SCUDDER
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EQUITY/GLOBAL
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Worldwide Stock
Funds
Scudder International Growth
Fund Fund #304
Scudder International Value
Fund Fund #305
Prospectus
October 22, 1999
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
Worldwide Stock Funds
How the funds work
2 International Growth Fund
6 International Value Fund
10 Other Policies and Risks
11 Who Manages and Oversees the Funds
14 Financial Highlights
How to invest in the funds
17 How to Buy Shares
18 How to Exchange or Sell Shares
19 Policies You Should Know About
24 Understanding Distributions and Taxes
<PAGE>
How the funds work
These funds invest mainly in common stocks of foreign companies, as a way of
seeking growth of your investment. Each fund uses a different investment style.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
You can access all Scudder fund prospectuses online at www.scudder.com
<PAGE>
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fund number | 304
Scudder International Growth Fund
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Investment Approach
The fund seeks long-term growth of capital by investing at least 80% of its
total assets in foreign equities (equities issued by foreign-based companies).
Most of the fund's equities are common stocks. Although the fund can invest in
common stocks from any region or country (other than the United States), it
generally focuses on companies in Europe, Latin America, and the Pacific Basin,
including Japan.
In choosing common stocks, the portfolio managers use a combination of three
analytical disciplines:
Bottom-up research. The managers look for companies that are industry leaders,
have strong finances and management, and appear able to make the most of local,
regional, and global opportunities.
Growth orientation. The managers primarily invest in companies that offer the
potential for sustainable above-average earnings growth and whose market value
appears reasonable in light of their business prospects.
Top-down analysis. The managers consider global economic outlooks, with an eye
toward identifying industries and companies that are likely to benefit from
social, political, and economic changes.
The managers intend to divide the fund's holdings across industries and
geographical areas, although, depending on their outlook, they may increase or
reduce the fund's exposure to a given industry or area.
The fund will normally sell a stock when it reaches a target price or if the
managers believe other investments offer better opportunities.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may also invest up to 20% of
total assets in U.S. Treasury and agency debt securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, commodities,
currencies, or securities), the managers don't intend to use them as principal
investments.
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2 | Scudder International Growth Fund
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[ICON] This fund was designed for long-term investors who understand
the risks of a growth approach to investing and want exposure
to a broad spectrum of foreign stocks.
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Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money, or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform - in this case, foreign markets. When foreign stock prices fall,
you should expect the value of your investment to fall as well. Foreign stocks
also tend to be more volatile than their U.S. counterparts, for reasons ranging
from political and economic uncertainties to a higher risk that essential
information may be incomplete or wrong. These risks tend to be greater in
emerging markets, so to the extent that the fund emphasizes emerging markets
(such as Latin America and most Pacific Basin countries), it takes on greater
risks. Because a stock represents ownership in its issuer, stock prices can be
hurt by poor management, shrinking product demand, and other business risks.
These may affect single companies as well as groups of companies.
A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends, geographical areas, or other matters
o growth stocks could become unpopular
o some derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
Scudder International Growth Fund | 3
<PAGE>
The Fund's Track Record
Because this is a new fund, it did not have a full calendar year of performance
to report as of the date of this prospectus.
4 | Scudder International Growth Fund
<PAGE>
How Much Investors Pay
The fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
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Fee Table
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Shareholder Fees (paid directly from your investment) None
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Annual Operating Expenses (deducted from fund assets)
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Management Fee 1.00%
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Distribution (12b-1) Fee None
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Other Expenses* 8.71%
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Total Annual Operating Expenses 9.71%
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Expense Reimbursement 7.96%
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Net Annual Operating Expenses** 1.75%
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* Includes costs of shareholder servicing, custody, accounting services,
and similar expenses, which may vary with fund size and other factors.
** By contract, expenses are capped at 1.75% through 12/31/2000.
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Expense Example
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Based on the costs above (including one year of capped expenses in each period),
this example is designed to help you compare this fund's expenses to those of
other funds. The example assumes you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions, and sold your shares at the end of
each period. This is only an example, actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
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$178 $2,090 $3,826 $7,499
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Scudder International Growth Fund | 5
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fund number | 305
Scudder International Value Fund
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Investment Approach
The fund seeks long-term growth of capital by investing at least 80% of its
total assets in foreign equities (equities issued by foreign-based companies).
