Barrett International
Shares
Fund #401
Annual Report
August 31, 1999
Barrett International Shares are a class of the Scudder International Fund
<PAGE>
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Board of Directors
Lynn S. Birdsong Chairman of the Board and Director
Paul Bancroft III Director; Venture Capitalist and Consultant
Sheryle J. Bolton Director; Chief Executive Officer, Scientific Learning
Corporation
William T. Burgin Director; General Partner, Bessemer Venture Partners
Keith R. Fox Director; Private Equity Investor
William H. Luers Director; Chairman and President, U.N. Association of
America
Kathryn L. Quirk Director; Vice President and Assistant Secretary
Joan E. Spero Director; President, Doris Duke Charitable Foundation
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Honorary Directors
Thomas J. Devine Honorary Director; Consultant
William H. Gleysteen,
Jr. Honorary Director; Consultant; Guest Scholar, Brookings
Institution
Wilson Nolen Honorary Director; Consultant
Robert G. Stone, Jr. Honorary Director; Chairman Emeritus and Director,
Kirby Corporation
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Officers
Nicholas Bratt* President
Elizabeth J. Allan* Vice President
Irene T. Cheng* Vice President
Joyce E. Cornell* Vice President
Susan E. Dahl* Vice President
Philip S. Fortuna* Vice President
Carol L. Franklin* Vice President
Edmund B. Games, Jr.* Vice President
Theresa Gusman* Vice President
Ann M. McCreary* Vice President
Sheridan Reilly* Vice President
Shahram Tajbakhsh* Vice President
John Millette* Vice President and Secretary
John R. Hebble* Treasurer
Richard W. Desmond* Assistant Secretary
Caroline Pearson* Assistant Secretary
*Scudder Kemper Investments, Inc.
2
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Dear Shareholders,
We are pleased to provide you with the August 31, 1999 annual report for the
Barrett International Shares (the "fund"), a class of shares of Scudder
International Fund.
Investing in the foreign markets has long been considered a way to achieve
meaningful portfolio diversification. While this notion was called into question
when all of the global markets plummeted in unison during the crisis period last
fall, the events of 1999 have shown that investors who place a portion of their
assets overseas may be able to take advantage of important developments
occurring outside of the United States. In Europe, for instance, the
introduction of the euro has facilitated a new wave of merger and acquisition
activity. In Japan, corporate earnings stand to benefit from the fact that the
long-awaited restructuring process finally appears to be underway. The historic
changes taking place in these regions have created a wealth of opportunities for
bottom-up stockpickers to invest in companies that are poised to capitalize on
the evolution of the global economy. The ability of the management team of
Barrett International Shares to take advantage of many such opportunities has
enabled the fund to post a 32.22% return over the twelve months and a 15.27%
return for the five months ended August 31, 1999. For more information on the
fund's investment strategy and the trends driving the overseas markets, please
turn to the Portfolio Management Discussion that begins on page 9.
We have changed the fund's fiscal year-end from March 31 to August 31 as part of
a larger effort to create efficiencies and
3
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reduce the costs of producing fund regulatory materials such as fund reports and
prospectuses. Going forward, you will receive regular reports following the
fund's annual and semiannual periods ending in August and February.
Finally, it should be noted that Daniel Pierce retired in June of this year as
Chairman of Barrett International Shares, at which time I assumed that role and
its responsibilities. We are fortunate that Dan's longstanding affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join the Barrett International Shares' team in this
capacity, and look forward to serving your interests.
Thank you for your investment in the Barrett International Shares. Should you
have any questions regarding your investment, please call us at 1-800-854-8525.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
Chairman,
Barrett International Shares
4
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Performance Update
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August 31, 1999
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Growth of a $10,000 Investment
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THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Barrett International Shares MSCI EAFE & Canada Index*
4/98** 10000 10000
6/98 10420 10001
8/98 9168 8780
10/98 9530 10669
12/98 10222 11641
2/99 10071 11350
4/99 11128 12330
6/99 11327 12165
8/99 12121 12551
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 8/31/1999 $10,000 Cumulative Annual
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Barrett International Shares
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1 year $ 13,222 32.22% 32.22%
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Life of Fund** $ 12,290 22.90% 15.74%
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MSCI EAFE & Canada Index*
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1 year $ 12,616 26.16% 26.16%
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Life of Fund** $ 11,078 10.78% 7.96%
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* 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.
** The fund commenced operations on April 3, 1998. Index comparisons begin
April 30, 1998.
5
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING
THE BARRETT INTERNATIONAL SHARES TOTAL RETURN (%)
AND MSCI EAFE & CANADA INDEX* TOTAL RETURN (%)
CHART DATA:
Barrett International Shares Msci EAFE & Canada Index*
1998** -7.05 -12.20
1999 32.22 26.16
Yearly periods ended August 31
1998** 1999
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Fund Total
Return (%) -7.05 32.22
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Index Total
Return (%) -12.20 26.16
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Net Asset
Value ($) 48.61 54.94
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Income
Dividends ($) -- --
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Capital Gains
Distributions ($) .11 8.10
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* 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.
** The fund commenced operations on April 3, 1998. Index comparisons begin
April 30, 1998.
Effective August 2, 1999, the Fund offers three share classes: International
Shares, Barrett International Shares, and Class R Shares. The total return
information provided is for the Fund's Barrett International Shares Class.
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.
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Portfolio Summary
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August 31, 1999
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Geographical
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(Excludes 1% Cash Equivalents) Fund management further
increased the
portfolio's weighting in
Japan and the Pacific
Basin, and reduced its
holdings in Europe.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Europe 60%
Japan 29%
Pacific Basin 10%
Canada 1%
- ------------------------------------
100%
- ------------------------------------
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Sectors
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(Excludes 1% Cash Equivalents) The fund's holdings in
cyclicals and Japanese
financial stocks were
among top contributors
to performance.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Manufacturing 19%
Financial 18%
Technology 13%
Communications 9%
Consumer Staples 8%
Service Industries 7%
Energy 6%
Metals & Materials 4%
Consumer Discretionary 4%
Other 12%
- ------------------------------------
100%
- ------------------------------------
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Ten Largest Equity Holdings
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(17% of Portfolio) The fund's top ten
holdings reflect its
high level of
diversification and
focus on well-managed,
fast-growing companies.
