Scudder
Pacific
Opportunities
Fund
Annual Report
October 31, 1998
Pure No-Load(TM) Funds
Seeks long-term growth of capital through investment primarily in the equity
securities of Pacific Basin companies, excluding Japan.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Pacific Opportunities Fund\
- --------------------------------------------------------------------------------
Date of Inception: 12/8/92 Total Net Assets as of Ticker Symbol: SCOPX
10/31/98: $112.8 million
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o While the Fund's return of -24.16% for the twelve-month period ended October
31, 1998 was disappointing, it performed relatively well compared to the -25.04%
return of its unmanaged benchmark, the MSCI All Country Asia Free Index
(excluding Japan).
o We continue to employ strict purchase guidelines to select securities of high
quality, cash-rich companies with dominant positions in their local markets and
clear competitive advantages over their international competitors.
o Despite the poor performance of the region's stock markets, signs are
beginning to emerge that the economic outlook is improving. Through the careful
selection of stocks that we believe stand to benefit from a recovery, Scudder
Pacific Opportunities Fund is positioned for a potential rebound.
Table of Contents
3 Letter from the Fund's President 18 Financial Highlights
4 Performance Update 19 Notes to Financial Statements
5 Portfolio Summary 24 Report of Independent Accountants
6 Portfolio Management Discussion 25 Tax Information
10 Glossary of Investment Terms 29 Investment Products and Services
11 Investment Portfolio 30 Scudder Solutions
15 Financial Statements
2 - Scudder Pacific Opportunities Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The past twelve months have been a period of extraordinary volatility in
the emerging markets. The Pacific Basin has been the focal point of the turmoil,
beset by instability in the banking system, high interest rates, and the slowing
of the regional economy. The crisis, which began over a year ago with the
devaluation of the Thai baht, has caused investors to flee the region, following
a chain reaction of currency devaluations, stock market declines, and social
unrest. While such turbulence can pose a challenge even to long-term investors,
we believe from these price levels there is significant opportunity and that
well managed, financially sound companies may stand to benefit when the region
ultimately turns around. To this end, your Fund will continue to use a long-term
approach, emphasizing fundamental research and intensive individual stock
selection.
As the crisis has entered its second year, we have been encouraged by signs
of reform that are emerging within the financial and corporate sectors, and by
recognition among political leaders that concrete action is required. Although
we expect continued near-term volatility, we believe that the Pacific Basin
remains a dynamic region that can provide rewards for long-term investors who
are able to weather the storm.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
invests in stocks of small U.S. companies. Using a combination of quantitative
and fundamental research, the funds will focus on companies with strong earnings
growth, reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after-tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate.
Thank you for your continued investment in Scudder Pacific Opportunities
Fund. If you have any questions about your investment, please call Scudder
Investor Relations at 1-800-225-2470, or visit our Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Pacific Opportunities Fund
3 - Scudder Pacific Opportunities Fund
<PAGE>
Performance Update as of October 31, 1998
- ----------------------
Fund Index Comparisons
- ----------------------
Total Return
- ---------------------------------------------------
Period Ended Growth of Average
10/31/98 $10,000 Cumulative Annual
- ---------------------------------------------------
Scudder Pacific Opportunities Fund
- ---------------------------------------------------
1 Year $ 7,584 -24.16% -24.16%
5 Year $ 5,420 -45.80% -11.53%
Life of Fund* $ 7,321 -26.79% -5.15%
- ---------------------------------------------------
MSCI All Country Asia Free Index
(excluding Japan)
- ---------------------------------------------------
1 Year $ 7,496 -25.04% -25.04%
5 Year $ 5,857 -41.43% -10.14%
Life of Fund* $ 9,647 -3.53% -0.61%
- ---------------------------------------------------
* The Fund commenced operation on December 8, 1992.
Index comparisons begin December 31, 1992.
- ------------------------------
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
MSCI All Country Asia Free Scudder Pacific
Index (excluding Japan) Opportunities Fund
12/92* 10000 10000
'93 16472 13542
'94 19062 14747
'95 17131 13174
'96 18525 13538
'97 12871 9677
'98 9647 7340
Yearly periods ended October 31
The Morgan Stanley Capital International (MSCI) All Country Asia Free Index is
an unmanaged capitalization-weighted measure of stock markets in the Pacific
Region, excluding Japan. Index returns assume dividends are reinvested and,
unlike Fund returns, do not reflect any fees or expenses.
- ---------------------------------
Returns and Per Share Information
- ---------------------------------
Yearly periods ended October 31
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1993* 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 16.21 $ 17.57 $ 15.59 $ 15.93 $ 11.38 $ 8.38
- -------------------------------------------------------------------------------------------------
Income Dividends $ -- $ .08 $ .10 $ .10 $ .01 $ .30
- -------------------------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .01 $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------
Fund Total Return (%) 35.08 8.97 -10.73 2.76 -28.52 -24.16
- -------------------------------------------------------------------------------------------------
Index Total Return (%) 64.72 15.73 -10.14 8.15 -30.52 -25.04
- -------------------------------------------------------------------------------------------------
</TABLE>
All performance is historical, assumes reinvestment of all dividends and capital
gains, and is not indicative of future results. Investment return and principal
value will fluctuate, so an investor's shares, when redeemed, may be worth more
or less than when purchased. If the Adviser had not maintained the Fund's
expenses, the total returns for the life of Fund period would have been lower.
