clark, Inc.
26 - Scudder Greater Europe Growth Fund
<PAGE>
Stockholder Meeting Results
A Special Meeting of Stockholders (the "Meeting") of Scudder Greater Europe
Growth Fund (the "Fund") was held on October 27, 1997, at the offices of
Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street),
New York, New York 10154. At the Meeting, as adjourned and reconvened, the
following matters were voted upon by the stockholders (the resulting votes for
each matter are presented below.) With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide stockholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Paul Bancroft III 5,342,349 250,631
Sheryle J. Bolton 5,343,798 249,182
William T. Burgin 5,345,295 247,685
Thomas J. Devine 5,340,833 252,147
Keith R. Fox 5,347,952 245,028
William H. Gleysteen, Jr. 5,338,659 254,321
William H. Luers 5,343,820 249,160
Wilson Nolen 5,341,567 251,413
Daniel Pierce 5,342,687 250,293
Kathryn L. Quirk 5,337,010 255,970
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
5,178,811 246,602 167,567 232,874
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,732,655 544,843 238,957 222,147
27 - Scudder Greater Europe Growth Fund
<PAGE>
4. To approve changes to certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
<S> <C> <C> <C> <C>
4.1 diversification 4,676,485 425,243 258,378 232,874
4.2 borrowing 4,615,366 484,787 259,993 232,874
4.3 senior securities 4,664,599 434,472 261,035 232,874
4.4 commodities 4,661,242 440,952 257,912 232,874
4.5 concentration 4,662,577 440,142 257,387 232,874
4.6 underwriting of securities 4,665,467 433,310 261,329 232,874
4.7 investment in real estate 4,661,110 441,998 256,998 232,874
4.8 lending 4,651,379 408,685 300,042 232,874
</TABLE>
5. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
5,286,486 111,116 195,378
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
28 - Scudder Greater Europe 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 --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International 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.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
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. +++ +++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, Stevens & Clark, Inc., are traded on various stock exchanges.
29 - Scudder Greater Europe 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 you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
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 Greater Europe 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 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder 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
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
31 - Scudder Greater Europe Growth Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 over 40 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 us 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 long-standing
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.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
[LOGO]
<PAGE>
Scudder
Emerging Markets
Growth Fund
Annual Report
October 31, 1997
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>
In Brief
o Scudder Emerging Markets Growth Fund provided strong performance during a
volatile period in the emerging markets. The Fund's 13.51% return exceeded the
negative 9.97% return of the unmanaged IFC Investable Emerging Market Index by a
significant margin for the same twelve-month period.
o Positive performance of Egyptian, Polish, and Hungarian positions, as well as
an underweighting in troubled Asia, yielded strong results.
o Prospects are encouraging, but the performance of individual markets may
diverge greatly in the months ahead. Eastern Europe and the Middle East should
continue to shine, while many Asian markets may slump further.
Table of Contents
3 Letter from the Fund's Chairman 23 Notes to Financial Statements
4 Performance Update 27 Report of Independent Accountants
5 Portfolio Summary 28 Tax Information
6 Portfolio Management Discussion 29 Shareholder Meeting Results
10 Glossary of Investment Terms 32 Officers and Directors
11 Investment Portfolio 33 Investment Products and Services
19 Financial Statements 34 Scudder Solutions
22 Financial Highlights
2 - Scudder Emerging Markets Growth Fund
<PAGE>
Letter from the Fund's Chairman
Dear Shareholders,
We are pleased to present the annual report for Scudder Emerging Markets
Growth Fund for the twelve-month period ended October 31, 1997.
Nineteen ninety-seven appeared to be a banner year for the emerging markets
until the Thai baht was devalued on July 2, roiling Southeast Asia. What was
initially perceived as a mild contagion spread quickly to markets around the
globe, including the United States. While the effects on the region's economy
are still being sorted out, the Fund's minimal exposure to the Pacific Basin
permitted it to outperform significantly its benchmarks and peers (see page 6).
Recent events highlight the importance of a sound investment approach that
is based on careful diversification. To that end, an investor's portfolio should
include exposure to small-cap, foreign, emerging market, and fixed income
securities, in addition to large-cap U.S. stocks. Scudder Emerging Markets
Growth Fund can serve as an important holding in this type of diversified
portfolio, which, when combined with a habit of investing regularly and a
long-term perspective, may help many investors meet their investing goals.
For those of you who are interested in new Scudder products, we have
introduced Scudder International Growth and Income Fund, which pursues a
yield-oriented approach to investing in international equities. The Fund seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but wish to take a more conservative approach may
appreciate the Fund's emphasis on dividend-paying stocks of established
companies listed on foreign exchanges. For further information on this new fund,
please turn to page 35.
Thank you for your investment in Scudder Emerging Markets Growth Fund. If
you have any questions about your Fund, please call Scudder Investor Relations
at 1-800-225-2470, or visit our Web site at http://funds.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, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER EMERGING MARKETS GROWTH FUND
TICKER SYMBOL: SEMGX
- --------------------------------------------
1 Year $ 11,351 13.51% 13.51%
Life of Fund* $ 12,156 21.56% 14.08%
- --------------------------------------------
IFC EMERGING MARKETS INVESTABLE INDEX
- --------------------------------------------
1 Year $ 9,003 -9.97% -9.97%
Life of Fund* $ 8,711 -12.89% -9.26%
- --------------------------------------------
*The Fund commenced operations on May 8, 1996.
Index comparisons begin May 31, 1996.
