Scudder International Fund
Scudder International Fund is a diversified series of Scudder International
Fund, Inc., an open-end management investment company. This prospectus sets
forth concisely the information about Barrett International Shares, a class of
shares of Scudder International Fund, 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 April 3, 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 1-800-854-8525. 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 SEC'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 3.
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NOT FDIC- / MAY LOSE VALUE
INSURED / NO BANK GUARANTEE
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Barrett International
Shares
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Prospectus
April 3, 1998
A mutual fund seeking long-term growth of capital primarily from foreign equity
securities.
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Expense information
This information is designed to help you understand the various costs and
expenses of investing in Barrett International Shares (the "Shares"), a class of
shares of Scudder International 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.
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 operating expenses+: Expenses paid by the Fund before it distributes
its net investment income, expressed as a percentage of the average daily
net assets for the fiscal year ended March 31, 1998.
Investment management fee 0.82%
12b-1 fees NONE
Other expenses 0.33%
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Total operating expenses 1.15%
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Example
Based on the level of total operating expenses listed above, the total
expenses relating to a $1,000 investment in the Barrett International Shares of
the Fund, 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
------ ------- ------- --------
$12 $37 $63 $140
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.
* The information set forth on this page relates only to the Fund's Barrett
International Shares. The Fund also offers International Shares, which may
have different fees and expenses (which may affect performance), have
different minimum investment requirements and may be entitled to different
services. More information may be obtained by contacting Scudder Investor
Services, Inc., Two International Place, Boston, MA 02110-4103 or calling
1-800-854-8525.
** 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."
+ The inception date for the Fund's Barrett International Shares class of
shares is April 3, 1998. Accordingly, the expense rates shown are estimates
based on amounts incurred by the Fund during the fiscal year ended March
31, 1998, prior to the creation of multiple classes of the Fund. It is
estimated that actual total operating expenses for the initial fiscal year
of the Fund's Barrett International Shares ending March 31, 1999 will be
1.10%.
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Financial highlights
The inception date for the Fund's Barrett International Shares class of shares
is April 3, 1998. Accordingly, no financial information for these shares is
presented herein. Financial highlights for the Fund's International Shares class
of shares are contained in a separate prospectus dated August 1, 1997, as
revised April 3, 1998. The Fund's Annual Report is incorporated by reference
into the Shares' Statement of Additional Information and may be obtained without
charge by writing or calling Scudder Investor Services, Inc.
Scudder International Fund
Barrett International Shares
Investment objective
o long-term growth of capital primarily from foreign equity securities
Investment characteristics
o professional management to help investors without the time or expertise to
invest directly in foreign securities
o international diversification which helps reduce international investment
risk
o convenient participation in investments denominated in foreign currencies
o $25,000 initial minimum investment
Contents
Investment objective and policies 3
Why invest in the Fund? 4
International investment experience 4
Additional information about policies
and investments 5
Distribution and performance information 8
Fund organization 9
Transaction information 11
Shareholder benefits 15
Purchases and redemptions 17
How to contact Scudder 18
Investment objective and policies
Scudder International Fund (the "Fund"), a series of Scudder International Fund,
Inc. (the "Corporation"), seeks long-term growth of capital primarily from
foreign equity securities. These securities are selected primarily to permit the
Fund to participate in non-United States companies and economies with prospects
for growth. The Fund invests in companies, wherever organized, which do business
primarily outside the United States. The Fund intends to diversify investments
among several countries and to have represented in the portfolio, in substantial
proportions, business activities in not less than three different countries. The
Fund does not intend to concentrate investments in any particular industry.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Investments
The Fund generally invests in equity securities of established companies, listed
on foreign exchanges, which the Fund's investment adviser, Scudder Kemper
Investments, Inc. (the "Adviser"), believes have favorable characteristics.
When the Adviser believes that it is appropriate to do so in order to achieve
the Fund's investment objective of long-term capital growth, the Fund may invest
up to 20% of its total assets in debt securities. Such debt securities include
debt securities of foreign governments, supranational organizations and private
issuers, including bonds denominated in the European Currency Unit (ECU).
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Portfolio debt investments will be selected on the basis of, among other things,
yield, credit quality, and the fundamental outlooks for currency and interest
rate trends in different parts of the globe, taking into account the ability to
hedge a degree of currency or local bond price risk. The Fund may purchase
"investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Corporation ("S&P") or, if unrated, judged by the Adviser to be of equivalent
quality. The Fund may also invest up to 5% of its total assets in debt
securities which are rated below investment-grade (see "Risk factors").
In addition, the Fund may enter into repurchase agreements, reverse repurchase
agreements, trust preferred securities and invest in illiquid and restricted
securities, and may engage in securities lending and strategic transactions,
which may include derivatives.
When the Adviser determines that exceptional conditions exist abroad, the Fund
may, for temporary defensive purposes, invest all or a 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 Canada or the
U.S. It is impossible to accurately predict for how long such alternative
strategies may be utilized.
Why invest in the Fund?
The Fund is designed for investors seeking investment opportunity and
diversification through an actively managed portfolio of foreign securities.
One reason that some investors may wish to invest overseas is that certain
foreign economies may grow more rapidly than the U.S. economy and may offer
opportunities for achieving superior investment returns. Another reason is that
foreign stock and bond markets do not always move in step with each other or
with the U.S. markets. A portfolio invested in a number of markets worldwide
will be better diversified than one which is subject to the movements of a
single market.
Another benefit of the Fund is that it eliminates the complications and extra
costs associated with direct investment in individual foreign securities.
Individuals investing directly in foreign stocks may find it difficult to make
purchases and sales, to obtain current information, to hold securities in
safekeeping, and to convert the value of their investments from foreign
currencies into U.S. dollars. The Fund manages these tasks for the investor.
With a single investment, the investor has a diversified international
investment portfolio, which is actively managed by experienced professionals.
The Adviser has had many years of experience in dealing in foreign markets and
with brokers and custodian banks around the world. The Adviser also has the
benefit of an established information network and believes the Fund affords a
convenient and cost-effective method of investing internationally.
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 Japanese yen, for example, the dollar value of a Japanese 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 yen, the
dollar value of the Japanese stock will fall.
International investment
experience
The Adviser has been a leader in international investment management and trading
for over 40 years. In addition to the Fund, which was initially incorporated in
Canada in 1953 as the first foreign investment company registered with the
United States Securities and Exchange Commission, its investment company clients
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include Scudder International Bond Fund and Scudder International Growth and
Income Fund, which invest internationally, Scudder Global Fund, Scudder Global
Bond Fund, and Scudder Global Discovery Fund, which invest worldwide, Scudder
Greater Europe Growth Fund, which invests primarily in securities of European
companies, The Japan Fund, Inc., which invests primarily in securities of
Japanese companies, Scudder Latin America Fund, which invests primarily in Latin
American issuers, Scudder Pacific Opportunities Fund, which invests primarily in
issuers located in the Pacific Basin, with the exception of Japan, Scudder
Emerging Markets Income Fund, which invests in debt securities issued in
emerging markets, and Scudder Emerging Markets Growth Fund, which invests in
equity investments in emerging markets. The Adviser also manages the assets of
seven closed-end investment companies investing in foreign securities: The
Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., Scudder
Global High Income Fund, Inc., Scudder New Asia Fund, Inc., Scudder New Europe
Fund, Inc., and Scudder Spain and Portugal Fund, Inc. As of December 31, 1997,
the Adviser was responsible for managing more than $200 billion in assests
globally.
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 Corporation's Board of Directors. A complete listing of
investment restrictions is contained under "Investment Restrictions" in the
Shares' 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.
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 them at a specified time and price.
Securities lending
The Fund may lend portfolio securities to registered broker/dealers as a means
of increasing its income. Loans of portfolio securities will be secured
continuously by collateral consisting of U.S. Government securities or
fixed-income obligations that are maintained at all times in an amount at least
equal to the current market value of the loaned securities. The Fund will earn
any interest or dividends paid on the loaned securities and may share with the
borrower some of the income received on the collateral for the loan or will be
paid a premium for the loan.
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
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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 of the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments.
Strategic Transactions involving financial futures and options thereon will be
purchased, sold or entered into only for bona fide hedging, risk management or
portfolio management purposes and not 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.
Foreign securities. Investments in foreign securities involve special
considerations due to limited information, higher brokerage costs, different
accounting standards, thinner trading markets as compared to domestic markets
and the likely impact of foreign taxes on the income from securities. They may
also entail 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
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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., 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 and repatriation of
assets.
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.
Securities lending. From time to time the Fund may lend its portfolio securities
to registered broker/dealers as described above. The risks of lending portfolio
securities, as with other extensions of secured credit, consist of possible
delays in receiving additional collateral or in the recovery of the securities
or possible loss of rights in the collateral should the borrower fail
financially. Loans will be made to registered broker/dealers deemed by the
Adviser to be in good standing and will not be made unless, in the judgment of
the Adviser, the consideration to be received in exchange for such loans would
justify the risk.
Debt securities. The Fund may invest no more than 5% of its total assets in debt
securities which are rated below investment-grade; that is, rated below Baa by
Moody's or BBB by S&P (commonly referred to as "junk bonds"). The lower the
ratings of such debt securities, the greater their risks render them like equity
securities. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. The Fund may invest in securities
which are rated D by S&P or, if unrated, are of equivalent quality. Securities
rated D 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.
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
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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 Shares' 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 any
net realized capital gains after utilization of capital loss carryforwards, if
any, in November or December to prevent application of federal excise tax. 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 during the following January will be treated by shareholders
for federal income tax purposes as if received on December 31 of the calendar
year declared. According to preference, shareholders may receive distributions
in cash or 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 Shares' performance may be included in
advertisements, sales literature or shareholder reports. Performance information
is computed separately for each class of shares of the Fund, in accordance with
formulae prescribed by the Securities and Exchange Commission. 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 a class of shares of the Fund for a specified period.
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The "average annual total return" is the average annual compound rate of return
of an investment in a class of shares of the Fund assuming the investment has
been held for one year, five years and ten years as of a stated ending date.
"Cumulative total return" represents the cumulative change in value of an
investment in a class of shares of 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 the relevant class of shares
of the Fund. Performance will vary based upon, among other things, changes in
market conditions and the level of the Fund's expenses as well as a particular
class expenses.
Fund organization
Scudder International Fund is a diversified series of Scudder International
Fund, Inc. (the "Corporation"), an open-end, management investment company
registered under the Investment Company Act of 1940 (the "1940 Act"). The
Corporation is a Maryland corporation whose predecessor was organized in 1953.
The Fund's activities are supervised by the Corporation's Board of Directors.
The Corporation has adopted a plan pursuant to Rule 18f-3 (the "Plan") under the
1940 Act to permit the Corporation to establish a multiple class distribution
system for the Fund.
Under the Plan, shares of each class of the Fund represent an equal pro rata
interest in the Fund and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (1) each class shall have
a different designation; (2) each class of shares shall bear its own "class
expenses;" (3) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates to its administrative services,
shareholder services or distribution arrangements; (4) each class shall have
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class; (5) each
class may have separate and distinct exchange privileges; (6) each class may
have different conversion features, and (7) each class may have separate account
size requirements. Expenses currently designated as "Class Expenses" by the
Corporation's Board of Directors under the Plan include, for example, transfer
agency fees attributable to a specific class, and certain securities
registration fees.
In addition to the Barrett International Shares class of shares offered herein,
the Fund offers one other class of shares, International Shares, which may have
different fees and expenses (which may affect performance), may have different
minimum investment requirements and are entitled to different services.
Additional information about this other class of shares of the Fund may be
obtained by contacting Scudder Investor Services, Inc., at 1-800-225-2470.
Each share of a class of the Fund shall be entitled to one vote (or fraction
thereof in respect of a fractional share) on matters that such shares (or class
of shares) shall be entitled to vote. Shareholders of the Fund shall vote
together on any matter, except to the extent otherwise required by the 1940 Act,
or when the Board of Directors of the Corporation has determined that the matter
affects only the interest of shareholders of one class of the Fund, in which
case only the shareholders of such class of the Fund shall be entitled to vote
thereon. Any matter shall be deemed to have been effectively acted upon with
respect to the Fund if acted upon as provided in Rule 18f-2 under the 1940 Act,
or any successor rule, and in the Corporation's Articles of Incorporation.