4 - Scudder Pacific Opportunities Fund
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Portfolio Summary as of October 31, 1998
- ------------------------------
Geographical
(Excludes 6% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Hong Kong 29%
Taiwan 15%
China 11%
India 7%
Australia 7%
Korea 6%
Singapore 6%
Indonesia 5%
Thailand 3%
Other 11%
--------------------------------------
100%
--------------------------------------
Management continued to seek opportunities in countries that
have responded to the crisis in a proactive fashion.
- ------------------------------
Sectors
(Excludes 6% Cash Equivalents)
- ------------------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Financial 25%
Technology 16%
Manufacturing 13%
Communications 8%
Transportation 7%
Metals & Minerals 7%
Energy 5%
Durables 4%
Consumer Staples 4%
Other 11%
--------------------------------------
100%
--------------------------------------
Sector weightings are the result of individual stock
selection, rather than a top-down allocation of assets.
- ---------------------------
Ten Largest Equity Holdings
(30% of Portfolio)
- ---------------------------
1. Hutchison Whampoa Ltd.
Container terminal and real
estate company
2. Cheung Kong Holdings Ltd.
Real estate company
3. Citic Pacific Ltd.
Diversified holding company
4. New World Development Co. Ltd.
Property investment and
development, construction and
engineering, hotels and
restaurants, telecommunications
5. Li & Fung Ltd.
Investment holding company, engaged in export
trading
6. ASE Test Ltd.
Testing services to semiconductor
manufacturers
7. Beijing Datang Power Generation
Co. Ltd.
Owner and operator of coal-fired
electric power plants
8. Freeport-McMoRan Copper & Gold, Inc.
Mining company operating in
Indonesia
9. Natsteel Electronics Ltd.
Manufacturer of computer
peripheral, telecommunication and
network products
10. Synnex Technology International
Corp.
Distributor of personal computers
and peripherals
Top holdings reflect a focus on well-managed companies that
have displayed the ability to remain competitive in a
difficult environment.
For more complete details about the Fund's investment portfolio, see page. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Pacific Opportunities Fund
<PAGE>
Portfolio Management Discussion
In the following interview, Theresa Gusman, Lead Portfolio Manager of Scudder
Pacific Opportunities Fund, discusses the Fund's strategy and the market
environment for the twelve-month period ended October 31, 1998.
Q: How would you characterize market conditions in the region during the past
year?
A: The Asian stock markets continued to experience extreme volatility, although
currencies gradually stabilized following their collapse in 1997. For much of
this period, stocks suffered from the painful combination of an uncertain
economic outlook, the loss of liquidity within the banking system, and the
scarcity of capital that resulted from foreign investors scrambling to reduce
their exposure to the region. Markets reacted by plummeting throughout the fall
of 1997, then bouncing back in the early part of this year as investors sought
to capitalize on lower prices. Once it became apparent that the financial crisis
would not be quickly resolved, stocks fell once again and remained under
pressure through the summer as investors responded negatively to the imposition
of capital controls in Malaysia and Hong Kong's intervention in the stock
market. In October, equities staged a rebound as interest rate cuts by the U.S.
Federal Reserve prompted a reassessment of depressed securities prices in the
emerging markets, and valuations in Asia reached distressed levels. Throughout
the period, the ongoing financial crisis in Japan destabilized the entire
region, although the rebound of the yen and the increasing possibilities of
reform provided reasons for optimism at the period end.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
Market Performance
BAR CHART PERIOD:
Twelve months ended October 31, 1998
BAR CHART DATA:
Australia - 0.89%
Hong Kong - 5.81%
Philippines -10.26%
Taiwan -14.87%
Singapore -22.45%
Korea -24.51%
Thailand -28.18%
India -34.20%
New Zealand -35.03%
China -52.85%
Malaysia -63.91%
Indonesia -76.92%
% Change in U.S. Dollar Return
Source: Morgan Stanley Capital International indices in U.S. dollars
6 - Scudder Pacific Opportunities Fund
<PAGE>
Q: How did the Fund perform relative to its benchmark, the MSCI Asia All-Country
(ex-Japan) Index?
A: Scudder Pacific Opportunities Fund provided a total return of -24.16% for the
twelve months, beating the benchmark, which returned -25.04%. The Fund's
relative performance was helped by a disciplined approach to stock picking that
led to our uncovering quality companies throughout the region, and our
overweighting of Taiwan.
Q: What was your strategy throughout this tumultuous period?
A: In all market conditions, our ongoing goal is to use intensive fundamental
research to locate attractive, undervalued companies with excellent management,
dominant market positions, clear competitive advantages, high-to-improving
return on equity, and strong balance sheets. Faced with a rapidly changing
environment such as we have experienced in the last twelve months, we have
sought to identify companies positioned to benefit from the shifting structural,
political, social, and economic backdrop in Asia.
During the past twelve months, our primary goal has been to invest in stable,
established companies that will not only survive, but will prosper as the region
begins to recover. Using strict purchase-price targets, we are investing in
three kinds of companies that we believe should benefit from a rebound in the
regional economy. First, we are looking for strong firms that dominate their
local markets, and/or operate in an industry with high barriers to entry.