- ----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- ----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER EMERGING MARKETS GROWTH FUND
Year Amount
- ----------------------
5/96* $10,000
7/96 $10,000
10/96 $10,559
1/97 $12,521
4/97 $12,727
7/97 $13,632
10/97 $11,986
IFC EMERGING MARKETS INVESTABLE INDEX
Year Amount
- ----------------------
5/96* $10,000
7/96 $ 9,454
10/96 $ 9,676
1/97 $10,559
4/97 $10,621
7/97 $11,567
10/97 $ 8,711
IFC Emerging Markets Investable Index is an unmanaged capitalization weighted
measure of stock markets in the emerging markets countries worldwide. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- ----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- ----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
PERIODS ENDED OCTOBER 31
1996* 1997
------- -------
NET ASSET VALUE........... $12.85 $14.56
INCOME DIVIDENDS.......... $ -- $ .03
FUND TOTAL RETURN (%)**... 7.08 13.51
INDEX TOTAL RETURN (%).... -3.24 -9.97
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 life of Fund period 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, 1997
- ---------------------------------------------------------------------------
GEOGRAPHICAL
(Excludes 12% Cash Equivalents)
- ---------------------------------------------------------------------------
Latin America 33%
Europe 29%
Africa 23%
U.S. & Canada 5%
Pacific Basin 3%
Other 7%
- --------------------------------------
100%
- --------------------------------------
An underweighting in Asia helped
the Fund avoid the significant downturn
in the region during the period.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
SECTORS
(Excludes 12% Cash Equivalents)
- --------------------------------------------------------------------------
Financial 22%
Consumer Staples 13%
Communications 10%
Metals & Minerals 10%
Construction 9%
Energy 9%
Manufacturing 7%
Consumer Discretionary 5%
Health 5%
Other 10%
- --------------------------------------
100%
- --------------------------------------
The Fund remained broadly
diversified across several
industry sectors.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
TEN LARGEST EQUITY HOLDINGS
(14% of Portfolio)
- --------------------------------------------------------------------------
1. TELECOMUNICACOES BRASILEIRAS S.A.
Telecommunication services in Brazil
2. ZAGREBACKA BANKA D.D.
Commercial banking in Croatia
3. CEMENTOS LIMA S.A.
Cement producer in Peru
4. OTP BANK RT
Commercial bank in Hungary
5. PLIVA D.D.
Pharmaceutical company in Croatia
6. SUEZ CEMENT CO.
Cement producer in Egypt
7. MINAS BUENAVENTURA S.A.
Mining company in Peru
8. OMNIUM NORD AFRICAINE
Conglomerate in Morocco
9. GRABOPLAST RT
Producer of home improvement materials,
artificial leather, and book bindings
in Hungary
10. AL AHRAM BEVERAGE CO.
Beverage company in Eqypt
Holdings in Egypt, Poland, and Hungary
were important contributors to the
Fund's outperformance during the period.
For more complete details about the Fund's investment portfolio, see page 11.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 - Scudder Emerging Markets Growth Fund
<PAGE>
Portfolio Management Discussion
We asked Joyce E. 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 twelve-month period ended October 31, 1997?
A: The Fund returned 13.51%, which significantly outpaced the negative 9.97%
return of the unmanaged IFC Investable Emerging Market Index. Among its peers,
the Fund ranked in the top 16% (19th) of 117 emerging market funds according to
Lipper Analytical Services for the same twelve-month period.
Q: To what do you attribute the Fund's outperformance?
A: Strong appreciation was delivered by holdings in Egypt, Poland and Hungary,
which comprised 27% of portfolio assets. These markets rose, and we were
substantially overweight in each. Also contributing to the relative
outperformance was our near absence from Malaysia, Indonesia, and Thailand,
which declined sharply during the last three months of the period.
On the negative side, our holdings in the Philippines hurt the Fund's
performance. The market lost 45.38% in the last three months, and our position,
which was less than 5% of porfolio assets, lost half of its value. We believe
the Philippines is in fundamentally better shape than its neighbors, but that
didn't matter, as panic swept the region.
Q: You just returned from a trip to Bulgaria, Romania, and Russia. What did you
find?
A: The big surprise was the attractiveness of Bulgaria. The new government that
came in this year appears to be doing all the right things. Hyperinflation has
been tamed with a currency board. Predictably, the economy is going through a
painful adjustment with GDP (gross domestic product) contracting 10% in the
first six months and unemployment rising. However, the light at the end of the
tunnel is visible: prices are being freed, removing the burden of government
subsidies; government reserves are building to a comfortable level; and a well
conceived stock market opened for business in October. The Bulgarians are
remarkable for their willingness to privatize whole companies, even permitting
foreign majority ownership. This is in contrast to so many other socialist
states who sell only pieces of government-run enterprises. Unlike Bulgaria,
these countries are reluctant to permit wholesale transformation to private
ownership and fail to confront the fact that virtual national bankruptcy means
only foreigners have sufficient capital to bring economic health quickly.
Bulgaria is truly capital-starved and rapidly developing a market-friendly
environment. We believe that combination sets the stage for a high return on
capital, and will be an interesting area for potential investments in the
future.
Q: What is your read on Russia?
A: Russia is much more problematic. Our conclusion is that the country will
eventually "make it" but now there is a huge disconnect between the stock market
and the country's derelict industrial base and liquidity-starved economy. Until
the government gets its fiscal house in order, the crowding out of the private
sector will continue to blight growth prospects. Many companies are largely paid
in IOU's or barter or simply never paid at all. Reported earnings are
6 - Scudder Emerging Markets Growth Fund
<PAGE>
meaningless in many cases because they are based on revenue that will largely
never be collectable. There are huge deficits in the legal and tax
infrastructures that make this a "wild west" for investing. When the market
begins to reflect a fundamental connection with the risks and earning potential
of listed companies, we will start to invest in Russia. There are some glimpses
of hope in the purely private sector, a small sector still, but one with promise
if Russia's reform effort stays on track.
Q: With strong performance in Poland, Hungary, Egypt, and Mexico over the
period, do these markets have further upside?
A: Our enthusiasm for Poland, Hungary, and Egypt remains. The markets are still
inexpensive considering their growth potential and we expect more good
performance from these areas in 1998. We also believe Mexico's recovery is
strengthening and will continue to be reflected in their stock market. We are
overweight in all four markets.
Q: Asia hit a huge pothole during the period. What's the prognosis?
A: The major news in the emerging markets has been the turmoil in Southeast
Asia. As the headlines indicate, we think this news is important. It is a
linchpin in the strategic thinking embedded in the Fund's portfolio. We have
been concerned with the structural problems of this region for some time and
have underweighted the Fund's holdings in Asia. Recent developments only serve
to reinforce this conclusion. However, we recognize that the situation is in
flux. The region has enormous resources and potential, but future government
policies are uncertain and the role of investor confidence is unforecastable. In
the months ahead, we will be alert to developments in the region, as they may
open up future opportunities for the Fund.