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
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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.
Scudder Kemper Investments, Inc. 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.
The Adviser receives an investment management fee for these services. The Fund
pays the Adviser an annual fee of 0.90% of the first $500 million of average
daily net assets, 0.85% of such assets in excess of $500 million, 0.80% of such
assets in excess of $1 billion, 0.75% of such assets in excess of $2 billion and
0.70% of such assets in excess of $3 billion. The Fund's fee is graduated so
that increases in the Fund's net assets may result in a lower annual fee rate
and decreases in the Fund's net assets may result in a higher annual fee rate.
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 of 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.
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.
Custodian
Brown Brothers Harriman & Co. is the Fund's custodian.
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Transaction information
Purchasing shares
There is a $25,000 minimum initial investment in the Barrett International
Shares class of the Fund. The minimum subsequent investment for the Barrett
International Shares class of the Fund is $1,000. The minimum investment
requirement may be waived or lowered for investments effected through banks and
other institutions and for investments effected on a group basis by certain
other entities and their employees, such as pursuant to a payroll deduction plan
and for investments made in an Individual Retirement Account offered by the
Corporation. Investment minimums may also be waived for Directors and officers
of the Corporation and existing shareholders as of January 29, 1998, the date of
the creation of the new class. The Corporation and the Distributor reserve the
right to reject any purchase order. All funds will be invested in full and
fractional Shares.
Shares of the Fund may be purchased by writing or calling the Transfer
Agent. Orders for shares of the Fund will be executed at the net asset value per
share next determined after the Fund's transfer agent receives the request in
good order. See "Share Price."
Orders for shares of the Fund will become effective at the net asset value per
share next determined after receipt by the Transfer Agent of a check drawn on
any member of the Federal Reserve System or by the custodian of a bank wire or
Federal Reserve wire.
Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay the
execution of an order. Checks must be payable in U.S. dollars and will be
accepted subject to collection at full face value.
By investing in the Fund, a shareholder appoints the Transfer Agent to establish
an open account to which all shares purchased will be credited, together with
any dividends and capital gains distributions that are paid in additional
Shares. See "Distribution and Performance Information--Dividends and Capital
Gains Distributions."
Initial Purchase by Wire
1. Shareholders may open an account by calling toll free from any continental
state: 1-800-854-8525. Give the name(s) in which the Fund's account is to be
registered, address, Social Security or taxpayer identification number, dividend
payment election, amount to be wired, name of the class of Shares, name of the
wiring bank and name and telephone number of the person to be contacted in
connection with the order. An account number will then be assigned.
2. Instruct the wiring bank to transmit the specified amount to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
3. Complete a Purchase Application. A completed Purchase Application must be
received by the Transfer Agent before the Expedited Redemption Service can be
used. Indicate the services to be used and the name of the class of Shares to be
invested. Mail or fax the Purchase Application to:
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205
Fax: (617) 792-4722
Additional Purchases by Wire
Instruct the wiring bank to transmit the specified amount to State Street Bank
and Trust Company with the information stated above.
Additional Purchases by Telephone Order
Existing shareholders may purchase shares at a certain day's price by calling
the Transfer Agent before the close of regular trading on the New York Stock
11
<PAGE>
Exchange (the "Exchange"), normally 4:00 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. The Fund may, at its
discretion, accept purchase orders of less than $10,000 regardless of the
account size or may allow an account to be established through this service.
The 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
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.
Initial Purchase by Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and check payable to the Scudder Funds to the
Transfer Agent at the address set forth above.
Additional Purchases by Mail
1. Make a check payable to the Scudder Funds. Write the shareholder's Fund
account number on the check.
2. Mail the check and the detachable stub from the Statement of Account (or a
letter providing the account number) to the Transfer Agent at the address set
forth above.
Redeeming shares
Upon receipt by the Transfer Agent of a redemption request in proper form,
shares of a class of the Fund will be redeemed at its next determined net asset
value. See "Share Price." For the shareholder's convenience, the Corporation has
established several different redemption procedures.
No redemption of shares purchased by check will be permitted until seven
business days after those shares have been credited to the shareholder's
account.
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to make payment of redemption proceeds in whole or in part in
readily marketable securities. The Corporation may suspend the right of
redemption during any period when (i) trading on the Exchange is restricted or
the Exchange is closed, other than customary weekend and holiday closings, (ii)
the SEC has by order permitted such suspension or (iii) an emergency, as defined
by rules of the SEC, exists making disposal of portfolio securities or
determination of the value of the net assets of the Fund not reasonably
practicable.
The proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for federal income tax
purposes.
A shareholder's account in the Fund remains open for up to one year following
complete redemption, and all costs during the period will be borne by the Fund.
The Corporation reserves the right to redeem upon not less than 30 days' written
notice the Shares in an account of the Fund that has a value of $25,000 or less.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. However, any shareholder affected by the exercise of
this right will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
12
<PAGE>
The Corporation also reserves the right, following 30 days' notice to
shareholders, to redeem all shares in accounts without certified Social Security
or taxpayer identification numbers. A shareholder may avoid involuntary
redemption by providing the Corporation with a taxpayer identification number
during the 30-day notice period.
Redemption by Mail
1. Write a letter of instruction. Indicate the dollar amount or number of shares
to be redeemed. Refer to the shareholder's Fund account number and give Social
Security or taxpayer identification number (where applicable).
2. Sign the letter in exactly the same way the account is registered. If there
is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $100,000 or more, the signature(s)
must be guaranteed by a commercial bank that is a member of the Federal Deposit
Insurance Corporation, a trust company, a member firm of a domestic stock
exchange or a foreign branch of any of the foregoing. In addition, signatures
may be guaranteed by other Eligible Guarantor Institutions, i.e., other banks,
brokers/dealers, municipal securities brokers/dealers, government securities
brokers/dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. The
Transfer Agent, however, may reject redemption instructions if the guarantor is
neither a member of nor a participant in a signature guarantee program
(currently known as "STAMP(sm)"). Signature guarantees by notaries public are
not acceptable. Further documentation, such as copies of corporate resolutions
and instruments of authority, may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians to
evidence the authority of the person or entity making the redemption request.
4. Mail the letter to the Transfer Agent at the address set forth under
"Purchasing shares."
Checks for redemption proceeds will normally be mailed the day following receipt
of the request in proper form, although the Corporation reserves the right to
take up to seven days. Unless other instructions are given in proper form, a
check for the proceeds of a redemption will be sent to the shareholder's address
of record. The Custodian may benefit from the use of redemption proceeds until
the check issued to a redeeming shareholder for such proceeds has cleared.
When proceeds of a redemption are to be paid to someone other than the
shareholder, either by wire or check, the signature(s) on the letter of
instruction must be guaranteed regardless of the amount of the redemption.
Redemption by Expedited Redemption Service
If Expedited Redemption Service has been elected on the Purchase Application on
file with the Transfer Agent, redemption of shares may be requested by
telephoning the Transfer Agent on any day the Corporation and State Street Bank
and Trust Corporation are open for business.
1. Telephone the request to the Transfer Agent by calling toll free from any
continental state: 1-800-854-8525, or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchasing Shares."
Proceeds of Expedited Redemptions of $1,000 or more will be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request for the Fund is received by the Transfer Agent by the close
of regular trading on the Exchange (currently 4:00 p.m. eastern time) on a day
the Corporation and State Street Bank and Trust Company are open for business,
the redemption proceeds will be transmitted to the shareholder's bank the
following business day. A check for proceeds of less than $1,000 will be mailed
to the shareholder's address of record.
13
<PAGE>
Share price
Purchases and redemptions are made at net asset value. Scudder Fund Accounting
Corporation determines the net asset value per share of the Barrett
International Shares class 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 of the Barrett International Shares class is calculated by
dividing the value of total assets attributable to the Barrett International
Shares class, less all liabilities attributable to that class, by the total
number of shares outstanding for that class.
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.
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 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 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
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.
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
14
<PAGE>
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 International 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.
Irene Cheng, Lead Portfolio Manager, joined the Adviser in 1993. Ms. Cheng,
who has over 13 years of industry experience, focuses on portfolio management
and equity strategy for the Adviser's international equity accounts.
Nicholas Bratt, Portfolio Manager, directs the Adviser's overall global
equity investment strategies. Mr. Bratt joined the Adviser and the team in 1976.
Deborah A. Chaplin, Portfolio Manager, focuses on stock selection and investment
strategy. Ms. Chaplin has five years of experience in investment management as
both a securities analyst and equity portfolio manager, prior to joining the
Adviser in 1996.
Carol L. Franklin, Portfolio Manager, joined Scudder International Fund's
portfolio management team in 1986. Ms. Franklin, who has over 20 years of
experience in finance and investing, joined the Adviser in 1981.
Joan Gregory, Portfolio Manager, focuses on stock selection, a role she has
played since she joined the Adviser in 1992. Ms. Gregory, who joined the team in
1994, has been involved with investment in global and international stocks.
Sheridan Reilly, Portfolio Manager, joined the Adviser in 1995 and is a member
of the Adviser's Global Equity Group. Mr. Reilly has over 10 years of industry
experience focusing on strategies for global portfolios, currency hedging and
foreign equity markets.
Account services
Shareholders will be sent a Statement of Account from the Distributor, as agent
of the Corporation, whenever a share transaction is effected in the accounts.
Shareholders can write or call the Corporation at the address and telephone
number on the cover of this Prospectus with any questions relating to their
investment in shares of the Fund.
Special monthly summary of accounts
A special service is available to banks, brokers, investment advisers, trust
companies and others who have a number of accounts in the Fund. A monthly
summary of accounts can be provided, showing for each account the account
number, the month-end share balance and the dividends and distributions paid
during the month.
Shareholder reports
The fiscal year of the Fund ends on March 31 of each year. The Fund sends to its
shareholders, at least semiannually, reports showing the investments in the Fund
and other information (including unaudited financial statements) pertaining to
the Fund. An annual report, containing financial statements audited by the
Fund's independent accountants, is sent to shareholders each year.
15
<PAGE>
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund Shares. Please call 1-800-854-8525 to request this feature.
16
<PAGE>
<TABLE>
<CAPTION>
Purchases and redemptions
<S> <C> <C>
Opening Minimum initial investment: $25,000
an account
o By Mail Send your completed and signed application and check by regular,
Make checks express, registered or certified mail to:
payable to "The
Scudder Funds."
The Scudder Funds
66 Brooks Drive
Braintree, MA 02184
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
Then call 1-800-854-8525 for instructions.
-------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $1,000
additional
shares o By Mail Send a check with a purchase application, or with a letter of
instruction including your account number and the complete Fund
Make checks name and class, to the address listed above.
payable to "The
Scudder Funds." o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
-------------------------------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call 1-800-854-8525 from
shares 8 a.m. to 6 p.m. eastern time.
o By Mail Send your instructions for redemption to the address set forth
under Opening an Account above and include:
- the name of the Fund and class 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.
</TABLE>
17
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Financial Intermediary Services Group -- 1-800-854-8525
Please address all correspondence to:
The Scudder Funds
66 Brooks Drive
Braintree, MA 02184
18
<PAGE>
SCUDDER INTERNATIONAL FUND
Barrett International Shares
Mutual Fund Seeking
Long-Term Growth of Capital Primarily
From Foreign Equity Securities
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 3, 1998
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus for the Barrett International Shares,
a class of Scudder International Fund, dated April 3, 1998, as amended from time
to time, a copy of which may be obtained without charge by writing to Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
<PAGE>
<TABLE>
<S> <C>
<CAPTION>
TABLE OF CONTENTS
Page
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Master/feeder Structure......................................................................................2
Investment Restrictions.....................................................................................11
PURCHASES............................................................................................................12
REDEEMING SHARES.....................................................................................................13
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................13
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................14
PERFORMANCE INFORMATION..............................................................................................14
Average Annual Total Return.................................................................................14
Cumulative Total Return.....................................................................................15
Total Return................................................................................................15
Comparison of Fund Performance..............................................................................15
FUND ORGANIZATION....................................................................................................19
INVESTMENT ADVISER...................................................................................................21
Personal Investments by Employees of the Adviser............................................................24
DIRECTORS AND OFFICERS...............................................................................................24
REMUNERATION.........................................................................................................27
Responsibilities of the Board--Board and Committee Meetings.................................................27
Compensation of Officers and Directors......................................................................27
DISTRIBUTOR..........................................................................................................28
TAXES................................................................................................................29
PORTFOLIO TRANSACTIONS...............................................................................................32
Brokerage Commissions.......................................................................................32
Portfolio Turnover..........................................................................................33
NET ASSET VALUE......................................................................................................34
ADDITIONAL INFORMATION...............................................................................................34
Experts.....................................................................................................34
Other Information...........................................................................................35
FINANCIAL STATEMENTS.................................................................................................35
APPENDIX
</TABLE>
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
(See "Investment objective and policies" and "Additional information about
policies and investments" in the Barrett International shares class of shares
of the Fund's prospectus.)