Second, we are focusing on well capitalized, low-cost exporters that can help
their corporate customers cut costs, a skill that will be prized if global
economic growth slows and profitability deteriorates. Third, we are finding
opportunities in downtrodden natural resources companies that have been hit hard
by deflation, but which stand to benefit if Japan finds a way to jump-start its
economy.
Q: Can you tell us about some individual stocks or industries that illustrate
your stock selection strategy?
A: We are intrigued by the very attractive valuations that have emerged
following the sharp decline of Pacific Basin equities in the sixteen months
since the crisis began. In our analysis of exporters, we have found the pulp and
paper companies, Taiwanese technology companies, and trade- and
outsourcing-related firms to possess particularly strong potential. Singapore's
Asia Pulp & Paper, for example, is the lowest cost producer of pulp and paper in
the world, but is trading at a P/E ratio of approximately seven times annualized
bottom-cycle earnings per share, despite posting a 41% increase in net income.
Among firms with strong local positions, we continue to have a positive outlook
on Chinese expressway companies, whose valuation of 10-11 times earnings appears
cheap given our expectation of annual earnings per share growth of 25% over the
next five years.
Q: Has your bottom-up strategy led to adjustments in the Fund's country
allocations?
A: Yes. In the twelve-month period, we have reduced our holdings in Hong Kong,
whose stock market is largely made up of banks and property companies. We have
7 - Scudder Pacific Opportunities Fund
<PAGE>
also trimmed exposure to non-exporting firms in Indonesia. India and mainland
China, on the other hand, have proven to be two countries where the valuations
of selected companies have become very attractive in relation to their growth
potential.
Q: Are any signs emerging that there may be light at the end of the tunnel?
A: There have been some positive developments in the region throughout 1998.
Although economic, political, and social risks remain high, we are optimistic on
the outlook for Asian equities and are trying to position the Fund to benefit
from an upturn. The most important trend since the beginning of the year is that
currencies stabilized in an environment of declining interest rates, a condition
we have long believed would be the first step toward recovery. Previously, Asian
countries were forced to raise rates to restrictive levels in order to stem
capital outflows and stabilize their currencies, but this strategy had the
harmful side effect of depressing economic growth.
On the economic front, we are encouraged by signs that domestic consumption, a
key element of economic growth, is firming in China, Indonesia, South Korea, and
Thailand. The balance of trade has improved in Indonesia, the Philippines, and
Thailand due to the combination of rising U.S. dollar exports and continued weak
imports. If the yen strengthens further and a more positive outlook emerges for
Japan's economy, this virtuous trade cycle stands to be reinforced. While the
Fund does not invest directly in Japan, the nation's status as the
second-largest economy in the world means that other countries in the region are
highly dependent on its fortunes. Although Japan's recession deepened throughout
8 - Scudder Pacific Opportunities Fund
<PAGE>
1998, the combination of the banking bill and fiscal stimulus packages may help
to create the regional stability necessary for the rest of Asia to move forward.
Q: Has progress been made on reforming the financial systems in the Asian
countries?
A: Yes -- we are seeing that selected Asian nations have begun the process of
implementing corporate restructuring initiatives and banking system reform.
These changes have come in the form of new bankruptcy laws, deregulation, and
the trend toward greater transparency in corporate financial reporting. Though
the process of streamlining the economies of this region will not happen
quickly, such reform demonstrates that the region's governments are taking the
critical first step of recognizing that a problem does indeed exist. We will be
focusing our efforts on finding investments in areas where the government is
being proactive in solving their financial crises.
Q: How do you expect to manage the portfolio going forward?
A: Although reasons for optimism on Asia's prospects are numerous, we believe
that investors should be prepared for further volatility. Recognizing that this
Fund must invest in Asian equities, we will continue to emphasize fundamental
analysis and superior stock selection to try to uncover well managed,
undervalued companies that have displayed the ability to remain competitive even
in a difficult environment. For patient investors, such firms represent a
long-term opportunity to benefit from the rebuilding of the Asian economy.
Scudder Pacific
Opportunities Fund: A Team
Approach to Investing
Scudder Pacific Opportunities Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an
important role in the Fund's management process. Team members work together to
develop investment strategies and select securities for the Fund's portfolio.
They are supported by the Adviser's large staff of economists, research
analysts, traders, and other investment specialists who work in our offices
across the United States and abroad. We believe our team approach benefits
Fund investors by bringing together many disciplines and leveraging our
extensive resources.
Lead Portfolio Manager Theresa Gusman assumed responsibility for the Fund's
day-to-day management and investment strategies in September 1998. Ms. Gusman
joined the Adviser in 1995 and has over 14 years of experience in Pacific
Basin investments. Portfolio Manager Elizabeth J. Allen joined the Adviser in
1987 as a member of the portfolio management team concentrating in Asia.
Portfolio Manager Nicholas Bratt joined the Adviser in 1976 and has over 20
years of experience in global investing. Mr. Bratt has been a member of the
fund's team since 1992.
9 - Scudder Pacific Opportunities Fund
<PAGE>
Glossary of Investment Terms
BALANCE OF TRADE The net difference over a period of time between
the value of a country's imports and exports
of merchandise. When a country exports more than it
imports, it is said to have a favorable balance of
trade.