------------------------------------------------------------------------------
What We See Unfolding in Asia
-----------------------------
o Vise-like liquidity crunch to seize much of Asia
o Banking systems in jeopardy
o Real GDP growth of Asia may turn negative
o Money printing will be the likely route out
o Markets haven't bottomed yet; earnings will drop and P/E's will rise
o Hong Kong currency peg to US$ a possible casualty
o Some fallout on global liquidity likely, but Africa, Middle East,
and Central Europe look relatively immune
------------------------------------------------------------------------------
Q: What caused the crisis in Southeast Asia?
A: The sins of poor policy -- thwarting of market forces, economic patronage,
feeble bank regulation, massive investment in uneconomic projects -- are the
primary culprits, and are exacting a huge price on Asian growth and stability.
Compounding the damage of past sins is the lack of sensible, swift corrective
policy action. Even more deleterious are the attempts to manipulate markets.
Malaysia's opportunity to avert a full-fledged economic collapse has been
7 - Scudder Emerging Markets Growth Fund
<PAGE>
destroyed by poor policy reactions, which now create the potential for a debacle
approaching Thailand's proportions.
Banking systems in Thailand, Malaysia, and Indonesia are in critical condition.
Korea may follow as its system, already on the brink, is likely to be further
weakened by the fading of Korea's considerable export sales to ASEAN
(Association of Southeast Asian Nations) member countries. Failure or severe
impairment of banking systems reinforce the odds of economic retrenchment.
Without borrowing possibilities to fund investment and working capital,
economies shrink. The Philippine system has been severely wounded by fear, but
should probably pull through due to much lower lending levels in the economy and
superior bank supervision.
Q: Has liquidity, which is important in the emerging markets, been reduced?
A: The disappearance of liquidity is now becoming apparent in the worst-hit
economies. Non-performing loans are increasing. Barter payment is growing.
Massive discounts are being offered to move inventory. The magnitude of the
bail-out necessary for these systems dwarfs the Mexican effort. Even if bail-out
money were available, no aware lender is likely to offer it while these
countries are in denial, protecting favored projects, not allowing bankruptcies
and spending what resources they have left on propping up a failed system, e.g.
Thailand and Malaysia. Thailand has seriously impaired its credibility with
world lenders by hiding the fact, until the bail-out agreement was signed, that
it had squandered nearly all of its reserves on forward currency contracts.
Q: Is there a way out for these countries?
A: We see two ways out, one proven, the other still on trial. The first is
reflation via money printing, the other is to follow the Japanese gradualist
approach, which so far has not succeeded. We fear some other Asian countries may
try the Japanese route, as it appears to offer less immediate pain. However,
without deep pockets as the Japanese have, we think it has little chance of
success.
Money printing has already started in Thailand, and we hope other countries join
in. Boat-loads of money will be needed and more currency devaluation will
follow. However, there would be money around to grease the wheels of the
economies; borrowers can pay back their loans in cheap currency; and the banking
system can start to recycle money again. As a permanent solution this will only
work if reforms are put in place to regulate banks properly and many structural
changes are made in the economies so that capital is allocated efficiently in
the future. These reforms must include ending monopolies, removing
protectionism, ending distorting subsidies and improving government
accountability to reduce economic cronyism.
These prescriptions are probably too much for many governments to accept, so we
expect most of these countries to reflate, but few will solidify the recovery
with a full complement of reforms. No doubt there will be social protest at the
coming pain, which will compound the difficulties. To the extent that countries
do reform their systems to provide transparent, well regulated, open market
environments, confidence and foreign capital will return.
8 - Scudder Emerging Markets Growth Fund
<PAGE>
Q: How have you managed the portfolio with regard to Asia?
A: We were underweight in Asia for the twelve months and had pretty much exited
the region by the end of the period. The weighting is now 3% versus a 43% weight
in the IFC Emerging Markets Investable Index. Why have anything there? There can
be special situations anywhere, and we are holding on to a few companies with
strong exports in hard currencies and some Philippine companies we think will be
among the first to rebound.
Q: What are the promising emerging markets?
A: A number of markets in the Middle East and Africa (excluding South Africa)
have been unaffected by the recent turmoil in Asia. In fact, several of these
even rose a bit. We believe many of these markets have good appreciation
potential because risk has already been properly priced into the markets and
their economic fundamentals are good. The realization of substantial risk is
still being priced into Asian markets, Brazil and Russia, to mention the
notable.
The winners will be those markets where risk is appropriately factored into
stock prices and whose companies can produce consistent earnings growth. We
think Mexico, Peru, Hungary, Poland, Egypt, Oman, Tunisia, Jordan, Kenya and
smaller Eastern European and African markets fit this bill. There are some
special situations in India, Brazil, and South Africa that we like as well.
On balance, we are bullish on the opportunities for capital appreciation in the
markets in which the Fund is positioned. The key is to be invested in markets
with strong earnings growth where risk is already appropriately priced.
Scudder Emerging Markets
Growth Fund: A Team Approach
to Investing
Scudder Emerging Markets Growth 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 together to develop investment
strategies and select securities for the Fund's portfolio. They are supported
by Scudder's large staff of quantitative analysts, traders and other
investment specialists who work in Scudder's offices across the United States
and abroad. Scudder believes its team approach benefits Fund investors by
bringing together many disciplines and leveraging Scudder's extensive
resources.
Joyce E. Cornell, Lead Portfolio Manager, has responsibility for the Fund's
day-to-day management and investment strategies. Ms. Cornell has been a
portfolio manager at Scudder since 1993, and joined the firm in 1991 after
eight years of investment experience as a research analyst. Elizabeth Allan,
Portfolio Manager, helps set the Fund's general investment strategies. Ms.
Allan joined Scudder in 1987, and has numerous years of Pacific Basin research
and investing experience. Tara C. Kenney, Portfolio Manager, assists with the
Fund's research and investment strategy by focusing on the Latin American
securities in the portfolio. Ms. Kenney joined Scudder in 1995 and has over
ten years of financial industry experience.
9 - 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. This may be prompted by trading or central
bank intervention (or the lack of intervention) 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.
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 stock that is liquid has enough shares
outstanding and a substantial enough market
capitalization to allow large purchases and sales
to occur without causing a significant change in
its market price.