Scudder International Fund (the "Fund"), a series of Scudder
International Fund, Inc. (the "Corporation"), is a pure no-load(TM), open-end
management investment company which continuously offers and redeems its shares
at net asset value. It is a company of the type commonly known as a mutual fund.
The Fund is a diversified series of the Corporation. The Fund offers two classes
of shares, Barrett International Shares (the "Shares") and International Shares.
This statement of additional information applies only to the Shares.
General Investment Objective and Policies
The Fund's investment objective is to seek long-term growth of capital
primarily through a diversified portfolio of marketable foreign equity
securities. These securities are selected primarily to permit the Fund to
participate in non-U.S. companies and economies with prospects for growth.
The Fund invests in companies, wherever organized, which do business
primarily outside the United States.
The Fund intends to diversify investments among several countries and
to have represented in the portfolio, in substantial proportions, business
activities in not less than three different countries. The Fund does not intend
to concentrate investments in any particular industry.
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 generally invests in equity securities of established
companies, listed on foreign exchanges, which the Fund's investment adviser,
Scudder Kemper Investments, Inc. (the "Adviser"), believes have favorable
characteristics.
When the Adviser believes that it is appropriate to do so in order to
achieve the Fund's investment objective of long-term capital growth, the Fund
may invest up to 20% of its total assets in debt securities. Such debt
securities include debt securities of foreign governments, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (ECU). Portfolio debt investments will be selected on the basis
of, among other things, yield, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk. The
Fund may purchase "investment-grade" bonds, which are those rated Aaa, Aa, A or
Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by
Standard & Poor's Corporation ("S&P") or, if unrated, judged by the Adviser to
be of equivalent quality. The Fund may also invest up to 5% of its total assets
in debt securities which are rated below investment-grade (see "Risk factors").
In addition, the Fund may enter into repurchase agreements, reverse
repurchase agreements, trust deferred securities and invest in illiquid and
restricted securities, and may engage in securities lending and strategic
transactions, which may include derivatives.
When the Adviser determines that exceptional conditions exist abroad,
the Fund may, for temporary defensive purposes, invest all or a 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 Canada or
the U.S. It is impossible to accurately predict for 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.")
<PAGE>
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.
Foreign Securities. The Fund is intended to provide individual and institutional
investors with an opportunity to invest a portion of their assets in a
diversified group of securities of companies, wherever organized, which do
business primarily outside the U.S., and foreign governments. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future. Because of the
Fund's investment policy, the Fund is not intended to provide a complete
investment program for an investor.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for the Fund's agents to keep currently informed
about corporate actions which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Payment for
securities without delivery may be required in certain foreign markets. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The management of the Fund seeks to mitigate the risks
associated with the foregoing considerations through continuous professional
management.
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund, as measured in U.S. dollars, may be affected favorably or unfavorably
by changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies. Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
2
<PAGE>
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer. The Fund will
conduct its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
through entering into options or forward or futures contracts to purchase or
sell foreign currencies.
Trust Preferred Securities. Income Fund may invest in Trust Preferred
Securities, which are hybrid instruments issued by a special purpose trust (the
"Special Trust"), the entire equity interest of which is owned by a single
issuer. The proceeds of the issuance to the Fund of Trust Preferred Securities
are typically used to purchase a junior subordinated debenture, and
distributions from the Special Trust are funded by the payments of principal and
interest on the subordinated debenture.
If payments on the underlying junior subordinated debentures held by
the Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Fund, would be required to accrue daily for Federal income tax purposes, their
share of the stated interest and the de minimis OID on the debentures
(regardless of whether the Fund receives any cash distributions from the Special
Trust), and the value of Trust Preferred Securities would likely be negatively
affected. Interest payments on the underlying junior subordinated debentures
typically may only be deferred if dividends are suspended on both common and
preferred stock of the issuer. The underlying junior subordinated debentures
generally rank slightly higher in terms of payment priority than both common and
preferred securities of the issuer, but rank below other subordinated debentures
and debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust Preferred
Securities may be more volatile than those of conventional debt securities.
Trust Preferred Securities may be issued in reliance on Rule 144A under the
Securities Act of 1933, as amended, and, unless and until registered, are
restricted securities; there can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities,
such as the Fund, to sell their holdings.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital growth, the Fund may
invest up to 20% of its total assets in debt securities including bonds of
foreign governments, supranational organizations and private issuers, including
bonds denominated in the ECU. Portfolio debt investments will be selected on the
basis of, among other things, yield, credit quality, and the fundamental
outlooks for currency and interest rate trends in different parts of the globe,
taking into account the ability to hedge a degree of currency or local bond
price risk. The Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA,
AA, A or BBB by Standard & Poor's Corporation ("S&P") or, if unrated, judged to
be of equivalent quality, as determined by the Adviser. Moody's considers bonds
it rates Baa to have speculative elements as well as investment-grade
characteristics.
High Yield/High Risk Bonds. The Fund may also purchase, to a limited extent,
debt securities which are rated below investment-grade (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 Fund will invest no more than 5% of its total assets in
securities rated BB or lower by Moody's or Ba by S&P, and may invest in
securities which are rated D by S&P. Securities rated D may be in default with
respect to payment of principal or interest. See the Appendix to this Statement
of Additional Information for a more complete description of the ratings
assigned by ratings organizations and their respective characteristics.
An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect the Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.
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The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Fund to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
For more information regarding tax issues related to high yield
securities, see "TAXES."
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933 or the availability of an exemption from registration
(such as Rules 144 or 144A) or because they are subject to other legal or
contractual delays in or restrictions on resale.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's or S&P.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be held by the Custodian or in the Federal Reserve Book Entry system.
For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to the
seller of the Obligation subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is
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also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. However, if the market value of
the Obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid 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. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will 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 will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
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 of the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks.
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In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options, other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures
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contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the marked to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations 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 an NRSRO or are determined to be of
equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
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The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange
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cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act, and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from an NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
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OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Investment Restrictions
The fundamental policies of the Fund set forth below may not be changed
without the approval of a majority of the Fund's outstanding shares. As used in
this Statement of Additional Information, a "majority of the outstanding voting
securities of the Fund" means the lesser of (1) 67% or more of the voting
securities present at such meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy;
or (2) more than 50% of the outstanding voting securities of the Fund. The Fund
has elected to be classified as a diversified series of an open-end investment
company.
In addition, as a matter of fundamental policy, the 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;
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(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, the Fund will 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;
(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.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Fund.
PURCHASES
(See "Transaction Information--Purchasing Shares" in the Shares' Prospectus)
There is a $25,000 minimum initial investment in the Barrett
International Shares class of shares of the Fund. The minimum subsequent
investment in the Shares is $1,000. Investment minimums may be waived for
Directors and officers of the Corporation and certain other affiliates and
entities. The Fund and Scudder Investor Services, Inc. (the "Distributor")
reserve the right to reject any purchase order. All funds will be invested in
full and fractional Shares.
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Shares of the Fund may be purchased by writing or calling Scudder
Service Corporation, a subsidiary of the Adviser (the "Transfer Agent"). Due to
the desire of the Corporation to afford ease of redemption, certificates will
not be issued to indicate ownership in the Fund. Orders for Shares of the Fund
will be executed at the net asset value per Share next determined after an order
has become effective.
Checks drawn on a non-member bank or a foreign bank may take
substantially longer to be converted into federal funds and, accordingly, may
delay the execution of an order. Checks must be payable in U.S. dollars and will
be accepted subject to collection at full face value.
By investing in the Fund, a shareholder appoints the Transfer Agent to
establish an open account to which all shares purchased will be credited with
any dividends and capital gains distributions that are paid in additional
Shares. See "Distribution and Performance Information--Dividends and Capital
Gains Distributions" in the Shares' Prospectus.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Directors and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Directors and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
The Board of Directors of the Fund and Scudder Investor Services, Inc.,
the Fund's principal underwriter, each has the right to limit the amount of
purchases by and to refuse to sell to any person and each may suspend or
terminate the offering of shares of the Fund at any time.
The "Tax Identification Number" section of the Application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations a certification of exempt status), may be
returned to the investor if a correct, certified tax identification number and
certain other required certificates are not supplied.
The Fund may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
REDEEMING SHARES
(See "Transaction Information--Redeeming Shares" in the Shares' Prospectus)
Payment of redemption proceeds may be made in securities. The
Corporation may suspend the right of redemption with respect to the Fund during
any period when (i) trading on the New York Stock Exchange (the "Exchange") is
restricted or the Exchange is closed, other than customary weekend and holiday
closings, (ii) the SEC has by order permitted such suspension or (iii) an
emergency, as defined by rules of the SEC, exists making disposal of Fund
securities or determination of the value of the net assets of the Fund not
reasonably practicable.
A shareholder's account remains open for up to one year following
complete redemption and all costs during the period will be borne by the Fund.
This permits an investor to resume investments.
FEATURES AND SERVICES OFFERED BY THE FUND
(See "Shareholders Benefits" in the Shares' Prospectus)
Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in the Fund. In addition to the copy of the regular Statement
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of Account furnished to the registered holder after each transaction, a monthly
summary of accounts can be provided. The monthly summary will show for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month. All costs of this service will be borne by
the Corporation. For information on the special monthly summary of accounts,
contact the Corporation.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information -- Dividends and capital gains
distributions" in the Shares' prospectus.)
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Fund may be subject to that excise tax. (See "TAXES.") In certain
circumstances, the Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends paid deduction on its federal tax return.
The Fund intends to distribute its investment company taxable income
and any net realized capital gains in November or 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 Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in Shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
(See "Distribution and performance information--Performance
information" in the Shares' prospectus.)
From time to time, quotations of the Shares' performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures will be calculated in the
following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years, and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in the
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
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Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Shares and assume
that all dividends and capital gains distributions during the period were
reinvested in the Shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P) -1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of
$1,000
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Shares with performance quoted with respect to other
investment companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Wilshire Real Estate Securities Index, the Russell 2000
Index, and statistics published by the Small Business Administration.
Because some or all of the Fund's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Shares' investment performance.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.
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<PAGE>
From time to time, in advertising and marketing literature, The Shares'
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations. In addition, the Shares' performance may also be
compared to the performance of broad groups of comparable mutual funds.
Unmanaged indices with which the Fund's performance may be compared include, but
are not limited to, the following:
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 Fund, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund and the
Shares. The description may include a "risk/return spectrum" which compares the
Fund to other Scudder funds or broad categories of funds, such as money market,
bond or equity funds, in terms of potential risks and returns. Money market
funds are designed to maintain a constant $1.00 share price and have a
fluctuating yield. Share price, yield and total return of a bond fund will
fluctuate. The share price and return of an equity fund also will fluctuate. The
description may also compare the Fund to bank products, such as certificates of
deposit. Unlike mutual funds, certificates of deposit are insured up to $100,000
by the U.S. government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
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<PAGE>
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
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."
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<PAGE>
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's 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.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national 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.
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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 the Adviser, 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 the Adviser believes an equity
investment portfolio with up to 30% in international holdings and 70% in
domestic holdings can improve long-term performance while simultaneously helping
to reduce overall risk.