1. Elf Aquitaine SA
Petroleum company in France
2. Reuters Group plc
International news and information organization in the
United Kingdom
3. Rio Tinto plc
Mining company based in the United Kingdom
4. NTT Mobile Communications Network, Inc.
Provider of various telecommunication services and
equipment in Japan
5. Fujitsu Ltd.
Manufacturer of computers in Japan
6. Nokia OYJ
Manufacturer of telecommunication networks and
equipment in Finland
7. Daiwa Securities Co., Ltd.
Provider of brokerage and other financial services in Japan
8. Mannesmann AG
Manufacturer of diversified industrial products in Germany
9. Toshiba Corp.
Manufacturer of electric machinery in Japan
10. Orange plc
Operator of digital mobile telephone network in the
United Kingdom
For more complete details about the Fund's investment portfolio, see page 14. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
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Portfolio Management Discussion
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August 31, 1999
In the following interview, Portfolio Manager Irene Cheng discusses Barrett
International Shares' (the "fund") strategy and the market environment during
the five-month period ending August 31, 1999.
Q: The international markets have experienced high levels of volatility in
recent months. To what do you attribute this development?
A: The increase in volatility is largely the result of the market's struggle to
balance the two most important effects of a stronger economy: rising interest
rates and improved corporate earnings. Investors across the world have been
keeping a close eye on the interest rate picture in the United States, where two
quarter-point increases by the Federal Reserve have prompted investors to
question the bull market's sustainability. The concern over higher rates has
spilled over into Europe, where stronger growth has fueled fears that the
European Central Bank will be inclined to tighten as early as this year.
Although the rate issue has been roiling the markets for months now, we believe
that it represents only a short-term difficulty. In contrast, restructuring and
consolidation activity is a powerful long-term theme that has been, and should
continue to be, a primary driver of stock market performance overseas. This
continuing trend, against a backdrop of economic recovery in its early days in
Europe and Japan, remains quite bullish for the international markets despite
the day-to-day turbulence that we have witnessed in recent months.
Q: How did consolidation activity affect fund performance over the period?
A: Corporate activity had a significant impact in two ways. First, we benefited
directly from our positions in a number of companies that were the subject of
takeover bids. Second, and probably more important, we owned a number of stocks
that were lifted when other companies in similar industries announced deals. A
case in point is the recent announcement of a proposed three-way merger in the
Japanese financial industry between Fuji Bank,
9
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Industrial Bank of Japan (IBJ), and Dai-Ichi Kangyo Bank (DKB). Although Fuji is
the only one of the three that we own directly, our other holdings in the
Japanese financial sector -- such as Sakura Bank, Sanwa Bank, Sumitomo Trust and
Banking, Daiwa Securities, and Nomura Securities -- were boosted on the hopes
that meaningful rationalization in the industry has finally begun.
In Europe, consolidation has continued to accelerate at a ferocious pace, and we
have benefited from our positions on many sides of the deals. For example,
Carrefour (a fund holding) recently offered to merge with Promodes in a
combination of two of the biggest players in the French food retailing industry.
Carrefour's stock rose on the news, and we believe that it has further to run
due to the potential for the company to gain synergies and significantly improve
its competitive position. This deal also strongly boosted the price of another
potential merger target -- and fund holding -- Casino. We also owned a large
position in Elf Aquitane, the French oil company that recently agreed to join
forces with TotalFina. In the U.K., we benefited from our large position in BOC,
an industrial gases company that the key player in a three-company consolidation
in process. Also in the U.K., we held Select Appointments, the fast growing
specialist staffing company that was recently bought out by a Dutch competitor,
Vedior NV. Our positions in companies such as these provided a significant boost
to performance by allowing the fund to participate in the explosive increase in
consolidation activity in the overseas markets, and we would expect more to
follow.
Q: How has the fund performed over the last year, and in the five months since
the last report?
A: The fund has done very well, rising 32.22% over the 12-month reporting period
ended on August 31. In comparison, the fund's benchmark -- the MSCI EAFE +
Canada Index -- returned 26.16%. Over the five months since the last report, the
fund has risen 15.27% versus 6.15% for the benchmark. We believe that strong
stock
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selection across all regions has been the driving force behind the fund's
outstanding performance.
Q: Earlier, you mentioned that the fund holds a large position in the Japanese
financial sector. What factors led you to take such a heavy weighting in a
sector that, until the last 9-12 months, had been performing so poorly?
A: When we first established our position in Japanese financials earlier in the
year, we were intrigued by the fact that the sector was so deeply out of favor.
Many financial stocks had been decimated, and the prevailing expectation was
that bank failures were inevitable. However, we felt that the government's
injection of public funds into the banking system was a key step that would
limit further deterioration in the sector. Most important, these funds were made
available under the strict conditions that banks improve their profitability and
institute reforms. While this view was not in line with the consensus at the
time, our early entry into financials allowed us to participate in the full
length of their rally. At this juncture, we continue to believe that the market
remains skeptical regarding meaningful restructuring and consolidation in the
industry, and has not yet fully discounted the improved outlook for the sector.
Q: How has the fund's position in cyclicals affected performance?
A: Cyclicals have been strong for us in both Europe and Japan. We first built up
the position late in 1998 once it became more apparent that the improving health
of the global economy meant that a defensive positioning was no longer
warranted. The fact that we moved into cyclicals a few months early proved to be
a distinct positive in a market where changes are being discounted into asset
prices faster than at any time in history. At this stage, we are more optimistic
on Japanese cyclicals, because (as with banks) expectations are not as high as
they are in Europe. Investors have generally accepted the notion that growth in
Europe will rebound, which means that the potential
11
<PAGE>
benefit of a stronger economy is already discounted into stock prices to a
greater extent. In Japan, on the other hand, there is still a great deal of
doubt as to whether the bounce in the economy is for real, or merely the
temporary result of the country's economic stimulus plan. The fact that there
are still so many variables in Japan means that there is more breathing room for
us to move in and take advantage of some very interesting opportunities.
Currently, some of our favorite names among cyclicals are Rio Tinto, the premier
global mining company in the U.K., Siemens in Germany, and NEC, Hitachi, and
Nissan Motors in Japan.
Q: Have you found any opportunities in the emerging markets?
A: Yes. The bulk of our position in the developing countries consists of
technology stocks, primarily semiconductor manufacturers. The industry has
suffered over the latter part of the 1990s, with overcapacity pushing prices to
a level that proved unprofitable for many chip makers. Now that demand is
increasing and some of the excess capacity has been wrung out of the industry,
investors have gone on the prowl for bargains among the top companies in the
sector. Fund holdings that were positioned to benefit from this turnaround were
Samsung Electronics and Taiwan Semiconductor. We also established positions in
Taiwanese tech companies that are capitalizing on the growing trend toward
outsourcing, such as Compal Electronics and Hon Hai Precision. The fund's
emerging market tech names have performed extremely well overall, with several
doubling during the first eight months of 1999.