Most of the fund's equities are common stocks. Although the fund can invest in
stocks of any size, it invests primarily in mid- and large-cap stocks.
The portfolio managers begin by screening the stocks in the Morgan Stanley
Capital International (MSCI) Value Index and others with similar
characteristics, using a computer model. Based on fundamental factors (such as
stock price compared to book value or cash flow) as well as technical market
factors (such as stock price momentum), the model ranks stocks according to how
undervalued they appear. The managers then adjust these rankings based on their
evaluation of factors that could signal a change in a stock's price, such as a
merger, reorganization or business trend.
The managers assemble the fund's portfolio from among the stocks that fall in
the top 40% of those ranked, and may invest more heavily in those that appear to
have more potential growth for the risks involved. In choosing stocks, the
managers also use a set of country and region models to refine the fund's
geographic allocation. The managers typically diversify the fund's investments
among more than 25 countries and 100-125 individual stocks representing a range
of industries.
The fund will normally sell a stock when it ranks in the bottom 20% according to
the computer model.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may also invest up to 20% of
total assets in U.S. Treasury and agency debt securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, commodities,
currencies, or securities), the managers don't intend to use them as principal
investments.
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6 | Scudder International Value Fund
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[ICON] This fund may be of interest to investors who favor the value
investing style and want to gain exposure to foreign stocks.
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Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money, or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform - in this case, foreign markets. When foreign stock prices fall,
you should expect the value of your investment to fall as well. Foreign stocks
also tend to be more volatile than their U.S. counterparts, for reasons ranging
from political and economic uncertainties to a higher risk that essential
information may be incomplete or wrong. While developed foreign markets may be
less risky than emerging markets, increasing globalization can make any market
vulnerable to events elsewhere in the world. Stock prices can be hurt by poor
management, shrinking product demand, and other business risks. These may affect
single companies as well as groups of companies.
A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends, geographical areas, or other matters
o undervalued stocks could become unpopular
o some derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
Scudder International Value Fund | 7
<PAGE>
The Fund's Track Record
Because this is a new fund, it did not have a full calendar year of performance
to report as of the date of this prospectus.
Scudder International Value Fund | 8
<PAGE>
How Much Investors Pay
The fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
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Fee Table
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Shareholder Fees (paid directly from your investment) None
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Annual Operating Expenses (deducted from fund assets)
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Management Fee 1.00%
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Distribution (12b-1) Fee None
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Other Expenses* 11.74%
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Total Annual Operating Expenses 12.74%
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Expense Reimbursement 10.99%
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Net Annual Operating Expenses** 1.75%
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* Includes costs of shareholder servicing, custody, accounting services,
and similar expenses, which may vary with fund size and other factors.
** By contract, expenses are capped at 1.75% through 12/31/2000.
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Expense Example
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Based on the costs above (including one year of capped expenses in each period),
this example is designed to help you compare this fund's expenses to those of
other funds. The example assumes you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions, and sold your shares at the end of
each period. This is only an example; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
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$178 $2,609 $4,678 $8,603
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Scudder International Value Fund | 9
<PAGE>
Other Policies and Risks
While the fund-by-fund sections on the previous pages describe the main points
of each fund's strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, each fund's Board could
change that fund's investment goal without seeking shareholder
approval.
o As a temporary defensive measure, each of these funds could shift up to
100% of its assets into investments such as U.S. or Canadian
securities. This could prevent losses, but would mean that the fund was
not pursuing its goal.
o These funds may trade securities more actively than many funds, which
could mean higher expenses (thus lowering return) and higher taxable
distributions.
Year 2000 and euro readiness
Like all mutual funds, these funds could be affected by the inability of some
computer systems to recognize the year 2000. Also, because they invest in
foreign securities, the funds could be affected by accounting differences,
changes in tax treatment, or other issues related to the conversion of certain
European currencies into the euro, which is already underway. The adviser has
readiness programs designed to address these problems, and is also researching
the readiness of suppliers and business partners as well as issuers of
securities the funds own. Still, there's some risk that one or both of these
problems could materially affect a fund's operations (including its ability to
calculate net asset value and to handle purchases and redemptions), its
investments, or securities markets in general.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
funds.