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
Investable Emerging Market 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; Barron's Dictionary of Finance and Investment Terms)
10 - Scudder Emerging Markets Growth Fund
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 4.2%
- --------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/31/97 at 5.7%, to be
repurchased at $8,849,201 on 11/3/97, collateralized by a $8,863,000 U.S. Treasury Note, ------------
5.125%, 2/28/98 (Cost $8,845,000) .............................................................. 8,845,000 8,845,000
------------
Short Term Notes 7.8%
- --------------------------------------------------------------------------------------------------------------------------------
------------
Federal Home Loan Bank Discount Note, 11/3/97 (Cost $16,494,958) ................................. 16,500,000 16,494,958
------------
Convertible Bonds 0.3%
- -------------------------------------------------------------------------------------------------------------------------------
Mexico -----------
Alfa S.A. de C.V., 8%, 9/15/00 (Manufactures various durable goods) (Cost $828,938) .............. 460,000 710,700
-----------
Shares
- -------------------------------------------------------------------------------------------------------------------------------
Common Stocks 87.7%
- -------------------------------------------------------------------------------------------------------------------------------
Argentina 2.2%
Cresud S.A. Comercial* (Agricultural company dealing in cattle and grains) ....................... 569,000 1,041,900
Inversiones y Representaciones S.A. (Real estate developer) ...................................... 223,100 750,070
Perez Companc S.A. "B" (Industrial conglomerate) ................................................. 159,651 1,000,020
S.A. San Miguel AGICI "B"* (Cultivation and process of lemons and lemon products) ................ 9,100 173,005
YPF S.A. "D" (ADR) (Petroleum company) ........................................................... 51,300 1,641,600
-----------
4,606,595
-----------
Australia 0.8%
Orogen Minerals Ltd. (Investment company with controlling interest in Papua New Guinea
gold and oil companies) ........................................................................ 326,300 711,359
Orogen Minerals Ltd. (GDR) ....................................................................... 44,400 965,700
-----------
1,677,059
-----------
Botswana 0.7%
Sechaba Investment Trust Co. (Brewery) ........................................................... 1,229,000 1,427,192
Brazil 8.0% -----------
Aracruz Celulose S.A. "B" (pfd.) (Producer of eucalyptus pulp) ................................... 59,000 90,444
Aracruz Celulose S.A. (ADR) ...................................................................... 42,450 636,750
Cia de Eletricidade do Estado de Bahia* (Electric power utility) ................................. 2,319,500 126,237
Companhia Energetica de Minas Gerais (pfd.) (Electric power utility) ............................. 12,280,000 490,108
Companhia Riograndense Telecomunicacoes S.A.* (Telecommunication services) ....................... 2,279,000 1,757,132
Companhia Riograndense Telecomunicacoes S.A. Receipts* (b) ....................................... 63,578 49,019
Companhia Vale do Rio Doce (pfd.) (Diverse mining and industrial complex) ........................ 55,100 1,074,561
Industrias Klabin de Papel e Celulose S.A. (pfd.) (Producer of paper and paper products,
newsprint, and cardboard boxes) ................................................................ 1,161,000 895,143
</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>
Petroleo Brasileiro S.A. (pfd.) (Petroleum company) ..................................... 11,790,000 2,192,344
Saraiva S.A. (pfd.)* (Book publisher) ................................................... 245,900 1,605,950
Telecomunicacoes Brasileiras S.A. (Telecommunication services) .......................... 43,750,000 3,888,668
Telecomunicacoes de Minas Gerais (voting) (Telecommunication services) .................. 15,530 2,141
Telecomunicacoes de Minas Gerais S.A. "B"* .............................................. 192 17
Telecomunicacoes do Parana S.A. (pfd.) (Telecommunication services) ..................... 3,399,668 1,773,119
Telecomunicacoes do Rio Janeiro S.A. (pfd.) (Telecommunication services) ................ 15,238,000 1,451,304
Telecomunicacoes do Rio Janeiro S.A. Rights* (b) ........................................ 590,837 8,039
Usinas Siderurgicas de Minas Gerais S.A. (pfd.) (Non-coated flat products and
electrolytic galvanized products) ..................................................... 137,000 994,149
-------------
17,035,125
-------------
Canada 1.2%
Corriente Resources, Inc.* (Mining and processing of gold, bismuth, tin and
tungsten in South America) ............................................................ 405,900 403,207
Etruscan Enterprises Ltd.* (Exploration and development of gold prospect in Nigeria) .... 119,000 439,068
Gitennes Exploration Inc. Warrants (expire 10/2/98)* (Gold mining in Peru) (b) .......... 54,000 186,214
Interoil Corp.* (Oil exploration in Papua New Guinea) ................................... 78,300 822,150
Kazakhstan Minerals Corp.* (Mineral exploration in Kazakhstan) .......................... 76,700 49,855
Ouraminas Minerals Inc.* (Gold exploration in Brazil) ................................... 290,000 84,365
Seven Seas Petroleum, Inc.* (Oil and gas exploration) ................................... 13,000 227,500
Solitario Resources Corp.* (Precious and base metals exploration company primarily
in Argentina and Peru) ................................................................ 153,600 422,322
-------------
2,634,681
-------------
Chile 3.0%
Chilgener S.A. (ADR) (Electricity generator and supplier) ............................... 17,457 475,703
Enersis S.A. (ADR) (Generator and distributor of electricity in Chile and Argentina) .... 65,300 2,154,900
Laboratorio Chile S.A. (ADR) (Manufacturer and distributor of off-patent
pharmaceutical products) .............................................................. 26,650 669,581
Sociedad Quimica y Minera de Chile S.A. (ADR) (Producer of fertilizer, iodine and
industrial chemicals) ................................................................. 29,200 1,514,750
Vina Concha y Toro S.A. (ADR) (Wine producer) ........................................... 60,000 1,635,000
-------------
6,449,934
-------------
Croatia 2.8%
Pliva D.D. (GDR) (Pharmaceutical company) ............................................... 83,470 1,293,785
Pliva D.D. (GDR) ........................................................................ 106,650 1,653,075
</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>
Zagrebacka Banka (GDR) (Commercial bank) ..................................................... 97,400 3,104,625
------------
6,051,485
------------
Egypt 11.3%
Al Ahram Beverage Co. (GDR)* (Beverage company) ............................................... 87,200 2,398,000
Al Ahram Beverage Co.* ........................................................................ 8,400 231,000
Arab International Construction Co.* (Construction company) ................................... 1,100 28,773
Commercial International Bank (Commercial bank) ............................................... 50,570 1,168,944
Commercial International Bank (GDR) ........................................................... 40,500 880,875
Eastern Tobacco Company (Maker of tobacco products) ........................................... 80,120 2,007,415
Egyptian Financial & Industrial Co. (Fertilizer producer) ..................................... 37,150 2,445,731
Egyptian International Pharmaceutical Co. (Pharmaceutical company) ............................ 27,400 1,981,014
Helwan Portland Cement Co. (Cement producer) .................................................. 35,100 740,169
International Foods Co.* (Food producer) ...................................................... 34,000 829,390
Madinet Nasser City Housing Co. (Real estate development company) ............................. 30,170 2,083,659