FUND ORGANIZATION
(See "Fund organization" in the Shares' prospectus.)
The Corporation was organized as Scudder Fund of Canada Ltd. in Canada
in 1953 by the investment management firm of Scudder, Stevens & Clark, Inc.. On
March 16, 1964, the name of the Corporation was changed to Scudder International
Investments Ltd. On July 31, 1975, the corporate domicile of the Corporation was
changed to the U.S. through the transfer of its net assets to a newly formed
Maryland corporation, Scudder International Fund, Inc., in exchange for shares
of the Corporation which then were distributed to the shareholders of the
Corporation.
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The authorized capital stock of the Corporation consists of 700 million
shares of a par value of $.01 each--all of one class except for Scudder
International Fund which consists of two classes of shares, the Shares and the
Scudder International class of shares of the Fund. All shares have 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,
Scudder Pacific Opportunities Fund, both organized in December 1992, Scudder
Greater Europe Growth Fund, organized in October 1994, Scudder 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 the 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.
Pursuant to the approval of a majority of stockholders, the Fund's
Trustees have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall be immune from liability for any action
taken by them in good faith, in a manner reasonably believed to be in the best
interests of the Corporation and with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In so acting, a
Director shall be fully protected in relying in good faith upon the records of
the Corporation and upon reports made to the Corporation by persons selected in
good faith by the Directors as qualified to make such reports. The Articles and
the By-Laws provide that the Corporation will indemnify its Directors, officers,
employees or agents against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Corporation consistent with applicable law. Nothing in the Articles
20
<PAGE>
or the By-Laws protects or indemnifies a Director, officer, employee or agent
against any liability to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Shares' prospectus.)
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the 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.
("Scudder") 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.
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
21
<PAGE>
portfolio transactions for the Adviser's clients. However, the Adviser regards
this information and material as an adjunct to its own research activities. The
Adviser's international investment management team travels the world,
researching hundreds of companies. In selecting the securities in which the Fund
may invest, the conclusions and investment decisions of the Adviser with respect
to the Fund are based primarily on the analyses of its own research department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The Investment Management Agreement (the "Agreement") dated September
5, 1996 was approved by the Directors of the Fund on September 5, 1996. Because
the transaction between Scudder and Zurich resulted in the assignment of the
Fund's investment management agreement with Scudder, that agreement was deemed
to be automatically terminated at the consummation of the transaction. In
anticipation of the transaction, however, a new investment management agreement
between the Fund and the Adviser was approved by the Corporation's Directors on
October 29, 1997. At the special meeting of the Fund's stockholders held on
October 27, 1997, the stockholders also approved the new investment management
agreement. The new investment management agreement (the "Agreement") became
effective as of December 31, 1997 and will be in effect for an initial term
ending on September 30, 1998. The Agreement is in all material respects on the
same terms as the previous investment management agreement which it supersedes.
The Agreement incorporates conforming changes which promote consistency among
all of the funds advised by the Adviser and which permit ease of administration.
The Agreement will continue in effect and from year to year thereafter only if
its continuance is approved annually by the vote of a majority of those
Directors who are not parties to such Agreement or interested persons of the
Adviser or the Fund, cast in person at a meeting called for the purpose of
voting on such approval, and either by a vote of the Corporation's Directors or
of a majority of the outstanding voting securities of the Fund. The Agreement
may be terminated at any time without payment of penalty by either party on
sixty days' written notice, and automatically terminates in the event of its
assignment.
Under the Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objectives, policies and restrictions and determines which
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Corporation's Articles, By-Laws,
the 1940 Act, the Code and to the Fund's investment objective, policies and
restrictions, and subject, further, to such policies and instructions as the
Board of Directors of the Corporation may from time to time establish.
Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the
Corporation's operations as an open-end investment company including, but not
limited to, preparing reports and notices to the Directors and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Fund (such as the Fund's transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the Commission and other regulatory agencies; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining the Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Fund's operating
budget; processing the payment of the Fund's bills; assisting the Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Directors.
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The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York or Boston,
Massachusetts) of all Directors, officers and executive employees of the Fund
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
On September 5, 1996, the Corporation's Board of Directors approved a
new Investment Management Agreement (the "Management Agreement") with Scudder
Kemper Investments, Inc. (the "Adviser"). The management fee payable under the
Management Agreement is equal to an annual rate of approximately 0.90% of the
first $500,000,000 of average daily net assets, 0.85% of the next $500,000,000
of such net assets, 0.80% of the next $1,000,000,000 of such net assets, 0.75%
of the next $1,000,000,000 of such net assets, and 0.70% of such net assets in
excess of $3,000,000,000, 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 5, 1996 (the "Agreement"), the
Fund agreed to pay to the Adviser a fee equal to an annual rate of 0.90% on the
first $500,000,000 of the Fund's average daily net assets, 0.85% on the next
$500,000,000, 0.80% on the next $1,000,000,000, and 0.75% of such net assets in
excess of $2,000,000,000, computed and accrued daily and payable monthly.
The net investment advisory fees for the fiscal years ended March 31,
1997, 1996 and 1995 were $20,989,160, $19,502,443 and $19,032,146, respectively.
Under the Agreement the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses of issue, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Directors, officers
and employees of the Fund who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to stockholders; and the fees and
disbursements of custodians. The Fund may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. The Fund is also responsible for its expenses of shareholders'
meetings, the cost of responding to shareholders' inquiries, and its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Directors of the Fund with
respect thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Fund, has the
non-exclusive right to use and sublicense the Scudder 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 Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
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<PAGE>
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 Fund may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
DIRECTORS AND OFFICERS
<TABLE>
<S> <C> <C> <C>
<CAPTION>
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
24
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
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
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.
Susan E. Dahl (32)+ Vice President Vice President of Scudder Kemper --
Investments, Inc.
Carol L. Franklin (44)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
25
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
Edmund B. Games, Jr. (60)+ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Theresa Gusman (38)# Vice President 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
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.
</TABLE>
* 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
As of March 31, 1998, all Directors and officers of the Fund as a group
owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act) less than 1% of the shares of the Fund outstanding on
such date.
As of March 31 1998, 3,476,330 shares in the aggregate, _____% of the
outstanding shares of the Fund, were held in the name of Charles Schwab, c/o
Charles Schwab & Co., Inc., Attn: Mutual Fund Department, 101 Montgomery Street,
San Francisco, CA 94104-4122, who may be deemed to be the beneficial owner of
certain of these shares, but disclaims any beneficial ownership therein.
To the best of the Fund's knowledge, as of June 30, 1997 no person
owned beneficially (as so defined) more than 5% of the Fund's outstanding shares
except as stated above.
The Directors and officers of the Fund also serve in similar capacities
with other Scudder Funds.
26
<PAGE>
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Directors is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. (the "Adviser"). These "Independent Directors"
have primary responsibility for assuring that the Fund is managed in the best
interests of its shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of the Fund and other operational matters, including
policies and procedures 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, the 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 the 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 the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
The Independent Directors receive the following compensation: 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.
<TABLE>
<S> <C> <C>
<CAPTION>
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 $186,598 (21 funds)
Keith R. Fox, Director $52,950 $134,390 (18 funds)
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<PAGE>
Name Scudder International Fund, Inc.* All Scudder 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)
</TABLE>
* 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.
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 the Fund. The underwriting agreement was last approved by
the Directors on September 10-11, 1997.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the Commission of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Fund as a broker or
dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor); notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
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<PAGE>
Note: Although the Fund does not currently have a 12b-1 Plan, and the
Directors have no current intention of adopting one, the Fund would
also pay those fees and expenses permitted to be paid or assumed by the
Fund pursuant to a Rule 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent, the Distributor currently offers shares of the Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
(See "Distribution and performance information -- Dividends and capital gains
distributions" and "Transaction information--Tax information,
Tax identification number" in the Shares' prospectus.)
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund. Presently, the
Fund has no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as capital gains taxable
at a maximum 20% or 28% 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 the Fund on such gains as a credit against the
shareholder's federal income tax liability, and will be entitled to increase the
adjusted tax basis of the shareholder's Fund shares by the difference between
the shareholder's pro rata share of such gains and the shareholder's tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholders, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
29
<PAGE>
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% rate (depending on the Fund's holding period for the assets
giving rise to the gain) as long-term capital gain, regardless of the length of
time the shares of the Fund have been held by such shareholders. Such
distributions are not eligible for the dividends-received deduction. Any loss
realized upon the redemption of shares held at the time of redemption for six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 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.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and will be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code, except in the case of
certain electing individual taxpayers 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 the Fund does not make the election permitted under section 853 any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income. Absent this election,
30
<PAGE>
shareholders will not be able to claim either a credit or a deduction for their
pro rata portion of such taxes paid by the Fund, nor will shareholders be
required to treat as part of the amounts distributed to them their pro rata
portion of such taxes paid.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be recognized by the Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option, and
in the case of the exercise of a put option, on the Fund's holding period for
the underlying property. The purchase of a put option may constitute a short
sale for federal income tax purposes, causing an adjustment in the holding
period of any stock in the Fund's portfolio similar to the stocks on which the
index is based. If the Fund writes an option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as short-term capital gain or loss. If a call option is exercised, the
character of the gain or loss depends on the holding period of the underlying
stock.
Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term, 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. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options and
similar financial instruments entered into or acquired by the Fund will be
treated as ordinary income or loss.
Notwithstanding any of the foregoing, the Fund may 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 the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will recognize gain at that time as
though it had closed the short sale. Future regulations regulatories may apply
similar treatment to other 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 the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for
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<PAGE>
the stock. The distribution or gain so allocated to any taxable year of the
Fund, other than the taxable year of the excess distribution or disposition,
would be taxed to the Fund at the highest ordinary income rate in effect for
such year, and the tax would be further increased by an interest charge to
reflect the value of the tax deferral deemed to have resulted from the ownership
of the foreign company's stock. Any amount of distribution or gain allocated to
the taxable year of the distribution or disposition would be included in the
Fund's investment company taxable income and, accordingly, would not be taxable
to the Fund to the extent distributed by the Fund as a dividend to its
shareholders.
The 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, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark-to-market losses and any loss from an actual disposition of
shares would be reported as ordinary loss to the extent of any net
mark-to-market gains included in income in prior years. The effect of the
election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a fund level tax when distributed to
shareholders as a dividend. Alternatively, the Fund may elect to include as
income and gain its share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.
If the Fund invests in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from the Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
the Fund in a written notice to shareholders.
The Fund will be required to report to the IRS all distributions of
investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of investment company taxable income and capital gains
and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage 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
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<PAGE>
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission in excess of that which another broker might charge
for executing the same transaction on account of execution services and the
receipt of research, market or statistical information. The Adviser will not
place orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of the Fund. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Directors review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
In the fiscal years ended March 31, 1997, 1996 and 1995, the Fund paid
brokerage commissions of $5,275,727, $7,301,706 and $5,463,019, respectively.
For the fiscal year ended March 31, 1997, $4,915,740 (93%) of the total
brokerage commissions paid by the Fund resulted from orders for transactions,
placed consistently with the policy of seeking to obtain the most favorable net
results, with brokers and dealers who provided supplementary research, market
and statistical information to the Fund or the Adviser. The amount of such
transactions aggregated $1,688,398,843 (92% of all brokerage transactions). The
balance of such brokerage was not allocated to particular broker or dealer with
regard to the above-mentioned or other special factors.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. The Fund's
portfolio turnover rates for the fiscal years ended March 31, 1997 and 1996 were
35.8% and 45.2%, respectively. Purchases and sales are made for the Fund's
portfolio whenever necessary, in management's opinion, to meet the Fund's
objective.
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<PAGE>
NET ASSET VALUE
The net asset value of Shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, 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
attributable to the Shares, less all liabilities attributable to the Shares, 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") 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
purchased 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.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund, which reflects information for
the Fund prior to the creation of multiple classes for the Fund, and therefore,
prior to the creation of the Shares as a class of the Fund, included in the
prospectus and the Financial Statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance on the report of Coopers & Lybrand L.L.P., One Post Office
Square, Boston, Massachusetts 02109, independent accountants, and given on the
authority of that firm as experts in accounting and auditing.