If you want more information on a fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the SAI (the back cover has information on how to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
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10 | Other Policies and Risks
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[ICON] Scudder Kemper, the company with overall responsibility for
managing the funds, takes a team approach to asset management.
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Who Manages and Oversees the Funds
The investment adviser
The investment adviser for these funds is Scudder Kemper Investments, Inc.,
located at 345 Park Avenue, New York, NY 10154-0010. Scudder Kemper has more
than 80 years of experience managing mutual funds, and currently has more than
$290 billion in assets under management.
Each fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders, and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from each fund. Below are the actual rates paid by each fund for
the 12 months through the most recent fiscal year end, as a percentage of its
average daily net assets:
Fund Name Fee Paid
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Scudder International Growth Fund 1.00%
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Scudder International Value Fund 1.00%
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Who Manages and Oversees the Funds | 11
<PAGE>
The portfolio managers
The following people handle the day-to-day management of each fund in this
prospectus:
Scudder International Growth Fund Scudder International Value Fund
Joan R. Gregory Shahram Tajbakhsh
Portfolio Manager Lead Portfolio Manager
o Began investment career in 1989 o Began investment career in 1991
o Joined the adviser in 1992 o Joined the adviser in 1996
o Joined the fund team in 1999 o Joined the fund team in 1998
Theresa Gusman Josephine Chu
Portfolio Manager Portfolio Manager
o Began investment career in 1985 o Began investment career in 1996
o Joined the adviser in 1995 o Joined the adviser in 1997
o Joined the fund team in 1998 o Joined the fund team in 1999
Tara C. Kenney Philip S. Fortuna
Portfolio Manager Portfolio Manager
o Began investment career in 1994 o Began investment career in 1986
o Joined the adviser in 1995 o Joined the adviser in 1986
o Joined the fund team in 1999 o Joined the fund team in 1998
12 | Who Manages and Oversees the Funds
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The directors
A mutual fund's Board is responsible for the general oversight of the fund's
business. The majority of the Board is not affiliated with Scudder Kemper. The
independent members have primary responsibility for assuring that each fund is
managed in the best interests of its shareholders. The following people comprise
each fund's board:
Directors Kathryn L. Quirk
o Managing Director of Scudder
Lynn S. Birdsong Kemper Investments, Inc.
o Managing Director of Scudder Kemper o Vice President and Assistant
Investments, Inc. Secretary of the funds
Paul Bancroft III Joan E. Spero
o Venture capitalist and consultant o President, Doris Duke Charitable
Foundation
Sheryle J. Bolton
o Chief Executive Officer, Scientific Honorary Directors
Learning Corporation
Thomas J. Devine
William T. Burgin o Consultant
o General Partner, Bessemer Venture
Partners William H. Gleysteen, Jr.
o Consultant
Keith R. Fox o Guest Scholar, Brookings
o Private equity investor Institution
William H. Luers Wilson Nolen
o Chairman and President, U.N. o Consultant
Association of the U.S.A.
Robert G. Stone, Jr.
o Chairman Emeritus and Director,
Kirby Corporation
Who Manages and Oversees the Funds | 13
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular fund would have earned (or lost), assuming all
dividends and distributions were reinvested. This information has been audited
by PricewaterhouseCoopers LLP, whose report, along with each fund's financial
statements, is included in that fund's annual report (see "Shareholder reports"
on the back cover).
Scudder International Growth Fund
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Year ended August 31, 1999(b)
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Net asset value, beginning of period $12.00
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Income from investment operations:
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Net investment income (a) .16 (d)
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Net realized and unrealized gain (loss) on investments 3.22
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Total from investment operations 3.38
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Less distributions:
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From net investment income (.07)
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Total distributions (.07)
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Net asset value, end of period $15.31
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Total Return (%) (c) 28.25
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Ratios and Supplemental Data
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Net assets, end of period ($ millions) 6
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Ratio of operating expenses to average daily net assets (%) 1.75
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Ratio of operating expenses, before expense reductions, to 9.71
average daily net assets (%)
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Ratio of net investment income to average daily net assets (%) 1.19
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Portfolio turnover rate (%) 89.6
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(a) Based on monthly average shares outstanding during the period.