Misr International Bank (Bank) ................................................................ 10,886 1,823,665
North Cairo Mills, Ltd. (Flour producer) ...................................................... 26,600 1,157,032
Olympic Group Financial* (Egyptian household appliance manufacturer) .......................... 223,000 1,063,060
Suez Cement Co. (Cement producer) ............................................................. 99,677 2,182,494
Suez Cement Co. (GDR) ......................................................................... 32,600 676,450
Torrah Portland Cement Co. (Cement producer) .................................................. 90,305 2,468,292
------------
24,165,963
------------
France 1.2%
Bouygues Offshore S.A. (Offshore and onshore oil and gas production construction and
maintenance services) ....................................................................... 53,000 2,512,981
------------
Ghana 0.3%
Social Security Bank Ltd.* (Full service commercial bank) ..................................... 804,000 606,148
------------
Hong Kong 0.0%
Moulin International Holding Ltd. Warrants (expire 10/16/99)* (Manufacturer of optical
products) ................................................................................... 249,208 5,447
------------
Hungary 5.8%
Graboplast Rt (Producer of home improvement materials, artificial leather and book bindings) .. 41,529 2,239,795
Graboplast Rt (GDR)* .......................................................................... 45,800 395,025
Matav Rt* (Telecommunication services) ........................................................ 2,700 1,199,630
Mezogep Rt* (Automobile parts manufacturer) ................................................... 6,000 166,269
OTP Bank Rt (Savings and commercial bank) ..................................................... 84,100 2,678,275
OTP Bank Rt (GDR)* ............................................................................ 10,900 339,263
</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>
Pannonplast Rt (Manufacturer of plastic products from PVC, polypropylene, polyethylene
and other raw materials) .................................................................... 32,757 1,800,175
Pick Szeged Rt (Sausage maker) ................................................................ 18,000 1,479,313
Richter Gedeon Rt (Pharmaceutical company) .................................................... 21,100 1,940,006
------------
12,237,751
------------
India 1.5%
Ashok Leyland Ltd. (GDR) (Manufacturer of medium and heavy duty commercial vehicles) .......... 44,000 185,900
Bharat Petroleum Corp., Ltd (Oil exploration and refining, manufacturer of petroleum
products) ..................................................................................... 33,500 401,600
HDFC Bank Ltd. (Corporate banking and financial services) .....................................1,016,500 2,270,876
Hindustan Petroleum Corp., Ltd (Oil refining, manufacturer of petroleum products) ............. 7,200 94,530
ICICI Banking Corp.* (Bank) ................................................................... 140,000 187,657
------------
3,140,563
------------
Indonesia 0.7%
HM Sampoerna (Foreign registered) (Tobacco company) ........................................... 254,000 442,122
Indah Kiat Pulp & Paper (Foreign registered) (Producer of pulp and paper) .....................1,713,180 653,432
London Sumatra Indonesia (Producer of palm oil, cocoa, coffee and tea) ........................ 350,300 376,536
Panin Bank Warrants (expire 06/26/00)* (Bank) (b) ............................................. 145,714 3,638
------------
1,475,728
------------
Israel 0.2%
Makhteshim Chemical Works* (Chemical producer) ................................................ 74,100 458,593
------------
Jordan 0.7%
Arab Potash Co. (Salt and chemical producer) .................................................. 47,400 410,289
Dar Al Dawa Development & Investment Co.* (Pharmaceutical company) ............................ 37,900 302,453
The Housing Bank (Residential construction finance) ........................................... 113,850 810,811
------------
1,523,553
------------
Kenya 1.1%
East African Portland Cement Co. (Cement producer) (b) ........................................ 290,000 158,544
Firestone East Africa Ltd. (Tire manufacturer) ................................................ 930,000 312,324
Sasini Tea & Coffee Ltd. (Tea and coffee grower and processor) (b) ............................ 925,000 1,358,169
Uchimi Supermarket Ltd. (Supermarket operator) ................................................ 930,000 537,488
------------
2,366,525
------------
Lebanon 1.2%
Banque Libanaise pour le Commerce SAL (GDR)* (Commercial bank) ................................ 115,000 2,541,500
------------
Malaysia 0.1%
PPB Oil Palms Berhad* (Refiner and marketer of palm oils and related products) ................ 191,000 189,081
------------
Mexico 8.8%
Consorcio ARA, S.A. de C.V.* (Low-income housing developer) ................................... 253,000 930,436
</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>
Empresa ICA Sociedad Controladora S.A. (Construction company) ........................... 404,600 903,405
Fomento Economico Mexicano, S.A. de C.V. "B" (Producer of beer and soft drinks) ......... 370,000 2,606,567
Gruma S.A. de C.V.* (Producer and distributor of corn flour) ............................ 174,400 683,023
Grupo Elektra, S.A. de C.V. "B" (Consumer electronics and appliances retail stores) ..... 738,700 1,005,514
Grupo Financiero Banamex-Accival, S.A. de C.V. "B"* (Bank) .............................. 839,200 1,663,370
Grupo Financiero Inbursa, S.A. de C.V. "B" (Brokerage, insurance, banking and
leasing services) ..................................................................... 87,300 307,504
Grupo Industrial Alfa S.A. "A" (Conglomerate: steel, petrochemicals, packaged food) ..... 241,500 1,764,752
Grupo Industrial Maseca S.A. de C.V. "B" (Food producer) ................................ 391,000 378,161
Grupo Mexico S.A. "L" (Mineral mining, including silver, copper, zinc, gold and coal) ... 242,000 716,609
Grupo Radio Centro S.A. de C.V. (Owner and operator of radio stations) .................. 555,900 862,890
Grupo Radio Centro S.A. de C.V. ......................................................... 83,200 1,060,800
Industrias Penoles S.A. (Exploration and marketing of minerals and non-ferrous metals
such as lead, zinc and silver) ........................................................ 503,700 1,999,764
Organizacion Soriana S.A. "A" de CV (Retailer) .......................................... 221,100 736,560
TV Azteca, S.A. de C.V. (ADR)* (Owner and operator of national television networks) ..... 104,900 2,006,213
Telefonos de Mexico S.A. de C.V. "L" (ADR) (Telecommunication services) ................. 24,400 1,055,300
------------
18,680,868
------------
Morocco 2.0%
Maghrebail (Real estate leasing, maintenance and insurance) ............................. 1,599 85,605
Omnium Nord Africaine (Conglomerate) .................................................... 29,900 2,717,463
Societe Nationale d'Investissements (Conglomerate, various joint ventures) .............. 6,000 530,075
WAFABANK (Commercial bank) .............................................................. 10,707 999,161
------------
4,332,304
------------
Oman 2.9%
Bank Muscat Al Ahla Al Omani (Commercial bank) .......................................... 68,500 1,823,891
National Bank of Oman Ltd. (Commercial bank) ............................................ 84,200 2,298,789
Oman Alliance Bank* (Commercial bank) ................................................... 90,000 551,746
Oryx Fund, Ltd.* (Mutual fund domiciled in Guernsey, investing in the Middle East) ...... 79,500 1,530,375
------------
6,204,801
------------
Peru 6.8%
CPT Telefonica del Peru S.A. (ADR) (Telecommunication services) ......................... 14,100 278,475
Cementos Lima S.A. "T" (Cement producer) ................................................ 148,477 3,090,991
Compania Peruana de Telefonos S.A. "B" (Public and cellular telephone services) ......... 698,000 1,391,371