Q: What is your outlook for the international markets from here?
A: We remain optimistic that the themes I mentioned earlier -- restructuring and
consolidation -- will continue to provide a strong underpinning for the foreign
markets, and will give bottom-up investors the opportunity to take
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advantage of the positive performance of the many individual companies that are
poised to benefit from the ongoing process of secular change. That said, we also
believe that some caution may be warranted at this point -- the global stock
markets have come a long way in the past twelve months, and are vulnerable to a
larger-than-expected jump in interest rates. Regardless of the short-term
fluctuations of the markets, however, we will remain focused on adding value for
shareholders by investing in companies that are on the cusp of significant
positive changes.
13
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Investment Portfolio as of August 31, 1999
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Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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Repurchase Agreements 0.8%
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<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette
dated 8/31/1999 at 5.42%, to be repurchased at
$29,219,398 on 9/1/1999, collateralized by a
$29,375,000 U.S. Treasury Bond, 5.875%, 2/15/2000
(Cost $29,215,000) ................................. 29,215,000 29,215,000
- ------------------------------------------------------------------------------------
Commercial Paper 0.3%
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Wal-Mart Stores, Inc., 5.24%**, 9/13/1999
(Cost $9,982,533) .................................. 10,000,000 9,982,533
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Participating Loan Notes 0.4%
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Luxembourg
Eurotunnel Finance Ltd., Step-up Coupon, 1.0% to
12/31/2005, 1% plus 26.45% of net available cash flow
to 4/30/2040 (Cost $13,351,889) .................... 10,250(b) 14,097,188
- ------------------------------------------------------------------------------------
Convertible Bonds 0.1%
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Philippines
International Container Terminal, Inc., 1.75%, 3/13/2004
(Putable 3/13/2002) (Cost $3,194,166) .............. 2,753,000 2,697,940
Shares
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Common Stocks 98.4%
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Australia 1.8%
Broken Hill Proprietary Co. Ltd. (Petroleum, mineral, and
steel exploration and production) .................. 2,974,575 32,080,322
WMC Ltd. (Mineral exploration and production) ........ 4,802,500 21,231,013
Woodside Petroleum Ltd. (Oil and gas producer) ....... 1,814,600 12,723,517
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66,034,852
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Canada 1.3%
Canadian National Railway Co. (Railroad operator) .... 723,000 45,916,672
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China 0.1%
Jiangsu Expressway Co., Ltd. "H" (Highway developer) . 6,783,000 1,222,957
Shenzhen Expressway Co. "H" (Highway developer) ...... 3,016,000 528,240
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1,751,197
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</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
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<S> <C> <C>
Finland 1.5%
Nokia OYJ (Manufacturer of telecommunication networks
and equipment) .......................................... 651,200 54,426,041
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France 14.2%
AXA SA (Provider of insurance, finance and real estate
services) ............................................... 101,192 12,611,209
Accor SA (Provider of catering, hotel and travel services) 75,755 18,257,036
Alcatel (Manufacturer of telecommunication equipment) ..... 118,529 18,182,679
Alstom* (Designer and manufacturer of infrastructure
systems and components) ................................. 299,275 10,093,784
Carrefour SA (Hypermarket operator and food retailer) ..... 164,220 26,755,436
Christian Dior (Fashion house) ............................ 184,105 29,605,638
Club Mediterranee SA* (Operator of vacation resorts) ...... 60,992 6,323,597
Elf Aquitaine SA (Petroleum company) ...................... 583,750 102,518,027
Etablissements Economiques du Casino
Guichard-Perrachon S.A. (Operator of supermarkets
and convenience stores) ................................. 427,332 28,029,953
Eurotunnel SA* (Developer of Channel Tunnel) 21,261,013 32,390,056
LVMH (Louis Vuitton Moet Hennessy) (Producer of wines,
spirits and luxury products) ............................ 64,854 19,767,206
Lafarge SA (Producer of cement, concrete and
aggregates) ............................................. 331,597 35,677,696
Pinault-Printemps-Redoute SA (Operator of department
stores) ................................................. 147,248 25,548,094
Renault SA (Manufacturer of automobiles, buses, industrial
and agricultural vehicles) .............................. 384,289 20,734,492
Rhone-Poulenc S.A. "A" (Pharmaceutical company) ........... 941,467 45,737,481
Societe BIC SA (Manufacturer of office supplies) .......... 615,087 32,276,281
Suez Lyonnaise des Eaux (Provider of water supply and
treatment services) ..................................... 189,281 31,619,457
Union des Assurances Federales (Insurance group) .......... 136,948 16,994,914
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513,123,036
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Germany 10.3%
BASF AG (International chemical producer) ................. 895,339 40,635,916
Commerzbank AG (Bank) ..................................... 510,000 18,290,902
Dresdner Bank AG (Bank) ................................... 569,000 26,246,054
Heidelberger Druckmaschinen AG (Manufacturer of
commercial printing presses) ............................ 119,282 7,571,666
Hoechst AG (Chemical producer) ............................ 943,564 39,929,752
HypoVereinsbank AG (Bank) ................................. 386,620 22,946,288
Karstadt AG (Operator of department store chain) .......... 43,109 20,432,016