CURRENCY DEVALUATION A significant decline of a currency's value relative
to other currencies, such as the U.S. dollar. This
may be prompted by trading or central bank
intervention (or the lack of intervention) in the
currency markets. For U.S. investors who are
investing overseas, a devaluation of a foreign
currency can have the effect of reducing the total
return of their investment.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and earnings
on balance sheets and income statements. Distinct
from technical analysis, which evaluates the
attractiveness of a stock based on historical price
and trading volume movements, rather than the
financial results of the underlying company.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
PRICE-EARNINGS RATIO (P/E) A widely used gauge of a stock's valuation that
(also "earnings multiple") indicates what investors are paying for a company's
earning power at the current stock price. A P/E
ratio may be based on a company's projected earnings
for the coming 12 months. A higher "earnings
multiple" indicates higher expected earnings growth,
along with greater risk of earnings disappointment.
TRANSPARENCY The degree to which investors can evaluate if a
company is managed in the interests of shareholders.
Transparency is often not as strong in developing
markets where disclosure requirements may be less
stringent and protectionism, subsidies, and cronyism
may distort the business environment.
VOLATILITY The tendency of a security, commodity, or market to
rise and fall in price over time. Volatility is
inherent in almost all investments but differs in
degree from investment to investment and from market
to market. For example, in the United States,
short-term bond funds are relatively low risk and
tend to have limited price changes. By contrast,
stock mutual funds are relatively high risk
investments. While generally offering greater
potential returns, these investments exhibit much
greater variations in price.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
10 - Scudder Pacific Opportunities Fund
<PAGE>
Investment Portfolio as of October 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 6.3%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 10/30/1998 at 5.4%,
to be repurchased at $6,567,954 on 11/2/1998, collateralized by a $6,539,000 ---------
U.S. Treasury Note, 7.0%, 4/15/1999 (Cost $6,565,000) .................................. 6,565,000 6,565,000
---------
Convertible Bonds 2.4%
- ------------------------------------------------------------------------------------------------------------------------------
Indonesia 1.2%
APP Global Finance Ltd., 2%, 7/25/2000 ................................................... 1,927,000 1,223,645
---------
Philippines 0.4%
Pilipino Telephone Corp., 1.75%, 7/17/2006 ............................................... 1,771,000 442,750
---------
Singapore 0.8%
Asia Pulp & Paper Company VI Ltd., Zero Coupon, 11/18/2012 ............................... 5,644,000 825,435
- ------------------------------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Cost $4,448,136) 2,491,830
- ------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 1.2%
- ------------------------------------------------------------------------------------------------------------------------------
Australia
---------
Oil Search Ltd. (Oil and gas exploration and production) (Cost $1,197,350) ............... 19,250 1,263,281
---------
Common Stocks 90.1%
- ------------------------------------------------------------------------------------------------------------------------------
Australia 5.2%
Acacia Resources Ltd. (Gold and mineral exploration company with operations
throughout Australia) .................................................................. 551,700 879,272
Brambles Industries Ltd. (Transport systems) ............................................. 56,900 1,247,888
Delta Gold NL (Emerging junior exploration company with important platinum
property in Zimbabwe) .................................................................. 521,100 853,301
Pasminco Ltd. (Diversified mining company) ............................................... 1,358,900 1,112,599
St. George Bank Ltd. (Commercial bank) ................................................... 193,383 1,289,865
Zimbabwe Platinum Mines Ltd.* (Mining company which explores for platinum) ............... 104,220 25,404
------
5,408,329
---------
China 10.2%
Beijing Datang Power Generation Co., Ltd. "H" (Owner and operator of coal-fired
electric power plants) ................................................................. 7,722,000 2,392,873
China Resources Beijing Land (Real estate holding company) ............................... 4,740,000 1,269,916
China Telecom Ltd.* (Telecommunication services) ......................................... 561,000 1,053,912
Guangdong Kelon Electric Holdings, Ltd. (Refrigerator manufacturer) ...................... 1,430,000 1,218,593
Harbin Power Equipment Co., Ltd. (Manufacturer of electric power generation
equipment) ............................................................................. 8,592,000 709,991
Jiangsu Expressway Co., Ltd. "H" (Builder and manager of the Shanghai-Nanjing
expressway) ............................................................................ 5,196,000 1,281,389
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Pacific Opportunities Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shenzhen Expressway Co. "H" (Highway developer) .......................................... 5,133,000 1,159,813
Sichuan Expressway Co. "H" (Developer of toll roads, bridges and tunnels) ................ 4,663,000 439,508
Zhejiang Expressway Co., Ltd. "H" (Road construction and management) ..................... 6,114,000 1,192,013
----------
10,718,008
----------
Hong Kong 27.5%
Cheung Kong Holdings Ltd. (Real estate company) .......................................... 617,000 4,222,208
Cheung Kong Infrastructure Holdings (Infrastructure business in power plants,
toll roads and bridges in China) ....................................................... 836,000 2,126,430
Citic Pacific Ltd. (Diversified holding company) ......................................... 1,629,000 4,017,289
Dah Sing Financial Group (General banking and property investment holding company) ....... 319,000 562,214
HSBC Holdings PLC (Bank) ................................................................. 47,200 1,081,730
Hutchison Whampoa, Ltd. (Container terminal and real estate company) ..................... 604,900 4,334,661
Li & Fung Ltd. (Investment holding company, engaged in export trading) ................... 1,972,000 3,080,852
National Mutual Ltd. (Insurance company) ................................................. 2,496,000 1,708,044
New World Development Co., Ltd. (Property investment and development,
construction and engineering, hotels and restaurants, telecommunications) .............. 1,578,269 3,668,022
New World Infrastructure Ltd.* (Investments in and operation of infrastructure
projects) .............................................................................. 1,153,600 1,645,872
Smartone Telecommunications Holdings Ltd. (Cellular communication services) .............. 597,500 1,697,224