(b) For the period September 1, 1998 (commencement of operations) to August
31, 1999.
(c) Total return would have been lower had certain expenses not been
reduced.
(d) Net investment income per share includes non-recurring dividend income
amounting to $.03 per share.
14 | Financial Highlights
<PAGE>
Scudder International Value Fund
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Year ended August 31, 1999(b)
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Net asset value, beginning of period $12.00
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Income from investment operations:
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Net investment income (a) .18
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Net realized and unrealized gain (loss) on investments 2.51
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Total from investment operations 2.69
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Less distributions:
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From net investment income (.08)
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Total distributions (.08)
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Net asset value, end of period $14.61
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Total Return (%) (c) 22.49
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Ratios and Supplemental Data
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Net assets, end of period ($ millions) 3
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Ratio of operating expenses to average daily net assets (%) 1.75
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Ratio of operating expenses, before expense reductions, to 12.74
average daily net assets (%)
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Ratio of net investment income to average daily net assets (%) 1.39
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Portfolio turnover rate (%) 75.3
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(a) Based on monthly average shares outstanding during the period.
(b) For the period September 1, 1998 (commencement of operations) to August
31, 1999.
(c) Total return would have been lower had certain expenses not been
reduced.
Financial Highlights | 15
<PAGE>
How to invest in the funds
The following pages tell you how to invest in these funds and what to expect as
a shareholder. If you're investing directly with Scudder, all of this
information applies to you.
If you're investing through a "third party provider" - for example, a workplace
retirement plan, financial supermarket, or financial adviser - your provider may
have its own policies or instructions, and you should follow those.
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
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First Investment Additional Investments
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<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
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By mail or o Fill out and sign an o Send a check and a Scudder
express application investment slip to us at the
(see below) appropriate address below
o Send it to us at the
appropriate address, along o If you don't have an
with an investment check investment slip, simply
include a letter with your
name, account number, the
full name of the fund, and
your investment instructions
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By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
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By phone -- o Call 1-800-SCUDDER for
instructions
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With an automatic -- o To set up regular investments
investment plan from a bank checking account,
call 1-800-SCUDDER
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Using QuickBuy -- o Call 1-800-SCUDDER
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</TABLE>
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[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
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How to Buy Shares | 17
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell shares in an account opened directly
with Scudder.
<TABLE>
<CAPTION>
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Exchanging into another fund Selling shares
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<S> <C> <C>
$2,500 or more to open a new Some transactions, including
account ($1,000 for IRAs) most for over $100,000, can
only be ordered in writing; if
$100 or more for exchanges you're in doubt, see page 21
between existing accounts
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By phone or o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
wire instructions instructions
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Using SAIL(TM) o Call 1-800-343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
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By mail, Write a letter that includes: Write a letter that includes:
express, or fax
(see previous o the fund, class, and account o the fund, class, and account
page) number you're exchanging out number from which you want to
of sell shares
o the dollar amount or number o the dollar amount or number
of shares you want to exchange of shares you want to sell
o the name and class of the o your name(s), signature(s),
fund you want to exchange into and address, as they appear
on your account
o your name(s), signature(s),
and address, as they appear o a daytime telephone number
on your account
o a daytime telephone number
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With an -- o To set up regular cash
automatic payments from a Scudder fund
withdrawal plan account, call 1-800-SCUDDER
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Using QuickSell -- o Call 1-800-SCUDDER
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</TABLE>
18 | How to Exchange or Sell Shares
<PAGE>
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[ICON] Questions? You can speak to a Scudder representative between 8
a.m. and 8 p.m. eastern time on any fund business day by
calling 1-800-SCUDDER.
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Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is open.
Each fund calculates its share price every business day, as of the close of
regular trading on the Exchange (typically 4 p.m. eastern time, but sometimes
earlier, as in the case of scheduled half-day trading or unscheduled suspensions
of trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
Policies You Should Know About | 19
<PAGE>
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[ICON] The Scudder Web site can be a valuable resource for
shareholders with Internet access. Go to www.scudder.com to
get up-to-date information, review balances or even place
orders for exchanges.