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Mannesmann AG (Manufacturer of diversified industrial
products) ..................................... 327,292 50,276,758
SAP AG (pfd.) (Manufacturer of computer software) 83,347 33,507,253
Siemens AG (Electrical engineering and electronics
company) ...................................... 562,580 47,376,461
VEBA AG (Electric utility, distributor of oil
and chemicals) ................................ 650,550 41,501,448
Viag AG (Provider of electrical power and natural gas
services) ..................................... 1,113,554 23,738,408
---------------
372,452,922
---------------
Hong Kong 1.8%
Cheung Kong Holdings Ltd. (Real estate company) . 2,360,000 20,591,247
Citic Pacific Ltd. (Diversified holding company) 6,190,000 19,251,702
Hong Kong & China Gas Co., Ltd. (Gas utility) ... 19 27
Kerry Properties, Ltd. (Real estate company) .... 3,822,155 4,774,648
New World China Land Ltd.* (Property
development) .................................. 38,918 31,325
New World Development Co., Ltd. (Property investment
and development) .............................. 7,783,616 18,744,953
New World Infrastructure Ltd.* (Investment and operation of
infrastructure projects) ...................... 2,068,200 2,903,223
---------------
66,297,125
---------------
Hungary 0.1%
The First Hungary Fund Limited "A"* (Investment
company) ...................................... 3,619 4,397,085
---------------
Italy 5.0%
Arnoldo Mondadori Editore SpA (Book publisher) .. 763,000 12,390,767
Assicurazioni Generali (Insurance company) ...... 712,300 24,076,817
Banca Nazionale del Lavoro* (Bank) .............. 7,816,100 25,468,659
Class Editori SpA (Publishing house) ............ 871,900 6,724,492
Finmeccanica SpA* (Designer and developer of
aeronautical equipment) ....................... 22,814,000 19,212,318
Gruppo Editoriale L'Espresso (Publisher) ........ 587,000 9,408,405
Mediaset SpA (Broadcasting and television networks) 1,803,400 15,950,107
Seat Pagine Gialle SpA (Publisher of telecommunication
directories and provider of advertising
services) ..................................... 23,830,800 32,901,401
Tecnost SpA* (Developer of information systems) . 6,839,100 17,907,684
Telecom Italia SpA (Telecommunication services) . 1,849,500 18,647,151
---------------
182,687,801
---------------
Japan 28.9%
Advantest Corp. (Producer of measuring instruments and
semiconductor testing devices) ................ 157,300 21,326,623
Asahi Glass Co., Ltd. (Manufacturer of
glass products) ............................... 2,185,000 13,804,620
Benesse Corp. (Provider of educational services) 176,100 30,547,795
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Canon Inc. (Producer of visual image and information
equipment) ......................................... 658,000 19,223,957
Daiwa Securities Co., Ltd. (Provider of brokerage and other
financial services) ................................ 5,591,000 50,585,967
Fanuc Ltd. (Manufacturer of numerically controlled
equipment for machine tools) ....................... 153,400 9,243,495
Fuji Bank, Ltd. (Commercial bank) .................... 4,170,000 43,021,090
Fujisawa Pharmaceutical Co. (Pharmaceutical company) . 320,000 5,495,481
Fujitsu Ltd. (Manufacturer of computers) ............. 1,861,000 54,540,400
Fujitsu Support and Service Inc. (Provider of information
services) .......................................... 51,500 13,306,400
Hikari Tsushin, Inc. (Provider of long distance and cellular
telephone services) ................................ 35,000 18,469,826
Hitachi, Ltd. (Manufacturer of general electronics) .. 3,629,000 36,810,180
Kawasaki Steel Corp. (Major integrated steelmaker) ... 7,446,000 16,995,344
Komatsu Ltd. (Manufacturer of construction machinery) 1,827,000 11,676,253
Matsushita Electric Industrial Co., Ltd. (Manufacturer of
consumer electronic products) ...................... 1,732,000 34,156,122
Murata Manufacturing Co., Ltd. (Manufacturer of ceramic
applied electronic components) ..................... 473,000 38,002,374
NEC Corp. (Manufacturer of telecommunication and
computer equipment) ................................ 2,658,000 43,195,837
Nikko Securities Co., Ltd. (Securities broker and dealer) 3,727,000 32,257,792
Nippon Telegraph & Telephone Corp. (Telecommunication
services) .......................................... 3,368 37,821,967
Nissan Motor Co., Ltd. (Manufacturer of motor vehicles) 4,702,000 27,388,624
Nomura Securities Co., Ltd. (Provider of brokerage
services) .......................................... 2,499,000 36,619,145
NSK Ltd. (Manufacturer of bearings and motor vehicle
machine parts) ..................................... 3,247,000 20,869,972
NTT Mobile Communications Network, Inc. (Provider of
various telecommunication services and equipment) .. 3,740 61,872,364
SMC Corp. (Manufacturer of directional control devices) 65,200 9,941,021
Sakura Bank, Ltd. (Bank) ............................. 8,045,000 42,601,114
Sanwa Bank, Ltd. (Bank) .............................. 3,093,000 42,358,258
Shin-Etsu Chemical Co., Ltd. (Producer and distributor of
synthetic resins and chemicals) .................... 635,000 25,856,843
Sony Corp. (Manufacturer of consumer electronic
products) .......................................... 280,600 36,327,107
Sony Corp. (ADR) ..................................... 66,700 8,491,744
Sumitomo Trust & Banking Co., Ltd. (Commercial Bank) . 5,994,000 39,949,055
TDK Corp. (Manufacturer of magnetic tapes and floppy
discs) ............................................. 204,000 24,771,296
Teijin Ltd. (Manufacturer of polyester products) ..... 3,881,000 16,476,445
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
THK Co., Ltd. (Manufacturer of linear motion systems for
industrial machinery) .............................. 321,600 10,540,893
Tokyo Electron Ltd. (Manufacturer of semiconductor
production equipment) .............................. 512,000 35,993,792
Toshiba Corp. (Manufacturer of electric machinery) ... 5,559,000 49,382,881
Yamanouchi Pharmaceutical Co., Ltd. (Manufacturer of
ethical drugs) ..................................... 531,000 23,658,176
---------------
1,043,580,253
---------------
Korea 1.0%
Samsung Electronics Co., Ltd. (Electronics manufacturer) 194,750 36,953,833
---------------
Netherlands 6.7%
AEGON Insurance Group NV (Insurance company) ......... 248,470 21,765,546