Wing Hang Bank Ltd. (Corporate and retail banking, foreign exchange) ..................... 333,000 634,183
----------
28,778,729
----------
India 6.9%
Corporation Bank (Commercial bank) (b) ................................................... 310,800 715,849
HDFC Bank Ltd. (Corporate banking and financial services) (b) ............................ 452,600 562,880
Hero Honda Motors Ltd. (Manufacturer of motorized two wheelers) (b) ...................... 158,200 2,075,733
Hindustan Lever Ltd. (Manufacturer of consumer products) (b) ............................. 15,200 574,999
Indian Tobacco Co. (Tobacco company) (b) ................................................. 10,122 167,147
Infosys Technologies Ltd. (Financial and industrial software developer) (b) .............. 9,700 554,645
Mahanagar Telephone Nigam Ltd. (Telecommunication services in Delhi and
Bombay) (b) ............................................................................ 125,900 543,710
Punjab Tractors Ltd. (Manufacturer of agricultural equipment) (b) ........................ 51,800 956,848
TVS Suzuki Ltd. (Manufacturer of motorcycles and mopeds) (b) ............................. 74,300 1,051,597
----------
7,203,408
----------
Indonesia 3.2%
Gudang Garam (Manufacturer and distributor of cigarettes) ................................ 854,000 769,724
Indonesia Satellite Corp. (ADR) (International telecommunication services) ............... 102,100 1,065,669
Indorama Synthetics* (Producer of polyester yarn, fiber and fabric) ...................... 9,458,300 1,244,513
PT Astra International, Inc.* (Distributor of automobiles and related parts) ............. 4,263,000 238,391
----------
3,318,297
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Pacific Opportunities Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Korea 5.7%
Korea Fund, Inc.* (Affiliated investment company) ........................................ 248,600 2,066,488
Medison Co., Ltd. (Producer of medical equipment) ........................................ 95,370 1,055,250
Pohang Iron & Steel Co., Ltd. (Leading steel producer) (b) ............................... 30,740 1,702,523
Samsung Electronics Co., Ltd. (Major electronics manufacturer) ........................... 27,960 1,144,252
---------
5,968,513
---------
Malaysia 1.5%
Kuala Lumpur Kepong Berhad (Producer of palm products, natural rubber and
cocoa) (b) ............................................................................. 614,000 576,514
United Plantations Berhad (Cultivation and processing of oil palm, copra and
cocoa) (b) ............................................................................. 1,447,000 968,728
---------
1,545,242
---------
New Zealand 2.6%
Fletcher Challenge Energy Ltd. (NZD) (Oil and gas exploration and development) ........... 759,700 1,400,001
Fletcher Challenge Energy Ltd. (AUD) ..................................................... 179,500 332,075
Telecom Corp. of New Zealand (Installment Receipts) (Provider of
telecommunications services) ........................................................... 538,600 1,049,593
---------
2,781,669
---------
Papua New Guinea 1.1%
Orogen Minerals Ltd. (Investment company with controlling interest in Papua New
Guinea gold and oil companies) ......................................................... 866,200 1,180,198
---------
Philippines 2.2%
International Container Terminal Services, Inc.* (Containerized cargo handling
firm) .................................................................................. 11,316,600 757,245
Philippine Long Distance Telephone Co. (Telecommunication services) ...................... 56,000 1,339,281
Philippine Long Distance Telephone Co. (ADR) ............................................. 8,600 209,625
---------
2,306,151
---------
Singapore 4.7%
Asia Pulp & Paper Co., Ltd. (ADR)* (Producer of pulp and paper) .......................... 147,500 1,226,094
Natsteel Electronics Ltd. (Manufacturer of computer peripheral, telecommunication
and network products) .................................................................. 1,139,000 2,337,487
Overseas Union Bank Ltd. (Foreign registered) (Provider of banking and financial
services) .............................................................................. 509,000 1,382,353
---------
4,945,934
---------
Taiwan 14.1%
ASE Test Ltd.* (Testing services to semiconductor manufacturers) ......................... 94,100 2,575,988
Acer Peripherals, Inc. (Developer and distributor of computer peripherals) ............... 1,581,291 1,999,474
Asustek Computer Inc.* (Manufacturer of computer mainboards, audio/video cards
and network cards) ..................................................................... 199,141 1,473,981
Bank SinoPac* (Commercial bank) .......................................................... 152,075 64,957
Compeq Manufacturing Co., Ltd.* (Manufacturer of multi-layer double-sided printed
circuit boards) ........................................................................ 229,800 1,459,948
Delta Electronic Industrial (Manufacturer of power supply equipment) ..................... 330,000 951,581
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Pacific Opportunities Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Far East Textile Ltd. (Manufacturer of natural and synthetic textile products) ........... 560 390
Hon Hai Precision Industry Co., Ltd.* (Manufacturer of electronic connectors,
cable assemblies and memory chips) ..................................................... 197,000 947,787
Kinpo Electronics, Inc.* (Manufacturer of electronic office machines) .................... 588,000 906,708
Lite-on Electronic Co., Ltd. (Manufacturer of electronic components and power
supplies) .............................................................................. 594,000 1,300,663
Siliconware Corp.* (Testing and packaging of integrated circuits) ........................ 1,485,200 993,950
Synnex Technology International Corp. (GDR)* (Distributor of personal computers
and peripherals) ....................................................................... 585,643 2,158,345
-----------
14,833,772
-----------
Thailand 3.0%
BEC World Public Co., Ltd. (Holding company involved in entertainment and
television broadcasting) (b) ........................................................... 173,500 1,067,111
PTT Exploration and Production Co., Ltd. (Foreign registered)* (Petroleum
refinery) (b) .......................................................................... 224,900 2,080,991
-----------
3,148,102
-----------
United States 2.2%
Freeport McMoRan Copper & Gold, Inc. "A" (Mining company operating in Indonesia) ......... 196,600 2,346,913
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $99,286,126) 94,483,265
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $111,496,612) (a) 104,803,376
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security
(a) The cost for federal income tax purposes was $116,640,793. At October 31,
1998, net unrealized depreciation for all securities based on tax cost was
$11,837,417. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $9,854,732 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$21,692,149.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Directors at fair value amounted to $13,599,275 (12.06% of net assets).