34
<PAGE>
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of the Shares is 811165703.
The Fund has a fiscal year end of March 31.
The Fund employs Brown Brothers Harriman and Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian for the Fund.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
Information below is provided at the Fund level which consisted of only
one class of shares, the International Shares, on March 31, 1997.
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 the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee of $26.00 for each retail account
and $29.00 for each retirement account. Included in services to shareholders was
$3,050,321 charged to the Fund by Scudder Service Corporation during the fiscal
year ended March 31, 1997, of which $296,627 was unpaid at March 31, 1997.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.065% of the first $150 million of average daily net assets, 0.040% of
such assets in excess of $150 million, 0.020% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the year
ended March 31, 1997, Scudder Fund Accounting Corporation's fee aggregated
$795,122, of which $65,991 was unpaid at March 31, 1997.
The Fund, 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.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Adviser, for such accounts. The Fund pays
Scudder Trust Company an annual fee of $17.55 per shareholder account. The Fund
incurred fees of $930,582, $520,034 and $351,249 during the fiscal years ended
March 31, 1997, 1996 and 1995, respectively, of which $111,209 was unpaid at
March 31, 1997 for the fiscal year ended March 31, 1997.
The Share's prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement which the Fund
has filed with the Commission under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. This Registration Statement and
its amendments are available for inspection by the public at the Commission in
Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of the
Fund, together with the Report of Independent Accountants, Financial Highlights
and notes to financial statements in the Annual Report to the
35
<PAGE>
Shareholders of the Fund dated March 31, 1997 are incorporated herein by
reference and are hereby deemed to be a part of this Statement of Additional
Information by reference in its entirety. The financial statements incorporated
herein reflect the investment performance of the Fund prior to the addition of
the Barrett International Shares class of shares of the Fund.
36
<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
International
Fund
Annual Report
March 31, 1997
Pure No-Load(TM) Funds
A fund offering opportunities for long-term growth of capital primarily from
foreign equity securities.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's Chairman
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
24 Report of Independent Accountants
25 Tax Information
28 Officers and Directors
29 Investment Products and Services
30 Scudder Solutions
In Brief
o For the fiscal year ended March 31, 1997, Scudder International Fund provided
a total return of 10.74%, comparing very favorably to the unmanaged MSCI EAFE
plus Canada Index as world equity markets provided mixed performance over the
period.
o We continue to see many investment opportunities in Europe, where the Fund is
focusing on companies which are restructuring to build value for their
shareholders.
o Valuations in Japan have become more favorable, and Fund holdings there are
tilted toward globally competitive technology exporters positioned to benefit
from a weak yen.
o Morningstar assigned the Fund an overall 4-star rating for its risk-adjusted
performance among 939 international equity funds as of March 31, 1997.*
* 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. In an investment
category, 10% of funds receive 5 stars and the next 22.5% receive 4 stars. In
the international equity category, the Fund received a 4-star rating for the
three-, five-, and ten-year periods, among 478, 219, and 79 Funds,
respectively. Past performance is no guarantee of future results.
2 - SCUDDER INTERNATIONAL FUND
<PAGE>
Letter From the Fund's Chairman
Dear Shareholders,
We are pleased to present the annual report for Scudder International Fund
for the fiscal year ended March 31, 1997. As outlined in the portfolio
management discussion that follows, the Fund provided a strong total return over
the period of 10.74%. Economic reforms, corporate restructurings, and improving
growth prospects are providing a favorable backdrop in many non-U.S. investment
venues. We believe Scudder International Fund remains an attractive alternative
for investors seeking broad-based exposure to the opportunities for capital
appreciation to be found in overseas equity markets.
We are also pleased with the recognition that the Scudder Fund family has
recently received from Morningstar. This fund rating service recently ranked the
Scudder Family of Funds in the top 4 among 20 leading mutual fund companies for
stability in management and conformity to investment style.* According to
Morningstar, these attributes "... can be hard to come by in the fund industry.
In fact, investors can't be sure who'll sign next quarter's shareholder letter,
or that this month's large-cap growth fund will still be a large-cap growth fund
next month. But a few fund families have done a better job than most at
retaining talent and keeping their funds predictable." We will seek to maintain
this track record of consistent management.
For those of you who are interested in new products and services, we
recently introduced the Scudder Pathway Series. Pathway simplifies investing
through the "fund of funds" approach offering four distinct portfolios:
Conservative, Balanced, Growth, and International. Each portfolio invests in a
select mix of Scudder Funds, providing flexibility, diversification, and
simplicity for regular and retirement plan investors. For more complete
information on Scudder products and services, please turn to page 29.
Thank you for your continued investment in Scudder International Fund. If
you have questions about your account, please call our Investor Relations
representatives at 1-800-225-2470; they will be happy to assist you. You can
also obtain information by visiting our Internet web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
Chairman,
Scudder International Fund
* Morningstar Investor, February 1997
3 - SCUDDER INTERNATIONAL FUND
<PAGE>
PERFORMANCE UPDATE as of March 31, 1997
- ----------------------------------------------------------------
Fund Index Comparisons
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
3/31/97 $10,000 Cumulative Annual
- --------------------------------------------
Scudder International Fund
- --------------------------------------------
1 Year $ 11,074 10.74% 10.74%
5 Year $ 17,322 73.22% 11.61%
10 Year $ 23,456 134.56% 8.90%
- --------------------------------------------
MSCI EAFE & Canada Index
- --------------------------------------------
1 Year $ 10,212 2.12% 2.12%
5 Year $ 16,493 64.93% 10.52%
10 Year $ 17,935 79.35% 6.01%
- --------------------------------------------
- -----------------------------------------------------------------
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 INTERNATIONAL FUND
Year Amount
- ----------------------
87 $10,000
88 $ 9,953
89 $11,379
90 $13,323
91 $13,517
92 $13,541
93 $14,776
94 $18,129
95 $17,763
96 $21,181
97 $23,456
MSCI EAFE & CANADA INDEX
Year Amount
- ----------------------
87 $10,000
88 $11,560
89 $12,907
90 $11,503
91 $11,784
92 $10,874
93 $12,068
94 $14,710
95 $15,593
96 $17,563
97 $17,935
Yearly periods ended March 31
The Morgan Stanley Capital International (MSCI) Europe, Australia, the Far
East (EAFE) & Canada Index is an unmanaged capitalization-weighted measure of
stock markets in Europe, Australia, the Far East and Canada. Index returns
assume dividends reinvested net of withholding tax and, unlike Fund returns, do
not reflect any fees or expenses.
- -----------------------------------------------------------------
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 March 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------
NET ASSET VALUE... $ 33.43 $ 34.79 $ 37.00 $ 34.69 $ 34.36 $ 35.69 $ 42.96 $ 39.72 $ 45.71 $ 48.07
INCOME DIVIDENDS.. $ .82 $ .13 $ .43 $ .74 $ - $ .83 $ .69 $ - $ .40 $ 1.28
CAPITAL GAINS
DISTRIBUTIONS..... $ 9.39 $ 3.06 $ 3.15 $ 1.98 $ .40 $ .86 $ .09 $ 2.42 $ 1.18 $ 1.19
FUND TOTAL
RETURN (%)........ -.47 14.34 17.08 1.46 .18 9.12 22.69 -2.02 19.25 10.74
INDEX TOTAL
RETURN (%)........ 15.60 11.64 -10.87 2.44 -7.73 10.99 21.87 6.02 12.62 2.12
</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.
4 - SCUDDER INTERNATIONAL FUND
<PAGE>
PORTFOLIO SUMMARY as of March 31, 1997
- ---------------------------------------------------------------------------
Geographical
(Excludes 7% Cash Equivalents)
- ---------------------------------------------------------------------------
Europe 61%
Japan 15%
Pacific Basin 13%
Latin America 9%
Canada 2%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The portfolio is overweighted in
Europe, where we see many
opportunities, at the expense of
Japan.
- --------------------------------------------------------------------------
Sectors
(Excludes 7% Cash Equivalents)
- --------------------------------------------------------------------------
Manufacturing 24%
Financial 14%
Durables 8%
Utilities 7%
Communications 6%
Energy 6%
Health 6%
Service Industries 5%
Media 4%
Other 20%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Many overseas manufacturing and
financial companies are
beneficiaries of corporate
restructuring and economic reform.
- --------------------------------------------------------------------------
Ten Largest Equity Holdings
(14% of Portfolio)
- --------------------------------------------------------------------------
1. TELECOMUNICACOES BRASILEIRAS S.A.
Telecommunication services
2. AEGON INSURANCE GROUP NV
Insurance company
3. BAYER AG CHEMICAL PRODUCER
4. ZENECA GROUP PLC
Pharmaceuticals and agrochemicals
holding company
5. L.M. ERICSSON TELEPHONE CO.
Manufacturer of cellular telephone
equipment
6. SMITHKLINE BEECHAM PLC
Maker of ethical drugs and healthcare products
7. VEBA AG
Electric utility, oil and chemical distributor
8. CENTRAIS ELECTRICAS BRASILEIRAS S/A
Electric Utility
9. DAIMLER-BENZ AG
Automobile and truck manufacturer
10. BRITISH PETROLEUM PLC
International petroleum company
Top holdings include Brazilian
telecommunications and utility
companies in the process of
being privatized.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio, see page
10. A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
5 - SCUDDER INTERNATIONAL FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
For the fiscal year ended March 31, 1997, Scudder International Fund provided a
strong total return of 10.74%. The Fund's performance over the period compares
very favorably to the 2.12% return of the unmanaged MSCI Europe, Australia, and
Far East plus Canada Index, the Fund's benchmark.
European Equities Lead Major
Markets
The period covered by this report saw mixed performance in the world equity
markets. Japanese equities remained under pressure for much of the period, as
problems in the banking sector, lackluster growth, the selling of
cross-holdings, and the absence of domestic retail investors continued to create
uncertainty. Weakness in Japan was offset by strong performance from most
European markets. Fund performance relative to the benchmark MSCI index
benefited over the period from an overweighting of Europe at the expense of
Japan. European and Japanese holdings stood at 61% and 15% of equity assets,
respectively, as of March 31.
The developments fueling stock prices in Continental Europe were both cyclical
and structural. While European fiscal policy remains tight in advance of the
Maastricht deadline, falling interest rates and weaker currencies are providing
slightly higher-than-expected growth. Ongoing corporate restructuring provided
an additional impetus and was reflected in strong performance from core markets
such as Germany and France. Smaller European markets fared best led by Finland,
where equities were driven up by falling interest rates and excellent
performance from Nokia, a portfolio holding and substantial part of that
country's market. Despite uncertainty in the first quarter of 1997 over European
Monetary Union (EMU), peripheral markets Spain and Portugal turned in excellent
performance over the 12-month period, supported by falling interest rates and
the expectation that these countries would form part of the first round of EMU.
Emerging markets were mixed, as most Asian countries faltered. Korea and
Thailand were particularly hard hit by problems in the banking sector. Hong
Kong's market, after excellent performance in 1996, became unsettled in the
first quarter of 1997 by an upward trend in U.S. interest rates, local
government moves to dampen the property market, and renewed uncertainty over the
upcoming transition to Chinese sovereignty. Brazil continued to deliver
spectacular returns, propelled by positive news on deregulation and economic
reform.
Economic Reforms, Improved Growth Brighten Investment Outlook
Europe today offers investors a number of opportunities and challenges. From a
cyclical standpoint, the combination of low interest rates and weakening
currencies is leading to upward revisions in economic growth and corporate
earnings forecasts. In addition, there are important structural changes taking
place which we believe should have long term benefits to shareholders in
European companies. Long-standing political and economic structures are losing
viability due to the pressure of global competition, aging dependent
6 - SCUDDER INTERNATIONAL FUND
<PAGE>
populations, and the limits of fiscal support. There is widespread recognition
of the imperative to change -- to deregulate, to privatize, to reduce labor
costs, to cut social welfare spending. It will not be an easy evolution and
investors may be shaken by transitional jitters from time to time, but the
potential rewards are exciting.