Akzo Nobel NV (Producer and marketer of healthcare
products, coatings, chemicals and fibers) .......... 499,500 23,278,054
DSM NV (Chemical manufacturer) ....................... 109,180 12,861,706
Elsevier NV (International book publisher) ........... 1,685,000 19,430,844
Equant NV* (Provider of international data network
services) .......................................... 350,810 31,082,936
Gucci Group NV, (New York Shares) (Registered) (Designer
and producer of personal luxury accessories
and apparel) ....................................... 495,780 41,521,575
Heineken Holding NV "A" (Producer and distributor of
beers, spirits, wines, soft drinks) ................ 688,985 25,511,916
Koninklijke Ahold NV (International food retailer) ... 450,064 16,141,327
STMicroelectronics NV (Manufacturer of semiconductor
integrated circuits) ............................... 352,420 23,433,172
United Pan-Europe Communications NV*
(Telecommunication services) ....................... 221,943 13,477,787
VNU NV (International publishing company) ............ 391,510 15,035,392
---------------
243,540,255
---------------
Philippines 0.0%
International Container Terminal Services, Inc.*
(Containerized cargo handling firm) ................ 10,537,050 1,128,733
---------------
Singapore 0.5%
DBS Bank, Ltd. (Banking and financial services) ...... 128,607 1,473,678
DBS Bank, Ltd. (Foreign Registered) .................. 789,000 9,040,967
Oversea-Chinese Banking Corp., Ltd. (Foreign registered)
(Commercial bank) .................................. 911,000 6,382,355
---------------
16,897,000
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Spain 0.6%
Telefonica Publicidad e Informacion, SA* (Publisher of
telephone directories) ............................. 96,531 2,216,112
Telefonica S.A.* (Telecommunication services) ........ 1,324,569 21,160,055
---------------
23,376,167
---------------
Switzerland 2.4%
Clariant AG (Registered) (Manufacturer of color chemicals) 23,812 11,449,892
Nestle SA (Registered) (Food manufacturer) ........... 17,186 33,940,647
Novartis AG (Registered) (Pharmaceutical company) .... 14,046 20,224,756
Roche Holdings AG (Producer of drugs and medicines) .. 1,712 19,811,255
---------------
85,426,550
---------------
Taiwan 3.9%
China Motor Company Ltd. (Manufacturer of trucks and
automobiles) ....................................... 8,109,640 10,455,825
Chinatrust Commercial Bank (Bank) .................... 14,861,560 14,861,560
Compal Electronics Inc. (Manufacturer and marketer of
notebook computers and color monitors) ............. 5,281,229 17,687,135
Far Eastern Textile Ltd. (Manufacturer of natural
and synthetic textile products) .................... 16,115,270 23,362,074
Hon Hai Precision Industry Co., Ltd. (Manufacturer of
electronic connectors and cable assemblies) ........ 2,605,400 16,959,679
Siliconware Precision Industries Co. (Manufacturer of
integrated circuit plates) ......................... 9,156,120 17,995,519
Taiwan Semiconductor Manufacturing Co. (Manufacturer of
integrated circuits) ............................... 7,259,630 30,819,184
Yang Ming Marine Transport (Marine transportation) ... 18,248,000 10,386,440
---------------
142,527,416
---------------
United Kingdom 18.3%
Billiton plc (Mining company specializing in aluminum) 4,087,844 16,631,235
BOC Group plc (Producer of industrial gases) ......... 2,118,054 44,540,753
BP Amoco plc (Producer of oil and petrochemicals) .... 2,095,995 38,824,013
Carlton Communications plc (Television post production
products and services) ............................. 2,207,253 16,719,169
General Electric Co., plc (Manufacturer of power,
communications and defense equipment) .............. 3,706,346 36,975,873
Glaxo Wellcome plc (Pharmaceutical company) .......... 784,166 20,575,081
J Sainsbury plc (Retail distributor of food through
supermarkets) ...................................... 4,029,942 27,741,536
HSBC Holdings plc (International banking and financial
services company) .................................. 379,200 4,700,352
LASMO plc (Oil production and exploration) ........... 1,175,893 2,909,172
Marks & Spencer, plc (Retailer of consumer goods and
foods) ............................................. 6,943,838 46,461,739
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Orange plc* (Operator of digital mobile telephone
networks) .......................................... 2,842,834 47,930,816
Prudential Corporation plc (Provider of a broad range of
nancial services) .................................. 3,009,264 44,476,335
Reed International plc (Publisher of scientific, professional
and business to business materials) ................ 2,706,485 17,946,245
Rentokil Intitial plc (Environmental services company) 3,390,430 13,562,352
Reuters Group plc (International news and information
organization) ...................................... 4,387,671 64,390,750
Rio Tinto plc (Mining company) ....................... 3,586,204 64,237,811
Royal & Sun Alliance Insurance Group plc (Insurance
company) ........................................... 2,984,534 24,812,342
Select Appointments Holdings plc* (Provider of recruitment
services) .......................................... 1,098,634 15,655,161
Shell Transport & Trading plc (Petroleum company) .... 6,001,208 47,794,979
SmithKline Beecham plc (Manufacturer of ethical drugs
and healthcare products) ........................... 1,753,404 22,788,272
United News & Media plc (Information and publication
services group) .................................... 712,197 7,002,167
Vodafone AirTouch plc (Telecommunication services) ... 1,576,406 31,706,864
---------------
658,383,017
---------------
Total Common Stocks (Cost $2,618,999,504) 3,558,899,955
- ------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $2,674,743,092) (a) 3,614,892,616
- ------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate (unaudited).
(a) The cost for federal income tax purposes was $2,675,421,974. At August 31,
1999, net unrealized appreciation for all securities based on tax cost was
$939,470,642. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost of
$1,013,606,369 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$74,135,727.
(b) Represents number of contracts. Each contract equals a nominal value of EUR
2,931.