Their values have been estimated by the Board of Directors in the absence
of readily ascertainable market values. However, because of the inherent
uncertainty of valuation, those estimated values may differ significantly
from the values that would have been used had a ready market for the
securities existed, and the difference could be material. The cost of
these securities at October 31, 1998 aggregated $15,627,331. These
securities may also have certain restrictions as to resale.
(c) Principal amount stated in U.S. dollars unless otherwise noted.
Transactions in written options during the year ended October 31, 1998 were:
<TABLE>
<CAPTION>
Number of Contracts Premiums ($)
--------------------------------------------------
<S> <C> <C>
Outstanding at
October 31, 1997 ............................... -- --
Contracts written .............................. 4,371 317,983
Contracts closed ............................... (4,371) (317,983)
--------------------------------------------------
October 31, 1998 ............................... -- --
====== ========
</TABLE>
Currency Abbreviations
----------------------
AUD Australian Dollars NZD New Zealand Dollars USD U.S. Dollars
KRW Korean Won TWD Taiwanese Dollars
The accompanying notes are an integral part of the financial statements.
14 - Scudder Pacific Opportunities Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1998
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $111,496,612) ................... $ 104,803,376
Cash .................................................................... 403,260
Foreign currency holdings, at market (identified cost $1,703,046) ....... 1,380,353
Receivables for investments sold ........................................ 2,871,648
Dividends and interest receivable ....................................... 132,125
Receivables for Fund shares sold ........................................ 5,252,651
Unrealized appreciation on forward currency exchange contracts .......... 182,518
Other assets ............................................................ 2,586
----------------
Total assets ............................................................ 115,028,517
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ....................................... 402,886
Payable for Fund shares redeemed ........................................ 759,280
Unrealized depreciation on forward currency exchange contracts .......... 757,711
Accrued management fee .................................................. 95,493
Other payables and accrued expenses ..................................... 246,632
----------------
Total liabilities ....................................................... 2,262,002
--------------------------------------------------------------------------------------------
Net assets, at market value $ 112,766,515
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ..................................... 273,389
Unrealized appreciation (depreciation) on:
Investments .......................................................... (6,693,236)
Foreign currency related transactions ................................ (577,364)
Accumulated net realized loss ........................................... (64,078,336)
Paid-in capital ......................................................... 183,842,062
--------------------------------------------------------------------------------------------
Net assets, at market value $ 112,766,515
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($112,766,515 /13,463,341 shares of capital stock outstanding, ----------------
$.01 par value, 100,000,000 shares authorized) ....................... $8.38
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Pacific Opportunities Fund
<PAGE>
Statement of Operations
year ended October 31, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $261,463) ................... $ 2,320,437
Interest (net of foreign taxes withheld of $4,244) ...................... 1,306,253
----------------
3,626,690
----------------
Expenses:
Management fee .......................................................... 1,356,087
Services to shareholders ................................................ 900,483
Custodian and accounting fees ........................................... 491,373
Directors' fees and expenses ............................................ 65,516
Reports to shareholders ................................................. 68,255
Auditing ................................................................ 73,798
Registration fees ....................................................... 25,945
Legal ................................................................... 13,763
Amortization of organization expenses ................................... 1,143
Other ................................................................... 23,019
----------------
3,019,382
--------------------------------------------------------------------------------------------
Net investment income (loss) 607,308
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments (Net of India Tax $18,112) .................................. (43,811,006)
Options ................................................................. (595,662)
Foreign currency related transactions ................................... (469,252)
----------------
(44,875,920)
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ............................................................. 15,779,644
Foreign currency related transactions ................................... (278,417)
----------------
15,501,227
--------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (29,374,693)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (28,767,385)
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Pacific Opportunities Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ........................... $ 607,308 $ (626,474)
Net realized gain (loss) from investment transactions .. (44,875,920) (1,792,604)
Net unrealized appreciation (depreciation) on
investment transactions during the period .............. 15,501,227 (49,806,055)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations .......................................... (28,767,385) (52,225,133)
---------------- ----------------
Distributions to shareholders from net investment
income ................................................. (3,652,405) (208,281)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .............................. 488,924,261 389,468,297
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 3,371,465 183,112
Cost of shares redeemed ................................ (494,386,113) (519,332,843)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................ (2,090,387) (129,681,434)
---------------- ----------------
Increase (decrease) in net assets ...................... (34,510,177) (182,114,848)
Net assets at beginning of period ...................... 147,276,692 329,391,540
Net assets at end of period (including undistributed
net investment income of $273,389 and $2,615,133, ---------------- ----------------