The last 12 months marked an important transition point in the development of an
equity culture in Continental Europe, as governments pushed ahead with the
privatization process. The flotation of Deutsche Telecom in late 1996 was a
signal event as the largest single privatization in European stock market
history. While the German equity market is among the larger European markets, it
is still underdeveloped by international standards. The Deutsche Telecom issue
was widely publicized by the government and attracted broad domestic interest.
Given the success of the offering, German investors may well be encouraged to
consider placing more of their large savings in equities. Elsewhere, the very
successful privatization of the final government stake in Telefonica de Espana
was recently heralded as the arrival of popular capitalism in Spain, with demand
from domestic retail investors far exceeding supply. Emerging market Portugal
has made remarkable strides towards the European mainstream, with a virtual
doubling of its market capitalization over a four-year period through the
privatization process.
In Japan, a falling currency and low interest rates provided critical support
for an economy faced with an increase in the consumption tax and ongoing
problems in the banking system. Japanese authorities have announced additional
measures to deregulate the economy and financial system, most notably plans to
remove restrictions on foreign exchange. Economic recovery is forecast for 1997
with an acceleration of growth for 1998. Corporate earnings should improve in a
more positive growth environment, with a weaker yen and historically low
interest rates providing additional impetus.
The Japanese market is undergoing a secular transition to a valuation structure
more in keeping with global standards. While the transition may be a slow one, a
greater focus on international accounting standards together with increased
consolidation of disclosure from fiscal 1998 forward should bring Japanese
corporate accounting closer to that of its global peers. Though deregulation and
reform are ongoing and are as important to Japan as to Europe, Japan's pace
today is slower and there is further to go.
Smaller Asian equity markets have suffered in recent years as a combination of
cyclical forces have slowed growth: restrictive Asian central bank policy,
economic weakness in the major export markets of Europe and Japan, and a plunge
in the electronics and textile sectors. Looking forward, the outlook varies by
market. Thailand and Korea face banking and structural adjustments, while Hong
Kong has the special issue of the transition to Chinese sovereignty. In general,
though, valuations reflect these uncertainties.
7 - SCUDDER INTERNATIONAL FUND
<PAGE>
Focus on European
Restructuring Beneficiaries,
Japanese Global Competitors
In Europe, we have emphasized companies which are restructuring and focusing on
building value for shareholders, such as Daimler Benz in Germany and Alcatel
Alsthom and Generale des Eaux in France. The restructuring theme is also evident
in the purchase of VW, which is realizing substantial cost savings by trimming
production platforms from 16 to four. We are also positioned in European
companies with effective strategies and products in growth markets. These
include telecommunication infrastructure provider Nokia in Finland and
information technology leader SAP in Germany. A focus on telecommunications
stocks in Southern Europe, where restructuring, improved financials, and
developing market opportunities have had a positive impact on the bottom line,
has been rewarded by excellent stock performance from holdings in Portugal
Telecom, Telecom Italia Mobile, and Telefonica de Espana.
Industry consolidation is another theme central to the portfolio. Pharmaceutical
holdings Schering, Novartis, Zeneca, and SmithKline Beecham have benefited from
merger activity designed to cut costs and to achieve economies of scale in view
of global competition. With the German banking sector undergoing fundamental
structural change driven by deregulation, technology, and increasing foreign
competition, we have taken positions in Commerzbank and Bayerische Vereinsbank,
companies we perceive as likely winners in this sector.
Valuations in Japan have become more favorable, but there remains a dichotomy
between those companies which have not moved beyond the local economy and those
companies which are successful global competitors. We have maintained a
portfolio tilt toward high quality technology exporters such as Sony, Canon and
Hitachi. We believe that share prices in this group do not fully reflect the
increasingly competitive position of these global companies arising from a weak
yen, the recovery in semiconductors, and new products. Honda Motors turned in
excellent performance over the period as a result of strong demand at home and
abroad, including a booming recreational vehicle market. Bridgestone has a
strong global position in tires and is a beneficiary of growing demand for cars
in Asia. Among domestically-oriented holdings in Japan, telecommunications
company DDI is benefiting from high traffic growth in mobile and data
communications, has a relatively low investment burden, and is attractively
valued by global standards.
Turning to less-developed investment venues, while improving profitability
combined with attractive stock valuations following three years of market
stagnation may lead to a rebound in selected markets, we remain generally
cautious on the smaller bourses in the Pacific Rim. However, despite weakness in
the region, several of our holdings turned in excellent performance over the
period. Positions such as China Development and Far Eastern Department Store in
Taiwan were amply rewarded as the Taiwanese market bucked the regional trend,
helped by easier liquidity, relaxed criteria for government pension plan
investments, and expectations for stronger growth. In Hong Kong, market jitters
8 - SCUDDER INTERNATIONAL FUND
<PAGE>
were offset in the portfolio by positive stock selection.
Brazil remains our preferred market in Latin America, as lower inflation and
ongoing deregulation have translated into spectacular share price performance.
Our focus in Brazil has largely been on a small number of government-controlled
companies which are in the process of being restructured prior to their eventual
privatization: telecommunications company Telebras, utility Electrobras, and oil
company Petrobras. Though we remain cautious on the broader Mexican market, our
one position there, Telmex, has performed well. When purchased, the company was
one of the few value stories in a market dominated by growth stocks. Telmex has
the potential for aggressive cost cutting and is using its large cash reserves
to repurchase shares.
Going forward, we will continue to seek opportunities presented by the
structural changes well underway in Europe, globally competitive companies in
Japan, and select emerging markets. We believe Scudder International Fund
remains an appropriate vehicle for investors seeking valuable exposure to
overseas equity markets, and we thank you for your continued investment.
Sincerely,
Your Portfolio Management Team
/s/Carol L. Franklin /s/Nicholas Bratt
Carol L. Franklin Nicholas Bratt
/s/Irene T. Cheng /s/Joan R. Gregory
Irene T. Cheng Joan R. Gregory
/s/Francisco S. Rodrigo III
Francisco S. Rodrigo III
Scudder International Fund:
A Team Approach to Investing
Scudder International Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work 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.
Lead Portfolio Manager Carol L. Franklin joined Scudder International Fund's
portfolio management team in 1986 and has been responsible for setting the
Fund's investment strategy and overseeing security selection since 1992.
Carol, who has 19 years of experience in finance and investing, joined Scudder
in 1981. Nicholas Bratt, portfolio manager, directs Scudder's overall global
equity investment strategies. Nick joined Scudder and the team in 1976. Irene
T. Cheng joined Scudder and the team in 1993 as a portfolio manager, and has
12 years of experience in finance and investing. Joan R. Gregory, portfolio
manager, focuses on stock selection, a role she has played since she joined
Scudder in 1992. Joan, who joined the team in 1994, has been involved with
investment in global and international stocks since 1989. Francisco S. Rodrigo
III, portfolio manager, joined Scudder and the team in 1994. Francisco has
been involved with investment in global and international stocks and bonds as
a portfolio manager and analyst since 1989.
9 - SCUDDER INTERNATIONAL FUND
<PAGE>
<PAGE>
Investment Portfolio as of March 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 1.5%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 3/31/97 at 6.375%, to be repurchased at
$38,943,895 on 4/1/97, collateralized by a
$39,800,000 U.S. Treasury
----------
Note, 6.375%, 3/31/01 (Cost $38,937,000) ........................................... 38,937,000 38,937,000
----------
Commercial Paper 5.7%
- ------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank Financial Inc. Discount Note, 4/2/97 ................................... 20,000,000 19,996,822
Dresdner US Finance Inc. Discount Note, 4/3/97 ....................................... 15,000,000 14,995,508
Ford Motor Credit Co. Discount Note, 4/2/97 .......................................... 17,000,000 16,997,497
General Electric Capital Corp. Discount Note, 4/3/97 ................................. 45,000,000 44,986,717
Sun Trust Bank Discount Note, 4/3/97 ................................................. 20,000,000 19,993,744
Texaco Inc. Discount Note, 4/2/97 .................................................... 30,000,000 29,995,600
- ------------------------------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $146,965,888) 146,965,888
- ------------------------------------------------------------------------------------------------------------------------------
Convertible Bonds 0.8%
- ------------------------------------------------------------------------------------------------------------------------------
Japan 0.5%
Softbank Corp., 0.5%, 3/29/02 .................................................. JPY 1,500,000,000 12,929,571
----------
Malaysia 0.0%
Renong Berhad ICULS, 4%, 5/21/01 ............................................... MYR 1,620,000 666,761
----------
Philippines 0.3%
International Container Terminal, Inc., 1.75%, 3/13/04 ......................... 7,515,000 7,477,425
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $23,114,612) 21,073,757
- ------------------------------------------------------------------------------------------------------------------------------
Shares
==============================================================================================================================
Common Stocks 92.0%
- ------------------------------------------------------------------------------------------------------------------------------
Argentina 0.8%
YPF S.A. "D" (ADR) (Petroleum company) ............................................... 785,000 20,802,500
----------
Australia 1.1%
National Australia Bank, Ltd. (Commercial bank) ...................................... 1,141,784 14,455,885
Woodside Petroleum Ltd. (Major oil and gas producer) ................................. 1,814,600 13,363,484
----------
27,819,369
----------
Brazil 6.9%
Centrais Eletricas Brasileiras S/A "B" (pfd.) (Electric utility) ..................... 81,586,227 35,122,322
Companhia Energetica de Minas Gerais (pfd.) (Electric power utility) ................. 673,000,000 27,701,487
Companhia Vale do Rio Doce (pfd.) (Diverse mining and industrial complex) ............ 710,000 16,187,397
Petroleo Brasileiro S/A (pfd.) (Petroleum company) ................................... 139,000,000 27,622,846
Telecomunicacoes Brasileiras S.A. (pfd.) (Telecommunication services) ................ 420,000,000 43,457,163
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 -- SCUDDER INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Usinas Siderurgicas de Minas Gerais S/A (pfd.) (Non-coated flat
products and electrolytic galvanized products) ...................................... 24,700,000,000 27,748,879
-----------
177,840,094
-----------
Canada 1.8%
Canadian National Railway Co. (Railroad operator) .................................... 670,000 23,737,585
Canadian Pacific Ltd. (Transportation and natural resource conglomerate) ............. 225,000 5,400,000
Canadian Pacific Ltd. (Ord.) ......................................................... 711,914 16,995,030
-----------
46,132,615
-----------
Finland 1.2%
Nokia AB Oy "A" (Leading manufacturer of telecommunications equipment and
cellular telephones) ............................................................... 515,000 30,772,580
-----------
France 9.1%
AXA SA (Insurance group providing insurance, finance and real estate services) ....... 302,857 20,082,583
Alcatel Alsthom (Manufacturer of transportation,
telecommunication and energy equipment) ............................................. 107,700 13,005,717
Carrefour (Hypermarket operator and food retailer) ................................... 55,800 34,695,485
Compagnie Financiere de Paribas (Finance and investment company) ..................... 309,814 21,614,417
Compagnie Generale des Eaux (Water utility) .......................................... 120,000 16,350,521
Lafarge SA (Producer of cement, concrete and aggregates) ............................. 220,000 15,274,023
Pinault-Printemps, SA (Distributor of consumer goods) ................................ 50,000 21,551,340
Rhone-Poulenc SA "A" (Medical, agricultural and consumer chemicals) .................. 681,912 23,112,985
Schneider SA (Manufacturer of electronic components and automated
manufacturing systems) .............................................................. 528,223 30,294,382
Total SA "B" (International oil and gas exploration, development and production) ..... 363,336 31,509,181
Valeo SA (Automobile and truck components manufacturer) .............................. 122,399 8,244,955
-----------
235,735,589
-----------
Germany 13.3%
BASF AG (Leading international chemical producer) .................................... 771,000 29,120,504
Bayer AG (Leading chemical producer) ................................................. 905,000 37,654,077
Bayerische Vereinsbank AG (Commercial bank) .......................................... 550,000 22,784,772
Commerzbank AG* (Worldwide multi-service bank) ....................................... 808,400 23,263,309
Daimler-Benz AG (Automobile and truck manufacturer) .................................. 437,000 34,949,520
Hoechst AG (Chemical producer) ....................................................... 804,000 32,560,072
Mannesmann AG (Bearer) (Diversified construction and technology company) ............. 83,762 32,038,463
RWE AG (pfd.) (Producer and marketer of petroleum and chemical products) ............. 846,100 30,536,703
SAP AG (pfd.) (Computer software manufacturer) ....................................... 113,000 19,375,300
Schering AG (Pharmaceutical and chemical producer) ................................... 243,000 24,518,525
VEBA AG (Electric utility, distributor of oil and chemicals) ......................... 621,500 35,192,251
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 -- SCUDDER INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Volkswagen AG* (Leading automobile manufacturer) ..................................... 39,550 21,861,571
-----------
343,855,067
-----------
Hong Kong 5.7%
First Pacific Co., Ltd. (International management and investment company) ............ 14,387,681 18,289,346
Great Eagle Holdings Ltd. (Property development) ..................................... 2,886,000 9,534,709
Guoco Group Ltd. (Investment holding company) ........................................ 516,000 2,550,467
HSBC Holdings Ltd. (Bank) ............................................................ 1,223,831 28,350,261
Hong Kong & China Gas Co., Ltd. (Gas utility) ........................................ 9,734,408 18,278,632
Hong Kong & China Gas Co., Ltd. Warrants* ............................................ 1,027,867 464,276
Hutchison Whampoa, Ltd. (Container terminal and real estate company) ................. 3,838,584 28,979,979
Kerry Properties Ltd. (Real estate company) .......................................... 8,352,000 18,539,161
Television Broadcasts, Ltd. (Television broadcasting) ................................ 5,810,000 23,618,801
-----------
148,605,632
-----------
Hungary 0.1%
First Hungary Fund (Investment company) (b) .......................................... 3,619 3,365,670
-----------
Indonesia 1.3%
Asia Pacific Resources International Holdings Ltd.* (Manufacturer of rayon
fiber for Asian textile markets, owner of world's leading paper pulp mill) .......... 126,600 609,263
Asia Pulp & Paper Co., Ltd.* (ADR) (Producer of pulp and paper) ...................... 853,495 8,855,011
HM Sampoerna (Foreign registered) (Tobacco company) .................................. 2,400,000 11,245,314
Indah Kiat Pulp & Paper (Foreign registered) (Producer of pulp and paper) ............ 9,056,893 6,695,537
Indah Kiat Pulp & Paper Warrants* .................................................... 822,101 256,800
Pabrik Kertas Tjiwi Kimia (Operator of pulp and paper factory) ....................... 5,800,240 5,797,824
-----------
33,459,749
-----------
Italy 1.3%
Telecom Italia Mobile SpA (Ord.) (Cellular telecommunication services) ............... 11,850,000 34,116,059
-----------
Japan 13.2%
Bridgestone Corp. (Leading automobile tire manufacturer) ............................. 1,505,000 28,233,201
Canon Inc. (Leading producer of visual image and information equipment) .............. 1,488,000 31,884,855
DDI Corp. (Long distance telephone and cellular operator) ............................ 2,975 18,787,701
Hitachi Ltd. (General electronics manufacturer) ...................................... 2,981,000 26,514,919
Honda Motor Co., Ltd. (Leading automobile and motorcycle manufacturer) ............... 712,000 21,244,279
Jusco Co., Ltd. (Major supermarket operator) ......................................... 662,000 18,200,049
Keyence Corp. (Specialized manufacturer of sensors) .................................. 239,800 27,340,341
Kokuyo (Leading manufacturer of paper stationery) .................................... 580,000 12,662,731
Mabuchi Motor Co., Ltd. (Manufacturer of DC motors) .................................. 80,300 3,954,290
Matsushita Electric Industrial Co., Ltd.