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SAIL(TM), the Scudder Automated Information Line, is available 24 hours a day by
calling 1-800-343-2890. You can use SAIL to get information on Scudder funds
generally and on accounts held directly at Scudder. You can also use it to make
exchanges and sell shares.
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The funds
can only accept wires of $100 or more.
20 | Policies You Should Know About
<PAGE>
Exchanges among Scudder funds are an option for shareholders who bought their
shares directly from Scudder and for many other investors as well. Exchanges are
a shareholder privilege, not a right: we may reject or limit any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject or limit purchase orders, for
these or other reasons.
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature - a valuable
safeguard against fraud. You can get a signature guarantee from most brokers and
most banks, savings institutions, and credit unions. Note that you can't get a
signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.
Policies You Should Know About | 21
<PAGE>
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[ICON] If you ever have difficulty placing an order by phone or fax,
you can always send us your order in writing.
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How the funds calculate share price
For each fund in this prospectus, the share price is the net asset value per
share, or NAV. To calculate NAV, the funds use the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
- ---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a market price
isn't available, or when we have reason to believe it doesn't represent market
realities, we may use fair value methods approved by the fund's Board of
Directors. In such a case, the fund's value for a security is likely to be
different from quoted market prices.
Because the funds invest in securities that are traded primarily in foreign
markets, the value of their holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the funds don't price their shares.
22 | Policies You Should Know About
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o charge you $10 a year if your account balance falls below $2,500, and
close your account and send you the proceeds if your balance falls
below $1,000; in either case, we will give you 60 days' notice so you
can either increase your balance or close your account (these policies
don't apply to retirement accounts, to investors with $100,000 or more
in Scudder fund shares, or in any case where a fall in share price
created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming-in-kind," that is, by giving
you marketable securities (which typically will involve brokerage costs
for you to liquidate) rather than cash; in most cases, a fund won't
make a redemption-in-kind unless your requests over a 90-day period
total more than $250,000 or 1% of the fund's assets, whichever is less
o change, add, or withdraw various services, fees, and account policies
(for example, we may change or terminate the exchange privilege at any
time)
Policies You Should Know About | 23
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is unique, it's
always a good idea to ask your tax professional about the tax
consequences of your investments, including any state and
local tax consequences.
- --------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The funds intend to pay dividends and distributions to their shareholders in
November or December, and if necessary may do so at other times as well.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account, or in the case of money
market funds). Your sales of shares may result in a capital gain or loss for
you; whether long-term or short-term depends on how long you owned the shares.
For tax purposes, an exchange is the same as a sale.
24 | Understanding Distributions and Taxes
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- --------------------------------------------------------------------------------
o short-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o taxable income dividends you receive from a fund
- --------------------------------------------------------------------------------
o short-term capital gains distributions you receive from a fund
Generally taxed at capital gains rates
- --------------------------------------------------------------------------------
o long-term capital gains from selling fund shares
- --------------------------------------------------------------------------------
o long-term capital gains distributions you receive from a fund
- --------------------------------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes the fund pays.
Each fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.
Understanding Distributions and Taxes | 25
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports - These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, they also have detailed performance figures, a list
of everything the fund owns, and the fund's financial statements. Shareholders
get these reports automatically. To reduce costs, we mail one copy per
household. For more copies, call 1-800-SCUDDER.
Statement of Additional Information (SAI) - This tells you more about each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Scudder or the SEC (see below). Materials you
get from Scudder are free; those from the SEC involve a copying fee. If you
like, you can look over these materials in person at the SEC's Public Reference
Room in Washington, DC.
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-SCUDDER 1-800-SEC-0330
www.scudder.com www.sec.gov
Fund Name SEC File #
- --------------------------------------------------------------------------------
Scudder International Growth Fund 811-642
- --------------------------------------------------------------------------------
Scudder International Value Fund 811-642
- --------------------------------------------------------------------------------
<PAGE>
SCUDDER INTERNATIONAL GROWTH FUND
SCUDDER INTERNATIONAL VALUE FUND
Each a series of Scudder International Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
October 22, 1999
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus.
The prospectus of the Funds dated October 22, 1999, as amended from time to
time, may be obtained without charge by writing to Scudder Investor Services,
Inc., Two International Place, Boston, Massachusetts 02110-4103.