Currency Abbreviation
---------------------------
EUR euro
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $2,674,743,092) ......... $3,614,892,616
Cash ............................................................ 1,534
Foreign currency holdings, at market (identified cost $14,881,184) 15,039,420
Receivable for investments sold ................................. 52,323,906
Receivable for Fund shares sold ................................. 11,672,094
Dividends and interest receivable ............................... 2,449,642
Foreign taxes recoverable ....................................... 3,811,902
Other assets .................................................... 208,469
---------------
Total assets .................................................... 3,700,399,583
Liabilities
- ------------------------------------------------------------------------------------
Payable for investments purchased ............................... 48,201,018
Payable for Fund shares redeemed ................................ 4,752,489
Unrealized depreciation on forward currency exchange contracts .. 5,448,314
Accrued management fee .......................................... 2,432,369
Other payables and accrued expenses ............................. 1,706,612
---------------
Total liabilities ............................................... 62,540,802
Net assets, at market value ..................................... $3,637,858,781
Net Assets
- ------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ............................. 12,626,603
Unrealized appreciation (depreciation) on:
Investments ..................................................... 940,149,524
Foreign currency related transactions ........................... (5,347,150)
Accumulated net realized gain (loss) ............................ 111,723,665
Paid-in capital ................................................. 2,578,706,139
Net assets, at market value ..................................... $3,637,858,781
Net Asset Value
- ------------------------------------------------------------------------------------
International Shares
Net asset value, offering and redemption price per share ($3,609,871,428 /
65,846,905 shares of capital stock outstanding, $.01 par value, 100,000,000
shares authorized) .............................................. $54.82
Barrett International Shares
Net asset value, offering and redemption price per share ($25,164,275 / 458,016
shares of capital stock outstanding, $.01 par value, 100,000,000 shares
authorized) ..................................................... $54.94
Class R Shares
Net asset value, offering and redemption price per share ($2,823,078 / 51,539
shares of capital stock outstanding, $.01 par value, 100,000,000 shares
authorized) ..................................................... $54.78
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income Five Months Year Ended
Ended August 31, March 31,
1999 (Note A) 1999
- ------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Dividends (net of foreign taxes withheld of ..... $ 28,400,314 $ 52,285,237
$4,234,181 and $6,411,078, respectively)
Interest ........................................ 1,835,323 9,490,808
--------------- ---------------
30,235,637 61,776,045
--------------- ---------------
Expenses:
Management fee .................................. 11,269,103 23,819,941
Services to shareholders ........................ 3,970,153 7,389,758
Custodian and accounting fees ................... 1,226,072 2,319,746
Directors' fees and expenses .................... 14,291 63,387
Reports to shareholders ......................... 214,576 430,297
Auditing ........................................ 65,940 159,558
Legal ........................................... 39,476 69,182
Registration fees ............................... 96,549 98,771
Other ........................................... 155,188 228,884
--------------- ---------------
17,051,348 34,579,524
Net investment income 13,184,289 27,196,521
Realized and unrealized gain (loss) on investment
transactions
- ------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ..................................... 121,633,538 505,050,696
Foreign currency related transactions (including
CPMF tax of $-- and $45,856, respectively) .... (470,928) (9,203,032)
--------------- ---------------
121,162,610 495,847,664
--------------- ---------------
Net unrealized appreciation (depreciation) during the period on:
Investments ..................................... 356,001,814 (310,921,292)
Foreign currency related transactions ........... (4,920,713) (242,949)
--------------- ---------------
351,081,101 (311,164,241)
Net gain (loss) on investment transactions 472,243,711 184,683,423
Net increase (decrease) in net assets resulting
from operations $ 485,428,000 $ 211,879,944
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Five Months
Ended
Increase (Decrease) in August 31, Years Ended March 31, 1999
Net Assets 1999 (Note A) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ............ $ 13,184,289 $ 27,196,521 $ 23,071,776
Net realized gain (loss) from
investment transactions ........ 121,162,610 495,847,664 283,592,889
Net unrealized appreciation
(depreciation) on investment
transactions during the period . 351,081,101 (311,164,241) 229,773,170
---------------- --------------- ---------------
Net increase (decrease) in net
assets resulting from operations 485,428,000 211,879,944 536,437,835
---------------- --------------- ---------------
Distributions to shareholders
from:
Net investment income--
International Shares ........... -- -- (12,911,722)
Net realized gains--
International Shares ........... (164,421,947) (303,892,941) (274,137,681)
---------------- --------------- ---------------
Net realized gains-- Barrett
International Shares ........... (1,218,599) (2,373,251) --
---------------- --------------- ---------------
Fund share transactions:
Proceeds from shares sold ........ 1,241,030,773 2,263,481,804 1,071,204,110
Net asset value of shares issued
to shareholders in reinvestment
of distributions ............... 157,322,243 290,405,369 269,844,500
Cost of shares redeemed .......... (1,193,055,248) (2,231,646,711) (1,288,548,383)
---------------- --------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions ................... 205,297,768 322,240,462 52,500,227
---------------- --------------- ---------------
Increase (decrease) in net assets 525,085,222 227,854,214 301,888,659
Net assets at beginning of period 3,112,773,559 2,884,919,345 2,583,030,686
Net assets at end of period
(including undistributed net
investment income of
$12,626,603, $2,638,610, and
$6,551,066, respectively) ......$ 3,637,858,781 $ 3,112,773,559 $ 2,884,919,345
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<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.
International Shares
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Years Ended March 31, 1999(b) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $50.07 $52.06 $48.07 $45.71 $39.72 $42.96
----------------------------------------------------
- ------------------------------------------------------------------------------------
Income from investment
operations:
- ------------------------------------------------------------------------------------
Net investment income .20(d) .47(c) .43 .30 .38 .21
- ------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions 7.20 3.10 9.16 4.53 7.19 (1.03)
----------------------------------------------------
- ------------------------------------------------------------------------------------
Total from investment
operations 7.40 3.57 9.59 4.83 7.57 (.82)
- ------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------
From net investment income -- -- (.25) (1.28) (.40) --
- ------------------------------------------------------------------------------------
From net realized gains on
investment transactions (2.65) (5.56) (5.35) (1.19) (1.18) (2.42)
----------------------------------------------------
- ------------------------------------------------------------------------------------
Total distributions (2.65) (5.56) (5.60) (2.47) (1.58) (2.42)
- ------------------------------------------------------------------------------------
Net asset value, end of period $54.82 $50.07 $52.06 $48.07 $45.71 $39.72
----------------------------------------------------
- ------------------------------------------------------------------------------------
Total Return (%) 15.19** 7.18 21.57 10.74 19.25 (2.02)
- ------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 3,610 3,090 2,885 2,583 2,515 2,192
- ------------------------------------------------------------------------------------
Ratio of operating expenses to
average net assets (%) 1.21* 1.17 1.18 1.15 1.14 1.19
- ------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .93* .92 .83 .64 .86 .48
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 81.5* 79.9 55.7 35.8 45.2 46.3
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during period.
(b) For the five months ended August 31, 1999 (Note A).
(c) Net investment income per share includes non-recurring dividend income
amounting to $.09 per share.
(d) Net investment income per share includes non-recurring dividend income
amounting to $.02 per share.
* Annualized
** Not annualized
24
<PAGE>
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Barrett International Shares
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999(b) 1999(c)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $50.14 $52.40
-----------------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income .25(e) .52(d)
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 7.20 2.78
-----------------
- ------------------------------------------------------------------------------------
Total from investment operations 7.45 3.30
- ------------------------------------------------------------------------------------
Less distributions from net realized gains on investment
transactions (2.65) (5.56)
- ------------------------------------------------------------------------------------
Net asset value, end of period $54.94 $50.14
-----------------
- ------------------------------------------------------------------------------------
Total Return (%) 15.27** 6.60**
- ------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 25 23
- ------------------------------------------------------------------------------------
Ratio of operating expenses, to average daily net assets (%) 1.03* 1.08*
- ------------------------------------------------------------------------------------
Ratio of net investment income to average daily net assets (%) 1.11* 1.02*
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 81.5* 79.9
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during period.