Edegel S.A. "B" (Electric power utility) ................................................ 3,307,637 1,401,541
Enrique Ferreyros y Cia. (Machinery manufacturer) ....................................... 2,119,312 2,186,468
Luz del Sur S.A. "B" (Electric power distributor) ....................................... 917,500 1,122,366
</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>
Minas Buenaventura S.A. "A" (Mining company) ............................................ 312,500 2,717,391
Minas Buenaventura S.A. (ADR) ........................................................... 7,300 130,944
Minera Milpo "T" (Mining company) ....................................................... 135,885 945,287
Peru Pacifico* (Food producer) .......................................................... 1,094,913 1,133,642
Volcan Compania Minera S.A. "T" (Mining company) ........................................ 15,900 93,736
------------
14,492,212
------------
Philippines 1.1%
Aboitiz Equity Ventures Inc. (Conglomerate: electricity, infrastructure, shipbuilding) .. 14,818,000 484,877
C & P Homes, Inc. (Home construction company) ........................................... 1,538,700 115,023
International Container Terminal Services, Inc.* (Containerized cargo handling firm) .... 5,487,750 1,083,618
Ionics Circuit Inc. (Manufacturer of electronic components) ............................. 348,750 204,134
Metropolitan Bank and Trust Company (Commercial bank and trust company) ................. 43,804 302,736
Mondragon International Philippines, Inc. (Wholesale and direct selling of clothing,
housewares and homecare products) ..................................................... 3,003,600 162,677
------------
2,353,065
------------
Poland 10.0%
Amica* (Manufacturer of home appliances) ................................................ 106,522 2,002,063
Bank Przemyslowo Handlowy (Bank) ........................................................ 24,698 1,296,911
Bydgoska Fabryka Kabli S.A.* (Manufacturer of cables, wires and insulating materials) ... 226,750 1,854,340
Cersanit SA* (Manufacturer of ceramic sanitary products) (b) ............................ 17,500 954,089
Computerland Poland S.A.* (Provider of computer services and systems) ................... 76,300 1,357,418
Debica S.A. "A" (Tire manufacturer) ..................................................... 62,500 1,649,928
ITI Group S.A.* (Telecommunication services) (b) ........................................ 8,315 1,954,025
Jelfa* (Pharmaceutical company) ......................................................... 10,200 210,732
Kutnowskie Zaklady Farmaceutyczne Polfa S.A.* (Producer of pharmaceuticals, veterinary
medicines, food components) ........................................................... 49,700 1,454,634
Mostostal Zabrze Holding S.A. (Construction company) .................................... 271,100 1,493,578
Poland Privatization Voucher* (Exchangeable into shares of National Investment Funds) ... 18,100 690,760
Powszechny Bank Kredytowy S.A.* (Commercial bank) ....................................... 10,000 215,208
RP Telecom* (Telecommunication services) (b) ............................................ 96,742 1,934,840
RP Telecom "O"* (b) ..................................................................... 8,729 174,580
RP Telecom "P"* (b) ..................................................................... 7,330 146,600
Wielkopolski Bank Kredytowy S.A. (Commercial bank) ...................................... 453,800 2,408,981
Zaklady Metali Lekkich Kety* (Manufacturer of aluminum casting alloys and products) ..... 98,300 1,359,558
------------
21,158,245
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Portugal 2.9%
Cimentos de Portugal S.A. (Manufacturer of cement, ready mix concrete and aggregates) ..... 34,100 862,923
Electricidade de Portugal (Generates, transmits and distributes electricity in Portugal) .. 109,000 1,915,326
Portugal Telecom SA (Telecommunication services) .......................................... 52,300 2,145,832
Semapa S.A. (Cement producer) ............................................................. 51,700 1,193,642
------------
6,117,723
------------
Romania 0.5%
Societe Generale Romania Fund* (Investment company) ....................................... 9,400 963,500
------------
Slovenia 0.2%
BTC (GDR)* (Property management) .......................................................... 57,000 484,500
------------
South Africa 1.5%
Energy Africa Ltd.* (Oil and gas exploration and production) .............................. 203,133 1,065,125
Sasol Ltd. (Coal mining and processing, crude oil exploration and refining,
petrochemical production) ............................................................... 184,200 2,218,586
------------
3,283,711
------------
Switzerland 0.3%
Holderbank Financiere Glaris AG (Bearer) (Cement producer) ................................ 715 575,246
------------
Taiwan 0.1%
Kee Tai Properties Co., Ltd. (Sale and leasing of residential and commercial buildings) ... 105,300 154,463
------------
United Kingdom 1.4%
African Lakes Corp. PLC* (Motor trading, agriculture, mining, engineering, computer
supplies and general trading) ........................................................... 869,928 751,631
James Finlay PLC (Tea producer) ........................................................... 899,000 1,809,903
Reunion Mining PLC* (Mineral exploration and copper production) ........................... 203,000 326,950
------------
2,888,484
------------
United States 3.6%
Aramex International Ltd.* (Express delivery and freight forwarding in the Mideast
and India) ................................................................................ 35,700 548,888
Benton Oil & Gas Co.* (Oil and gas exploration, development and production) ............... 111,600 2,245,950
Diamond Offshore Drilling, Inc. (Offshore oil and gas well drilling) ...................... 30,700 1,911,075
Santa Fe International Corp. (International offshsore and land contract driller) .......... 24,500 1,205,094
Triton Energy Ltd.* (Independent oil and gas exploration and production company) .......... 44,400 1,737,150
------------
7,648,157
------------
Zimbabwe 2.8%
Delta Corp., Ltd. (Brewery) ............................................................... 688,820 973,406
Meikles Africa Ltd. (GDR) (Hotel operator) ................................................ 965,400 1,954,935
National Merchant Bank of Zimbabwe Ltd (Commercial bank) .................................. 342,500 811,725
Tanganda Tea Co., Ltd. (Tea producer and distributor) ..................................... 1,205,000 657,488
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Emerging Markets Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Wankie Colliery Co., Ltd. (Coal mining at Hwange) ......................................... 1,965,000 1,079,882
Zimbabwe Sun (Operator of hotels and other tourist facilities) ............................ 1,212,392 454,498
------------
5,931,934
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $181,470,799) 186,375,117
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $207,639,695) (a) 212,425,775
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $208,926,650. At October 31,
1997, net unrealized appreciation for all securities based on tax cost was
$3,499,125. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $24,266,168 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$20,767,043.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $6,927,757 (3.15% 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, 1997 aggregated $6,534,693. These
securities may also have certain restrictions as to resale.
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
18 - Scudder Emerging Markets Growth Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $207,639,695) ................. $ 212,425,775
Cash .................................................................. 1,010
Foreign currency, at value (identified cost $554,092) ................. 542,923
Receivable for investments sold ....................................... 9,234,102