(Leading manufacturer of consumer electronic products) .............................. 2,096,000 32,710,277
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 -- SCUDDER INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Matsushita Electric Works, Inc. (Leading maker of
building materials and lighting equipment) .......................................... 1,400,000 12,792,108
Nichiei Co., Ltd. (Finance company for small- and medium-sized firms) ................ 255,500 19,833,428
Pioneer Electronics Corp. (Leading manufacturer of audio equipment) .................. 750,000 12,250,344
Ricoh Co., Ltd. (Leading maker of copiers and information equipment) ................. 2,130,000 24,284,790
Shiseido Co., Ltd. (Leading cosmetic producer) ....................................... 467,000 6,041,886
Sony Corp. (Consumer electronic products manufacturer) ............................... 366,400 25,627,557
Sumitomo Metal Industries, Ltd. (Leading integrated crude steel producer) ............ 7,650,000 17,320,288
Sumitomo Metal Mining Co., Ltd. (Leading gold, nickel and
copper mining company) .............................................................. 480,000 2,899,329
-----------
342,582,373
-----------
Korea 0.3%
Pohang Iron & Steel Co., Ltd. (Leading steel producer) (b) ........................... 7,030 439,856
Pohang Iron & Steel Co., Ltd. (ADR) .................................................. 292,900 6,956,375
-----------
7,396,231
-----------
Malaysia 1.4%
Malayan Banking Berhad (Leading banking and financial services group) ................ 1,350,000 15,388,883
Malaysian Airline System Berhad* (Air transportation and related services) ........... 2,481,000 6,607,324
Renong Berhad (Holding company involved in engineering, construction,
financial services, telecommunication and information technology) ................... 8,100,000 13,727,429
-----------
35,723,636
-----------
Mexico 0.6%
Telefonos de Mexico S.A. de C.V. "L" (ADR) (Telecommunication services) .............. 375,000 14,437,500
-----------
Netherlands 5.6%
AEGON Insurance Group NV (Insurance company) ......................................... 537,500 37,859,580
Akzo-Nobel NV (Chemical producer) .................................................... 120,000 17,237,463
Elsevier NV (International publisher of scientific, professional,
business, and consumer information books) ......................................... 1,676,000 27,256,392
Heineken Holdings NV "A" (Brewery) ................................................... 160,000 24,143,539
Philips Electronics NV (Leading manufacturer of electrical equipment) ................ 447,000 20,854,995
Wolters Kluwer CVA (Publisher) ....................................................... 154,963 18,665,463
-----------
146,017,432
-----------
New Zealand 0.0%
Telecom Corp. of New Zealand (Telecommunication services) ............................ 64,950 295,541
-----------
Norway 0.7%
Saga Petroleum AS "A" (Oil and gas exploration and production) ....................... 1,023,200 17,590,566
-----------
Philippines 1.6%
C & P Homes, Inc.* (Home construction company) ....................................... 30,477,000 14,449,554
Manila Electric Co. "B" (Electric utility) ........................................... 2,275,000 18,120,614
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 -- SCUDDER INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SM Prime Holdings Corp. (Leader in commercial center operations) ..................... 30,000,000 8,761,616
-----------
41,331,784
-----------
Portugal 0.7%
Cimentos de Portugal SA (Manufacturer of cement, ready mix concrete and aggregates) .. 405,015 8,449,380
Portugal Telecom SA (Telecommunication services) ..................................... 239,300 8,907,603
-----------
17,356,983
-----------
Spain 2.5%
Acerinox, S.A. (Stainless steel producer) ............................................ 147,800 20,871,421
Banco Popular Espanol, S.A. (Retail bank) ............................................ 90,983 16,370,822
Compania Telefonica Nacional de Espana SA (ADR) (Telecommunication services) ......... 381,000 27,336,750
-----------
64,578,993
-----------
Sweden 3.9%
AGA AB "B" (Free) (Producer and distributor of industrial and medical gases) ......... 766,600 11,606,821
L.M. Ericsson Telephone Co. "B" (ADR) (Leading manufacturer of cellular
telephone equipment) ............................................................... 1,075,000 36,348,438
S.K.F. AB "B" (Free) (Manufacturer of roller bearings) ............................... 750,000 19,722,687
Skandia Foersaekrings AB (Free) (Financial conglomerate) ............................. 1,040,000 32,804,739
-----------
100,482,685
-----------
Switzerland 5.9%
ABB AG (Bearer) (Manufacturer of electrical equipment) ............................... 21,110 25,375,417
Credit Suisse Group (Registered) (Provider of bank services,
management services and life insurance) ............................................. 250,000 30,007,991
Ciba Specialty Chemical* (Registered) (Manufacturer of
chemical products for plastics, coatings, fibers and fabrics) ....................... 135,901 11,236,950
Clariant AG* (Registered) (Manufacturer of color chemicals) .......................... 48,447 23,881,457
Novartis AG* (Bearer) (Pharmaceutical company) ....................................... 18,773 23,387,986
Roche Holdings AG* (PC) (Producer of drugs and medicines) ............................ 2,960 25,595,609
SGS Holdings SA (Bearer) (Trade inspection company) .................................. 5,755 11,796,310
-----------
151,281,720
-----------
Taiwan 0.7%
China Development Corp. (Provider of loan and guarantee
services to manufacturing and service industries) ................................... 2,587,500 10,522,876
Far Eastern Department Store (Department store chain) ................................ 5,601,750 8,278,548
-----------
18,801,424
-----------
United Kingdom 12.3%
BOC Group PLC (Producer of industrial gases) ......................................... 863,709 13,611,271
British Petroleum PLC (Major integrated world oil company) ........................... 3,005,199 34,901,464
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 -- SCUDDER INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carlton Communications PLC (Television post production products and services) ........ 3,487,500 29,832,062
General Electric Co., PLC (Manufacturer of power, communications and
defense equipment and other various electrical components) .......................... 4,450,000 27,377,723
Glaxo Wellcome PLC (Pharmaceutical company) .......................................... 1,095,000 20,102,220
Pearson PLC (Diversified media and entertainment holding company) .................... 1,619,000 19,521,651
PowerGen PLC (Electric utility) ...................................................... 2,538,059 24,800,125
RTZ Corp., PLC (Mining and finance company) .......................................... 1,688,460 26,747,474
Reuters Holdings PLC (International news agency) ..................................... 2,219,600 22,637,691
SmithKline Beecham PLC (Manufacturer of ethical drugs and healthcare products) ....... 2,383,476 35,444,179
WPP Group PLC (Advertising agency) ................................................... 6,215,000 26,070,360
Zeneca Group PLC (Holding company: manufacturing and marketing of
pharmaceutical and agrochemical products and specialty chemicals) ................... 1,285,000 37,266,716
-----------
318,312,936
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $1,716,243,233) 2,378,694,728
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio - 100.0% (Cost $1,925,260,733) (a) 2,585,671,373
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $1,935,783,363. At March 31,
1997, net unrealized appreciation for all securities based on tax cost was
$649,888,010. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $686,152,816 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$36,264,806.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $3,805,526 (.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 March 31, 1997 aggregated $4,402,614. These securities
may also have certain restrictions as to resale.
(c) Principal amount is stated in U.S. dollars unless otherwise specified.
Currency Abbreviations: JPY Japanese Yen MYR Malaysian Ringgit
Transactions in written call options during the year ended March 31, 1997
were:
Premiums
Principal Amount Received ($)
-----------------------------------------
Outstanding at
March 31, 1996 ............. JPY 32,532,000,000 12,317,038
Contracts written .......... JPY 34,500,000,000 5,801,750
Contracts closed ........... JPY (53,852,000,000) (13,849,598)
Contracts expired .......... JPY (13,180,000,000) (4,269,190)
-----------------------------------------
Outstanding at
March 31, 1997 ............. JPY -- --
=============== ===========
The accompanying notes are an integral part of the financial statements.