(b) For the five months ended August 31, 1999 (Note A).
(c) For the period April 3, 1998 (commencement of sale of Barrett International
Shares) to March 31, 1999.
(d) Net investment income per share includes non-recurring dividend income
amounting to $.09 per share.
(e) Net investment income per share includes non-recurring dividend income
amounting to $.02 per share.
* Annualized
** Not annualized
25
<PAGE>
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Class R Shares
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999(b)
- ------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $53.33
---------
- ------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------
Net investment income (loss) (.02)
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions 1.47
---------
- ------------------------------------------------------------------------------------
Total from investment operations 1.45
- ------------------------------------------------------------------------------------
Less distributions from net realized gains on investment transactions --
- ------------------------------------------------------------------------------------
Net asset value, end of period $54.78
---------
- ------------------------------------------------------------------------------------
Total Return (%) 2.72**
- ------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 2.8
- ------------------------------------------------------------------------------------
Ratio of operating expenses, to average daily net assets (%) 1.63*
- ------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily net assets (%) (.09)**
- ------------------------------------------------------------------------------------
Portfolio turnover rate (%) 81.5*
- ------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during period.
(b) For the period August 2, 1999 (commencement of Class R shares) to August 31,
1999 (Note A).
* Annualized
** Not annualized
26
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
August 31, 1999
A. Significant Accounting Policies
Scudder International Fund (the "Fund") is a diversified series of Scudder
International Fund, Inc. (the "Corporation") which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company organized as a Maryland Corporation.
On June 7, 1999 the Fund changed its fiscal year end for financial reporting and
federal income tax purposes from March 31 to August 31.
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.
Effective August 2, 1999, the Fund offers three classes of shares: International
Shares, Barrett International Shares, and Class R Shares. Class R Shares are
available for purchase by participants of certain employer-sponsored retirement
plans.
Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on the
basis of relative net assets by the holders of all classes of shares except that
each class bears certain expenses unique to that class such as distribution
services, shareholder services, administrative services, and certain other class
specific expenses. Differences in class expenses may result in payment of
different per share dividends by class. All shares of the Fund have equal rights
with respect to voting subject to class specific arrangements.
Security Valuation. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. Securities which are traded
on U.S. or foreign stock exchanges are valued at the most recent sale price
reported on the exchange on which the security is traded most extensively. If no
sale occurred, the security is then valued at the calculated mean between the
most recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used. Securities quoted on the
Nasdaq Stock Market ("Nasdaq"), for which there have been sales, are valued at
the most recent sale price reported. If there are no such sales, the value is
the most recent bid quotation. Securities which are not quoted on Nasdaq but are
traded in another over-the-counter market are valued at the most recent sale
price, or if no sale occurred, at the calculated
27
<PAGE>
mean between the most recent bid and asked quotations on such market. If there
are no such bid and asked quotations, the most recent bid quotation shall be
used.
Portfolio debt securities purchased with an original maturity greater than sixty
days are valued by pricing agents approved by the officers of the Fund, whose
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Money market instruments purchased with an original maturity of
sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Directors.
Foreign Currency Translations. The books and records of the Fund are maintained
in U.S. dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the
prevailing exchange rates at period end. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the
prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment
income accrued and the U.S. dollar amount actually received. That portion of
both realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed but
is included with net realized and unrealized gains and losses on investment
securities.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, 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 is equal to at least the
principal amount of the repurchase price plus accrued interest.
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,
28
<PAGE>
the Fund utilized forward contracts as a hedge against changes in the 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. Sales and
purchases of 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 a forward contract to buy
and a 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.
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.
The Fund is subject to a 0.38% Contribuicao Provisoria sobre Movimentacao
Financiera (CPMF) tax which is applied to foreign exchange transactions
representing capital inflows or outflows to the Brazilian market.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. 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 at least
annually.
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 forward contracts, passive
foreign investment companies, 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
29
<PAGE>
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Certain dividends
from foreign securities may be recorded subsequent to the ex-dividend date as
soon as the Fund is informed of such dividends. Realized gains and losses from
investment transactions are recorded on an identified cost basis.
B. Purchases and Sales of Securities
During the five months ended August 31, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $1,207,319,434 and
$1,109,806,900, respectively. During the year ended March 31, 1999, purchases
and sales of investment securities (excluding short-term investments) aggregated
$2,234,157,696 and $2,228,313,830, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objective, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 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. For the five
months ended August 31, 1999, the fees pursuant to this agreement amounted to
$11,269,103, of which $2,432,369 is unpaid at August 31, 1999. This was
equivalent to an annualized effective rate of 0.80% of the Fund's average daily
net assets. For the year ended March 31, 1999, the fees pursuant to this
agreement amounted to $23,819,941. This was equivalent to an annual effective
rate of 0.81% of the Fund's average daily net assets.
30
<PAGE>
Administrative Service Fees. Kemper Distributors, Inc. ("KDI") provides
information and administrative services to Class R Shareholders at an annual
rate of up to .25% of average daily net assets for the class. KDI in turn has
various agreements with financial services firms that provide these services and
pays these firms based on assets of shareholder accounts the firms service. For
the period August 2, 1999 through August 31, 1999, the Administrative Services
Fee was as follows:
Total Fees Waived Unpaid at
Administrative Service Fee Aggregated by KDI August 31, 1999
- --------------------------------------------------------------------------------
Class R ................... $ 109 $ -- $ 109
Shareholder Services Fees. Kemper Service Company ("KSC"), an affiliate of the
Adviser, is the transfer, dividend-paying and shareholder service agent for the
Fund's Class R Shares. During the first year of operations for Class R shares,
shareholder services fee will be accrued at 0.35%. For the period August 2, 1999
through August 31, 1999, the amount charged to Class R aggregated $139 of which
all is unpaid at August 31, 1999. Scudder Service Corporation ("SSC"), a
subsidiary of the Adviser, is the transfer, dividend paying and shareholder
service agent for the other classes of the Fund. For the five months ended
August 31, 1999, the amount charged by SSC to the International Shares and
Barrett International Shares for services to shareholders aggregated $1,258,902
and $4,632, of which $255,782 is unpaid at August 31, 1999. For the year ended
March 31, 1999, the amount charged by SSC to the International Shares and
Barrett International Shares for services to shareholders aggregated $3,098,197
and $4,857, respectively.