respectively) ....................................... $112,766,515 $147,276,692
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .............. 12,936,930 20,682,798
---------------- ----------------
Shares sold ............................................ 53,297,255 24,241,782
Shares issued to shareholders in reinvestment of
distributions ....................................... 336,809 10,985
Shares redeemed ........................................ (53,107,653) (31,998,635)
---------------- ----------------
Net increase (decrease) in Fund shares ................. 526,411 (7,745,868)
---------------- ----------------
Shares outstanding at end of period .................... 13,463,341 12,936,930
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Pacific Opportunities Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Years Ended October 31,
1998(a) 1997(a) 1996(a) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------
Net asset value, beginning of period ......................... $ 11.38 $ 15.93 $ 15.59 $ 17.57 $ 16.21
-----------------------------------------------------------
Income from investment operations:
Net investment income (loss) ................................. 0.05 (.04) .02 .10 .04
Net realized and unrealized gain (loss) on investment
transactions ............................................... (2.75) (4.50) .42 (1.98) 1.41
-----------------------------------------------------------
Total from investment operations ............................. (2.70) (4.54) .44 (1.88) 1.45
-----------------------------------------------------------
Less distributions from:
Net investment income ........................................ (.30) (.01) (.10) (.10) (.08)
Net realized gains on investment transactions ................ -- -- -- -- (.01)
-----------------------------------------------------------
Total distributions .......................................... (.30) (.01) (.10) (.10) (.09)
-----------------------------------------------------------
-----------------------------------------------------------
Net asset value, end of period ............................... $ 8.38 $ 11.38 $ 15.93 $ 15.59 $ 17.57
-----------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............................................. (24.16) (28.52) 2.76 (10.73) 8.97
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................... 113 147 329 384 499
Ratio of operating expenses, net to average daily net
assets (%) ................................................. 2.46 1.94 1.75 1.74 1.81
Ratio of net investment income (loss) to average daily net
assets (%) ................................................. .50 (.22) .12 .65 .28
Portfolio turnover rate (%) .................................. 140.9 97.2 95.4 64.0 38.5
</TABLE>
(a) Based on monthly average shares outstanding during the period.
18 - Scudder Pacific Opportunities Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Pacific Opportunities Fund (the "Fund") is a non-diversified series of
Scudder International Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq System, for which
there have been sales, are valued at the most recent sale price reported on such
system. If there are no such sales, the value is the most recent bid quotation.
Securities which are not quoted on the Nasdaq System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean between
the most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities other than money market securities are valued by
pricing agents approved by the officers of the Fund, which quotations reflect
broker/dealer-supplied valuations and electronic data processing techniques. If
the pricing agents are unable to provide such quotations, the most recent bid
quotation supplied by a bona fide market maker shall be used. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Directors.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement, is equal to at least the repurchase price.
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 call options and wrote call options on indices 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.
19 - Scudder Pacific Opportunities Fund
<PAGE>
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
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.
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 and as a
hedge against changes in exchange rates relating to foreign currency denominated
assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge, the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
20 - Scudder Pacific Opportunities Fund
<PAGE>
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies, and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes, and no federal
income tax provision was required.
At October 31, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $60,000,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until October 31,
2002 ($13,000,000), October 31, 2004 ($5,000,000) and October 31, 2006
($42,000,000), the respective expiration dates, whichever occurs first.
Distribution of Income and Gains. Distributions of net investment income are
made annually. During any particular year, net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in passive foreign investment
companies and investments in certain securities sold at a loss. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are being
amortized on a straight-line basis over a five-year period.
Other. Investment security transactions are accounted for on a trade date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. All original issue discounts are accreted for both tax and
financial reporting purposes. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
For the year ended October 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $159,269,584 and
$150,556,128, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder
21 - Scudder Pacific Opportunities Fund
<PAGE>
changed its name to Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Adviser"). The transaction between Scudder and Zurich resulted in the
termination of the Fund's Investment Management Agreement with Scudder. However,
a new Investment Management Agreement (the "Management Agreement") between the
Fund and Scudder Kemper was approved by the Fund's Board of Directors and by the
Fund's Shareholders. The Management Agreement, which was effective December 31,
1997, is the same in all material respects as the corresponding previous
Investment Management Agreement, except that Scudder Kemper is the new
investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Management Agreement. The
management fee payable under the Management Agreement is equal to an annual rate
of 1.10% of the Fund's average daily net assets, computed and accrued daily and
payable monthly. For the year ended October 31, 1998, the fee pursuant to these
agreements amounted to $1,356,087 of which $95,493 is unpaid at October 31,
1998. In addition, during the year ended October 31, 1998, the Adviser
reimbursed the Fund $517,166 for losses incurred in connection with equity
securities trading.