Dividends and interest receivable ..................................... 138,269
Receivable for Fund shares sold ....................................... 123,220
Foreign taxes recoverable ............................................. 9,875
Deferred organization expenses ........................................ 21,449
Other assets .......................................................... 1,269
----------------
Total assets .......................................................... 222,497,892
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 1,547,429
Payable for Fund shares redeemed ...................................... 536,667
Accrued management fee ................................................ 245,754
Other payables and accrued expenses ................................... 543,561
----------------
Total liabilities ..................................................... 2,873,411
---------------------------------------------------------------------------------------------
Net assets, at market value $ 219,624,481
---------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated distribution in excess of net investment income ........... (474,763)
Unrealized appreciation (depreciation) on:
Investment securities .............................................. 4,786,080
Foreign currency related transactions .............................. (20,343)
Accumulated net realized loss ......................................... (699,642)
Paid-in capital ....................................................... 216,033,149
---------------------------------------------------------------------------------------------
Net assets, at market value $ 219,624,481
---------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($219,624,481 /
15,080,532 shares of capital stock outstanding, $.01 par value, ----------------
100,000,000 shares authorized) ..................................... $14.56
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder Emerging Markets Growth Fund
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $198,340) .................. $ 3,104,094
Interest ............................................................... 820,761
-----------------
3,924,855
-----------------
Expenses:
Management fee ......................................................... 2,342,072
Custodian and accounting fees .......................................... 989,541
Services to shareholders ............................................... 743,989
Directors' fees and expenses ........................................... 64,633
Registration fees ...................................................... 58,279
Auditing ............................................................... 56,130
Reports to shareholders ................................................ 58,625
Legal .................................................................. 14,602
Amortization of organization expense ................................... 6,106
Other .................................................................. 12,101
-----------------
Total expenses before reductions ....................................... 4,346,078
Expense reductions ..................................................... (617,962)
-----------------
Expenses, net .......................................................... 3,728,116
---------------------------------------------------------------------------------------------
Net investment income 196,739
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized loss from:
Investments ............................................................ (95,234)
Foreign currency related transactions (net of CPMF tax $65,329) ........ (456,541)
-----------------
(551,775)
-----------------
Net unrealized appreciation (depreciation) during the period on:
Investments (net of India tax $67,289) ................................. 3,174,568
Foreign currency related transactions .................................. (18,865)
-----------------
3,155,703
---------------------------------------------------------------------------------------------
Net gain on investment transactions 2,603,928
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 2,800,667
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Emerging Markets Growth Fund
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
May 8, 1996
(commencement
Year of
Ended operations) to
October 31, October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................. $ 196,739 $ (55,079)
Net realized loss ........................................ (551,775) (615,373)
Net unrealized appreciation on investment transactions
during the period ..................................... 3,155,703 1,610,034
---------------- -----------------
Net increase in net assets resulting from operations ..... 2,800,667 939,582
---------------- -----------------
Distributions to shareholders from net investment income . (178,523) --
---------------- -----------------
Fund share transactions:
Proceeds from shares sold ................................ 195,752,276 76,964,590
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................ 144,724 --
Cost of shares redeemed .................................. (55,248,506) (2,135,475)
Redemption fees .......................................... 560,150 23,796
---------------- -----------------
Net increase in net assets from Fund share transactions .. 141,208,644 74,852,911
---------------- -----------------
Increase in net assets ................................... 143,830,788 75,792,493
Net assets at beginning of period ........................ 75,793,693 1,200
Net assets at end of period (including accumulated
distributions in excess of net investment income $474,763 ---------------- -----------------
and net investment loss of $124,716, respectively) ....... $219,624,481 $75,793,693
---------------- -----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period 5,896,839 100
---------------- -----------------
Shares sold 12,807,944 6,064,272
Shares issued to shareholders in reinvestment of 10,595 --
distributions
Shares redeemed (3,634,846) (167,533)
---------------- -----------------
Net increase in Fund shares 9,183,693 5,896,739
---------------- -----------------
Shares outstanding at end of period 15,080,532 5,896,839
---------------- -----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - 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
Year (commencement) of
Ended operations) to
October 31, October 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------------------------------------
Net asset value, beginning of period .......................................... $12.85 $12.00
---------------------------------------------
Income from investment operations: ............................................ .02 (.02)
Net investment income (loss)
Net realized and unrealized gain on investments ............................... 1.67 .86
---------------------------------------------
Total from investment operations .............................................. 1.69 .84
---------------------------------------------
Less distributions from net investment income ................................. (.03) --
Redemption fees ............................................................... .05 .01
---------------------------------------------
Net asset value, end of period ................................................ $14.56 $12.85
---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) (d) ...................................................... 13.51 7.08**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................................ 220 76
Ratio of operating expenses, net to average daily net assets (%) .............. 2.00 2.00*
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ................................................................. 2.33 3.79*
Ratio of net investment income (loss) to average daily net assets (%) ......... .11 (.32)*
Portfolio turnover rate (%) ................................................... 61.5 19.5*
Average commission rate paid (b) .............................................. $.0013 $.0006
</TABLE>
(a) Based on monthly average of shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks.