The International Shares of the Fund are one of several Scudder Funds (the
"Underlying Funds") in which the Scudder Pathway Series Portfolios (the
"Portfolios") invest. In accordance with the Special Servicing Agreement entered
into by the Adviser, the Portfolios, the Underlying Funds, SSC, SFAC, STC, and
Scudder Investor Services, Inc., expenses from the operation of the Portfolios
are borne by the Underlying Funds based on each Underlying Fund's proportionate
share of assets owned by the Portfolios. No Underlying Funds will be charged
expenses that exceed the estimated savings to each respective Underlying Fund.
These estimated savings result from the elimination of separate shareholder
accounts which either currently are or have potential to be invested in the
Underlying Funds. For the five months ended August 31, 1999, the Special
Servicing Agreement expense charged to the International Shares of the Fund
amounted to $292,143, of which
31
<PAGE>
$241,819 is unpaid at August 31, 1999. For the year ended March 31, 1999, the
Special Servicing Agreement expense charged to the International Shares of the
Fund amounted to $817,498.
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 International Shares of the Fund. For the
five months ended August 31, 1999, the amount charged to the International
Shares of the Fund by STC aggregated $1,202,021, of which $254,431 is unpaid at
August 31, 1999. For the year ended March 31, 1999, the amount charged to the
International Shares of the Fund by STC aggregated $2,067,603.
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 five months
ended August 31, 1999, the amount charged to the Fund by SFAC aggregated
$402,576, of which $83,574 is unpaid at August 31, 1999. For the year ended
March 31, 1999, the amount charged to the Fund by SFAC aggregated $893,682.
The Fund pays each Director not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the five
months ended August 31, 1999, Directors' fees and expenses aggregated $14,291.
For the year ended March 31, 1999, Directors' fees and expenses aggregated
$63,387.
D. Commitments
As of August 31, 1999, the Fund had entered into the following forward foreign
currency exchange contracts resulting in net unrealized depreciation of
$5,448,314.
Net
Unrealized
Appreciation
Settlement (Depreciation)
Contracts to Deliver In Exchange For Date (U.S.$)
- --------------------------------------------------------------------------------
Japanese Yen 9,845,626,279 U.S. Dollars 84,511,814 9/7/1999 (5,448,314)
32
<PAGE>
E. Share Transactions
The following table summarizes shares of capital stock and dollar activity in
the Fund:
<TABLE>
<CAPTION>
Five Months Ended Year Ended
August 31, 1999 March 31, 1999
----------------------------------- --------------------------------
Shares sold Shares Dollars Shares Dollars
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International
Shares .......... 23,688,225 $1,237,863,482 44,060,365 $2,240,750,153
Barrett
International
Shares* ......... 6,462 343,000 434,026(a) 22,731,652(a)
Class R Shares** .. 51,931 2,844,504 -- --
1,241,050,986 2,263,481,805
Shares issued to shareholders in reinvestment of distributions
- ---------------------------------------------------------------------------------------
International
Shares .......... 3,072,099 $ 156,369,846 5,925,727 $ 288,615,427
Barrett
International
Shares* ......... 18,682 952,397 36,722 1,789,941
Class R Shares** .. -- -- -- --
157,322,243 290,405,368
Shares redeemed
- ---------------------------------------------------------------------------------------
International
Shares .......... (22,623,108) $(1,191,589,522) (43,688,877) $(2,231,145,939)
Barrett
International
Shares* ......... (27,968) (1,464,486) (9,908) (500,772)
Class R Shares** .. (392) (21,453) -- --
(1,193,075,461) (2,231,646,711)
Net increase (decrease)
- ---------------------------------------------------------------------------------------
International
Shares 4,137,216 $ 202,643,806 6,297,215 $ 298,219,641
Barrett
International
Shares* (2,824) (169,089) 460,840 24,020,821
Class R Shares** 51,539 2,823,051 -- --
205,297,768 322,240,462
</TABLE>
(a) Includes $21,054,972 and 401,812 shares from shares issued in tax free
reorganization.
* For the period April 3, 1998 (commencement of sale of Barrett International
Shares) to March 31, 1999.
** For the period August 2, 1999 (commencement of sale of Class R Shares) to
August 31, 1999.
33
<PAGE>
Year Ended
March 31, 1998
--------------------------------------
Shares sold Shares Dollars
- ---------------------------------------------------------
International
Shares .......... 21,147,508 $1,071,204,110
Shares issued to shareholders in reinvestment of
distributions
- ---------------------------------------------------------
International
Shares .......... 5,897,787 $ 269,844,500
Shares redeemed
- ---------------------------------------------------------
International
Shares .......... (25,366,964) $(1,288,548,383)
Net increase (decrease)
- ---------------------------------------------------------
International
Shares .......... 1,678,331 $ 52,500,227
F. Line of Credit
The Fund and several affiliated Funds (the "Participants") share in a $850
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 pro rata 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.
34
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors of Scudder International Fund, Inc. and to the
Shareholders of Scudder International 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 International Fund (the
"Fund") at August 31, 1999, the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated therein, 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 August 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
October 25, 1999
35
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
August 31, 1999
The Fund paid distributions of $2.65 per share from net long-term capital gains
during the five months ended August 31, 1999, of which 100% represents 20% rate
gains. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$112,000,000 as capital gain dividends for the five months ended August 31,
1999, of which 100% represents 20% rate gains.
The Fund paid foreign taxes of $4,200,000 and earned $17,400,000 of foreign
source income during the five months ended August 31, 1999. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $0.06 per share as foreign
taxes paid and $0.26 per share as income earned from foreign sources for the
five months ended August 31, 1999.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
36
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
Barrett International
Shares
345 Park Avenue,
New York, New York 10154
(800) 854-8525
Investment Manager
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Distributor
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Custodian
Brown Brothers Harriman & Company
40 Water Street
Boston, MA 02109
Fund Accounting Agent
Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 02110
Transfer Agent and
Dividend Disbursing Agent
Scudder Service Corporation
P.O. Box 9242
Boston, Massachusetts 02205
Legal Counsel
Dechert, Price & Rhoads
10 Post Office Square South
Boston, Massachusetts 02109
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
This report is for the information of the shareholders. Its use in connection
with any offering of the Fund's shares is authorized only in case of a
concurrent or prior delivery of the Fund's current prospectus.