On September 7, 1998, Zurich, majority owner of the adviser, entered into an
agreement with B.A.T Industries p.l.c. ("B.A.T") pursuant to which the financial
services businesses of B.A.T were combined with Zurich's businesses to form a
new global insurance and financial services company known as Zurich Financial
Services. Upon consummation of the transaction, the Fund's Management Agreement
with Scudder Kemper was deemed to have been assigned and, therefore, terminated.
The Board of Directors of the Fund has approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the former
Management Agreement, except for the dates of execution, termination, and
breakpoints in the fee structure. The Board of Directors of the Fund will seek
shareholder approval of the new investment management agreement through a proxy
solicitation that is currently scheduled to conclude in mid-December.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended October 31, 1998, the amount charged to the Fund by SSC aggregated
$728,060, of which $54,751 is unpaid at October 31, 1998.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans for the Fund. For the year ended October 31, 1998, the
amount charged to the Fund by STC aggregated $42,966, of which $3,482 is unpaid
at October 31, 1998.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1998, the amount charged to the Fund by SFAC aggregated $114,392, of
which $16,656 is unpaid at October 31, 1998.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer,
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1998, Directors' fees and expenses aggregated $65,516.
22 - Scudder Pacific Opportunities Fund
<PAGE>
D. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation restrictions on
income and capital, and future adverse political and economic developments.
Moreover, securities issued in these markets may be less liquid, subject to
government ownership controls, delayed settlements, and their prices more
volatile than those of comparable securities in the United States.
E. Commitments
As of October 31, 1998, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized depreciation of
$575,193.
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
-------------------------- ------------------------ ----------------------- --------------------
<S> <C> <S> <C> <C> <C>
TWD 290,122,229 USD 8,535,517 11/18/1998 (408,522)
TWD 190,832,950 USD 5,621,000 11/18/1998 (262,098)
USD 1,694,417 KRW 2,324,740 8/4/1999 25,502
KRW 2,324,740 USD 1,745,300 8/4/1999 25,381
USD 1,586,853 KRW 2,324,740 8/13/1999 131,635
KRW 2,324,740 USD 1,631,396 8/13/1999 (87,091)
---------
(575,193)
========
</TABLE>
F. Lines of Credit
The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 25 percent of its net assets under the agreement. In addition, the
Fund also maintains an uncommitted line of credit.
23 - Scudder Pacific Opportunities Fund
<PAGE>
Report of Independent Accountants
To the Board of Directors of Scudder International Fund, Inc. and to the
Shareholders of Scudder Pacific Opportunities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Pacific Opportunities Fund
(the "Fund") at October 31, 1998, the results of its operations for the year
then ended and 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 five years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
Boston, Massachusetts PricewaterhouseCoopers LLP
December 16, 1998
24 - Scudder Pacific Opportunities Fund
<PAGE>
Tax Information
The Fund paid foreign taxes of $266,000 and earned $453,000 of foreign source
income during the fiscal year ended October 31, 1998. Pursuant to section 853 of
the Internal Revenue Code, the Fund designates $0.02 per share as foreign taxes
paid and $0.03 per share as income earned from foreign sources for the fiscal
year ended October 31, 1998.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Service Representative at
1-800-225-5163.
25 - Scudder Pacific Opportunities Fund
<PAGE>
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intentionally
left blank.
26 - Scudder Pacific Opportunities Fund
<PAGE>
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intentionally
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27 - Scudder Pacific Opportunities Fund
<PAGE>
Officers and Directors
Daniel Pierce*
Chairman of the Board and Director
Nicholas Bratt*
President
Paul Bancroft III
Director; Venture Capitalist and
Consultant
Sheryle J. Bolton
Director; Chief Executive
Officer, Scientific Learning
Corporation
William T. Burgin
Director; General Partner,
Bessemer Venture Partners
Thomas J. Devine
Director; Consultant
Keith R. Fox
Director; President, Exeter
Capital Management
Corporation
William H. Gleysteen, Jr.
Director; Consultant; Guest
Scholar, Brookings Institute
William H. Luers
Director; President, The
Metropolitan Museum of Art
Wilson Nolen
Director; Consultant
Kathryn L. Quirk*
Director, Vice President and
Assistant Secretary
Joan Spero
Director; President, Doris Duke
Charitable Foundation
Robert G. Stone, Jr.
Honorary Director; Chairman
Emeritus and Director, Kirby
Corporation
Elizabeth J. Allan*
Vice President
Irene T. Cheng*
Vice President
Joyce E. Cornell*
Vice President
Susan E. Dahl*
Vice President
Carol L. Franklin*
Vice President
Edmund B. Games, Jr.*
Vice President
Theresa Gusman*
Vice President
Thomas W. Joseph*
Vice President
Sheridan P. Reilly*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Richard W. Desmond*
Assistant Secretary
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
28 - Scudder Pacific Opportunities Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
29 - Scudder Pacific Opportunities Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Pacific Opportunities Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
31 - Scudder Pacific Opportunities Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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