(c) Total return is higher due to maintenance of the Fund's expenses.
(d) 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
22 - 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 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 other than money market securities are valued by
pricing agents approved by the Officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which, at the time
of purchase and each subsequent business day, is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least 100.5% of the repurchase price.
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.
23 - 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 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, 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, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $370,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2004, the expiration date, 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, foreign denominated
investments, 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.
24 - 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, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $213,455,841 and
$102,511,952, respectively.
C. Related Parties
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), 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
Agreement. The Adviser has 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. For the
year ended October 31, 1997, the Adviser did not impose a portion of its
management fee amounting to $617,962, and the amount imposed amounted to
$1,724,110.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
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, 1997 the amount charged by SSC aggregated $480,002, of
which $42,661 is unpaid at October 31, 1997.
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,
1997, the Special Servicing Agreement expense charged to the Fund amounted to
$136,201.
25 - Scudder Emerging Markets Growth Fund
<PAGE>
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,
1997, the amount charged to the Fund by STC aggregated $41,624, of which $5,496
is unpaid at October 31, 1997.
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, 1997, the amount charged to the Fund by SFAC aggregated $178,487, of
which $34,622 is unpaid at October 31, 1997.
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
October 31, 1997, Directors' fees and expenses aggregated $64,633.
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.
26 - Scudder Emerging Markets Growth Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of International Fund, Inc. and the Shareholders of
Scudder Emerging Markets Growth Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Emerging Markets Growth Fund, including the investment portfolio, as of October
31, 1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for the year then ended and for the period
May 8, 1996 (commencement of operations) to October 31, 1996, and the financial
highlights for the year ended October 31, 1997 and for the period May 8, 1996
(commencement of operations) to October 31, 1996. 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
October 31, 1997 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 Emerging Markets Growth Fund as of October 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended and for the period May 8, 1996 (commencement of operations) to
October 31, 1996 and the financial highlights for the year ended October 31,
1997 and for the period May 8, 1996 (commencement of operations) to October 31,
1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 17, 1997
27 - Scudder Emerging Markets Growth Fund
<PAGE>
Tax Information
The Fund paid foreign taxes of $198,340 and the Fund recognized $515,442 of
foreign source income during the fiscal year ended October 31, 1997. Pursuant to
section 853 of the Internal Revenue Code, the Fund designates $.01315 per share
of foreign taxes and $.03418 of income from foreign sources as having been paid
in the fiscal year ended October 31, 1997, respectively.
28 - Scudder Emerging Markets Growth Fund
<PAGE>
Stockholder Meeting Results
A Special Meeting of Stockholders (the "Meeting") of Scudder Emerging Markets
Growth Fund (the "Fund") was held on October 27, 1997, at the offices of
Scudder, Stevens & Clark, Inc., 25th Floor, 345 Park Avenue (at 51st Street),
New York, New York 10154. At the Meeting, as adjourned and reconvened, the
following matters were voted upon by the stockholders (the resulting votes for
each matter are presented below.) With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide stockholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To elect Directors.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Paul Bancroft III 8,485,231 224,914
Sheryle J. Bolton 8,482,415 227,730
William T. Burgin 8,485,269 224,876
Thomas J. Devine 8,480,316 229,829
Keith R. Fox 8,488,091 222,054
William H. Gleysteen, Jr. 8,477,231 232,914
William H. Luers 8,481,631 228,514
Wilson Nolen 8,483,572 226,573
Daniel Pierce 8,484,766 225,379
Kathryn L. Quirk 8,482,038 228,107
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
8,384,334 207,247 118,564 98,188
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
8,268,279 426,626 228,693 0
29 - Scudder Emerging Markets Growth Fund
<PAGE>
4. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
<S> <C> <C> <C> <C>
4.1 Diversification 8,034,053 312,203 265,701 98,188
4.2 Borrowing 7,959,915 384,810 267,232 98,188
4.3 Senior securities 7,984,239 358,780 268,938 98,188
4.4 Purchase of physical 7,983,542 362,159 266,256 98,188
commodities
4.5 Concentration 7,988,834 357,407 265,716 98,188
4.6 Underwriting of securities 7,984,571 361,251 266,135 98,188
4.7 Investment in real estate 7,989,300 356,891 265,766 98,188
4.8 Lending 7,975,819 328,856 307,282 98,188
</TABLE>
5. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
8,453,635 98,033 158,477
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
30 - Scudder Emerging Markets Growth Fund
<PAGE>
This Page
intentionally
left blank.
31 - Scudder Emerging Markets Growth Fund
<PAGE>
Officers and Directors
Daniel Pierce*
Chairman of the Board and
Director
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
Robert W. Lear
Honorary Director;
Executive-in-Residence, Visiting
Professor, Columbia University
Graduate School ofBusiness
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Elizabeth J. Allan*
Vice President
Joyce E. Cornell*
Vice President
Richard W. Desmond*
Assistant Secretary
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Jerard K. Hartman*
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
*Scudder, Stevens & Clark, Inc.
32 - 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 --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International 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.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
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. +++ +++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, Stevens & Clark, Inc., are traded on various stock exchanges.
33 - 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 you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
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
- ------------------------------------------------------------------------------------------------------------------------------
34 - 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 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder 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
- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
35 - Scudder Emerging Markets Growth Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark 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 over 40 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 us 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 long-standing
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.
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]