15 -- SCUDDER INTERNATIONAL FUND
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of March 31, 1997
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $1,925,260,733) ............... $2,585,671,373
Foreign currency holdings, at market (identified cost $661,283) ....... 644,512
Receivable on investments sold ........................................ 22,346,663
Receivable on Fund shares sold ........................................ 427,141
Dividends and interest receivable ..................................... 7,588,958
Foreign taxes recoverable ............................................. 1,802,579
Other assets .......................................................... 65,085
--------------
Total assets .......................................................... 2,618,546,311
Liabilities
- ----------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 28,939,107
Due to custodian bank ................................................. 891,121
Payable for Fund shares redeemed ...................................... 2,910,287
Accrued management fee ................................................ 1,752,228
Other payables and accrued expenses ................................... 1,022,882
--------------
Total liabilities ..................................................... 35,515,625
----------------------------------------------------------------------------------------
Net assets, at market value $2,583,030,686
----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................... 1,417,347
Unrealized appreciation (depreciation) on:
Investments ........................................................ 660,410,640
Foreign currency related transactions .............................. (89,236)
Accumulated net realized gain ......................................... 249,360
Paid-in capital ....................................................... 1,921,042,575
----------------------------------------------------------------------------------------
Net assets, at market value $2,583,030,686
----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($2,583,030,686/53,734,143 shares of capital stock outstanding, --------------
$.01 par value, 200,000,000 shares authorized) ...................... $ 48.07
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 -- SCUDDER INTERNATIONAL FUND
<PAGE>
Statement of Operations
year ended March 31, 1997
<TABLE>
<CAPTION>
Investment Income
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest (net of foreign taxes withheld of $10,018) ................... 7,385,262
-------------
45,699,933
-------------
Expenses:
Management fee ........................................................ 20,989,160
Services to shareholders .............................................. 4,647,354
Custodian and accounting fees ......................................... 2,741,989
Directors' fees and expenses .......................................... 61,815
Reports to shareholders ............................................... 464,757
Auditing .............................................................. 138,975
Legal ................................................................. 57,268
Registration fees ..................................................... 64,044
Other ................................................................. 230,086
-------------
29,395,448
----------------------------------------------------------------------------------------
Net investment income 16,304,485
----------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments ........................................................... 61,540,056
Written options ....................................................... 15,862,488
Foreign currency related transactions ................................. 27,424,026
-------------
104,826,570
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................... 152,717,827
Written options ....................................................... (12,108,301)
Foreign currency related transactions ................................. (36,175)
-------------
140,573,351
----------------------------------------------------------------------------------------
Net gain on investment transactions 245,399,921
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 261,704,406
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 -- SCUDDER INTERNATIONAL FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended March 31,
Increase (Decrease) in Net Assets 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .................................. $ 16,304,485 $ 20,332,419
Net realized gain from investment transactions ......... 104,826,570 97,431,462
Net unrealized appreciation on investment transactions
during the period ................................... 140,573,351 293,552,612
--------------- ---------------
Net increase in net assets resulting from operations ... 261,704,406 411,316,493
--------------- ---------------
Distributions to shareholders from:
Net investment income .................................. (68,670,750) (20,899,123)
--------------- ---------------
Net realized gains ..................................... (64,600,067) (61,655,254)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold .............................. 563,459,224 566,171,226
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................ 117,795,156 75,365,736
Cost of shares redeemed ................................ (741,611,600) (647,503,731)
--------------- ---------------
Net decrease in net assets from Fund share transactions (60,357,220) (5,966,769)
--------------- ---------------
Increase in net assets ................................. 68,076,369 322,795,347
Net assets at beginning of period ...................... 2,514,954,317 2,192,158,970
Net assets at end of period (including undistributed net
investment income of $1,417,347 and accumulated
distributions in excess of net investment income of
--------------- ---------------
($14,026,160), respectively) .......................... $ 2,583,030,686 $ 2,514,954,317
--------------- ---------------
Other Information
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 55,022,967 55,183,581
--------------- ---------------
Shares sold ............................................ 11,978,853 12,911,834
Shares issued to shareholders in reinvestment of
distributions .......................................... 2,508,054 1,726,196
Shares redeemed ........................................ (15,775,731) (14,798,644)
--------------- ---------------
Net decrease in Fund shares ............................ (1,288,824) (160,614)
--------------- ---------------
Shares outstanding at end of period .................... 53,734,143 55,022,967
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18---SCUDDER INTERNATIONAL 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>
Years Ended March 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
---------------------------------------------------------------------------------------
period ........................ $45.71 $39.72 $42.96 $35.69 $34.36 $34.69 $37.00 $34.79 $33.43 $44.05
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ............ .30 .38 .21 .31 .38 .44 .80 .49 .40 .45
Net realized and unrealized gain
(loss) on investment
transactions .................. 4.53 7.19 (1.03) 7.74 2.64 (.37) (.39) 5.30 4.15 (.86)
Total from investment
---------------------------------------------------------------------------------------
operations .................... 4.83 7.57 (.82) 8.05 3.02 .07 .41 5.79 4.55 (.41)
---------------------------------------------------------------------------------------
Less distributions:
From net investment income ....... (1.28) (.40) -- (.63) (.83) -- (.74) (.43) (.13) (.82)
In excess of net investment income -- -- -- (.06) -- -- -- -- -- --
From net realized gains on
investment transactions ....... (1.19) (1.18) (2.42) (.09) (.86) (.40) (1.98) (3.15) (3.06) (9.39)
---------------------------------------------------------------------------------------
Total distributions .............. (2.47) (1.58) (2.42) (.78) (1.69) (.40) (2.72) (3.58) (3.19) (10.21)
---------------------------------------------------------------------------------------
Net asset value, end of
---------------------------------------------------------------------------------------
period ........................ $48.07 $45.71 $39.72 $42.96 $35.69 $34.36 $34.69 $37.00 $34.79 $33.43
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................. 10.74 19.25 (2.02) 22.69 9.12 .18 1.46 17.08 14.34 (.47)
Ratios and Supplemental Data
Net assets, end of period
($ millions) .................... 2,583 2,515 2,192 2,198 1,180 933 929 783 550 559
Ratio of operating expenses to
average net assets (%) ........ 1.15 1.14 1.19 1.21 1.26 1.30 1.24 1.18 1.22 1.21
Ratio of net investment income to
average net assets (%) ........ .64 .86 .48 .75 1.13 1.25 2.22 1.33 1.20 1.16
Portfolio turnover rate (%) ...... 35.8 45.2 46.3 39.9 29.2 50.4 70.1 49.4 48.3 54.8
Average commission rate paid (b) . $.0002 -- -- -- -- -- -- -- -- --
</TABLE>
(a) Based on monthly average share Based on monthly average 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 March 31, 1997.
19 -- SCUDDER INTERNATIONAL FUND
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder International Fund (the "Fund") is a diversified series of Scudder
International Fund, Inc. (the "Corporation"). The Corporation is organized as a
Maryland corporation and is registered under the Investment Company Act of 1940,
as amended, as an open-end, management investment company.
The 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 National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
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 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.
20 -- SCUDDER INTERNATIONAL FUND
<PAGE>
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.
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 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.
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.
21 -- SCUDDER INTERNATIONAL FUND
<PAGE>
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.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. The Fund paid
no federal income taxes and no federal income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax. Earnings
and profits distributed to shareholders on redemption of Fund shares ("tax
equalization") may be utilized by the Fund, to the extent permissible, as part
of the Fund's dividends paid deduction on its federal 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 investments in forward contracts, passive foreign investment
companies, options on currencies, and foreign denominated investments. 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.
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 March 31, 1997, purchases and sales of investment securities
(excluding short-term investments) aggregated $874,321,294 and $1,039,474,034,
respectively.
C. Related Parties
On September 5, 1996, the Fund's Board of Directors approved a new Investment
Management Agreement (the "Management Agreement") with Scudder, Stevens & Clark,
Inc. (the "Adviser"). Under the Management Agreement 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, 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 approximately 0.90% of the first $500,000,000 of average daily net assets,
0.85% of the next $500,000,000 of such net assets, 0.80% of the next
22 -- SCUDDER INTERNATIONAL FUND
<PAGE>
$1,000,000,000 of such net assets, 0.75% of the next $1,000,000,000 of such net
assets, and 0.70% of such net assets in excess of $3,000,000,000, 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 5, 1996 (the "Agreement"), the Fund agreed to
pay to the Adviser a fee equal to an annual rate of 0.90% on the first
$500,000,000 of the Fund's average daily net assets, 0.85% on the next
$500,000,000, 0.80% on the next $1,000,000,000, and 0.75% of such net assets in
excess of $2,000,000,000, computed and accrued daily and payable monthly. The
agreements also provide that if the Fund's expenses, exclusive of taxes,
interest, and extraordinary expenses, exceed specified limits, such excess, up
to the amount of the management fee, will be paid by the Adviser. For the year
ended March 31, 1997, the fee pursuant to both agreements amounted to
$20,989,160 which was equivalent to an annual effective rate of 0.82% of the
Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. Included
in services to shareholders is $3,050,321 charged to the Fund by SSC for the
year ended March 31, 1997, of which $296,627 is unpaid at March 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 invested in the Fund. For the year ended March 31, 1997,
the amount charged to the Fund by STC aggregated $930,582, of which $111,209 is
unpaid at March 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
March 31, 1997, the amount charged to the Fund by SFAC aggregated $795,122, of
which $65,991 is unpaid at March 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
March 31, 1997, Directors' fees and expenses aggregated $61,815.
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.
23 -- SCUDDER INTERNATIONAL FUND
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder International Fund, Inc. and to the
Shareholders of Scudder International Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
International Fund, including the investment portfolio, as of March 31, 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 ten years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 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 International Fund as of March 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 ten years
in the period then ended, in conformity with generally accepted accounting
principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 16, 1997
24 -- SCUDDER INTERNATIONAL FUND
<PAGE>
Tax Information
The Fund paid distributions of $1.19 per share from net long-term capital gains
during its year ended March 31, 1997. Pursuant to Section 852 of the Internal
Revenue Code, the Fund designates $36,901,570 as capital gain dividends for its
fiscal year ended March 31, 1997.
The Fund paid foreign taxes of $5,218,633 and the Fund recognized $33,186,627 of
foreign source income during the year ended March 31, 1997. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $0.097 per share of
foreign taxes paid and $0.618 of income earned from foreign sources in the year
ended March 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.
25 - SCUDDER INTERNATIONAL FUND
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27 - SCUDDER INTERNATIONAL FUND
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Officers and Directors
Daniel Pierce*
Chairman of the Board and Director
Nicholas Bratt*
President and Director
Paul Bancroft III
Director; Venture Capitalist and Consultant
Thomas J. Devine
Director; Consultant
Keith R. Fox
Director; President, Exeter Capital Management Corporation
William H. Gleysteen, Jr.
Director; Consultant; Guest Scholar, Brookings Institute
Dudley H. Ladd*
Director
William H. Luers
Director; President, The Metropolitan Museum of Art
Dr. Wilson Nolen
Director; Consultant
Kathryn L. Quirk*
Director; Vice President and Assistant Secretary
Dr. Gordon Shillinglaw
Director; Professor Emeritus of Accounting, Columbia University Graduate School
of Business
Robert W. Lear
Honorary Director
Robert G. Stone, Jr.
Honorary Director; Chairman Emeritus and Director, Kirby Corporation
Elizabeth J. Allan*
Vice President
Joyce E. Cornell*
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
Carol L. Franklin*
Vice President
Richard W. Desmond*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
28 - SCUDDER INTERNATIONAL FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder 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
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 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
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 First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
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. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *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 INTERNATIONAL FUND
<PAGE>
<TABLE>
<CAPTION>
Scudder Solutions
Convenient ways to invest, quickly and reliably:
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan AutoBuy
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 higher and electronically debited from that account.
fewer when it's lower, 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 AutoSell
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 INTERNATIONAL 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 Developed for investors who prefer the benefits of no-load
shareholders can take advantage of a Scudder Scudder funds but want ongoing professional assistance in
Brokerage account already reserved for them, with managing a portfolio. Personal Counsel(SM) is a highly
no minimum investment. For information about customized, fee-based asset management service for
Scudder Brokerage Services, call 1-800-700-0820. 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 Service, 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 Funds 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 Funds Centers. Check for a Funds 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: Pathway Series
In a complex financial world, Scudder Pathway Series is a refreshingly simple concept. With one
investment, Pathway gives you instant access to broad diversification in U.S. markets and
across the globe. Select from four Portfolios -- Growth, Balanced, Conservative, or
International -- each with a distinct investment objective that can match your goals. Each
Portfolio, rather than investing in individual securities, invests in carefully selected
Scudder mutual funds.
The share price of each Pathway Series portfolio will fluctuate and the risk associated with
each portfolio is determined by the securities held in each underlying Scudder fund. 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 INTERNATIONAL 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