Annual Reports to Shareholders of the Funds dated August 31, 1999 are
incorporated by reference and are hereby deemed to be part of this Statement of
Additional Information. The Annual Reports may be obtained without charge by
calling 1-800-225-2470.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUNDS'INVESTMENT OBJECTIVES AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investment Strategy..........................................................................................1
Scudder International Growth Fund............................................................................1
Scudder International Value Fund.............................................................................2
Master/feeder structure......................................................................................2
Investing in Emerging Markets................................................................................3
Foreign Securities...........................................................................................4
Specialized Investment Techniques............................................................................5
Investment Restrictions.....................................................................................14
PURCHASES............................................................................................................16
Additional Information About Opening An Account.............................................................16
Additional Information About Making Subsequent Investments..................................................17
Additional Information About Making Subsequent Investments by QuickBuy......................................17
Checks......................................................................................................17
Wire Transfer of Federal Funds..............................................................................17
Share Price.................................................................................................18
Share Certificates..........................................................................................18
Other Information...........................................................................................18
EXCHANGES AND REDEMPTIONS............................................................................................19
Exchanges...................................................................................................19
Redemption By Telephone.....................................................................................19
Redemption by QuickSell.....................................................................................20
Redemption by Mail or Fax...................................................................................20
Redemption-in-Kind..........................................................................................21
Other Information...........................................................................................21
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................22
The No-Load Concept.........................................................................................22
Internet access.............................................................................................22
Dividends and Capital Gains Distribution Options............................................................22
Scudder Investor Centers....................................................................................23
Reports to Shareholders.....................................................................................23
Transaction Summaries.......................................................................................23
THE SCUDDER FAMILY OF FUNDS..........................................................................................23
SPECIAL PLAN ACCOUNTS................................................................................................25
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals...............................................................................26
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........26
Scudder IRA: Individual Retirement Account.................................................................26
Scudder Roth IRA: Individual Retirement Account............................................................26
Scudder 403(b) Plan.........................................................................................27
Automatic Withdrawal Plan...................................................................................27
Group or Salary Deduction Plan..............................................................................27
Automatic Investment Plan...................................................................................28
Uniform Transfers/Gifts to Minors Act.......................................................................28
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................28
PERFORMANCE INFORMATION..............................................................................................29
Average Annual Total Return.................................................................................29
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
Cumulative Total Return.....................................................................................29
Total Return................................................................................................30
Comparison of Fund Performance..............................................................................30
FUND ORGANIZATION....................................................................................................30
INVESTMENT ADVISER...................................................................................................32
Personal Investments by Employees of the Adviser............................................................34
DIRECTORS AND OFFICERS...............................................................................................35
REMUNERATION.........................................................................................................38
Responsibilities of the Board -- Board and Committee Meetings...............................................38
Compensation of Officers and Directors......................................................................38
DISTRIBUTOR..........................................................................................................39
TAXES................................................................................................................40
PORTFOLIO TRANSACTIONS...............................................................................................43
Brokerage Commissions.......................................................................................43
Portfolio Turnover..........................................................................................44
NET ASSET VALUE......................................................................................................45
ADDITIONAL INFORMATION...............................................................................................45
Other Information...........................................................................................45
FINANCIAL STATEMENTS.................................................................................................46
APPENDIX
</TABLE>
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Scudder International Growth Fund and Scudder International Value Fund
(each a "Fund," collectively the "Funds") are each a series of Scudder
International Fund, Inc. (the "Corporation"), an open-end management investment
company which continuously offers and redeems shares at net asset value. Each
Fund is a company of the type commonly known as a mutual fund. Each Fund is a
diversified series of the Corporation.
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Funds may engage (such
as short selling, hedging, etc.) or a financial instrument in which the Funds
may purchase (such as options, forward foreign currency contracts, etc.) are
meant to describe the spectrum of investments that Scudder Kemper Investments,
Inc. (the "Adviser"), in its discretion, might, but is not required to, use in
managing a Fund's portfolio assets. The Adviser may, in its discretion, at any
time employ such practice, technique or instrument for one or more funds but not
for all funds advised by it. Furthermore, it is possible that certain types of
financial instruments or investment techniques described herein may not be
available, permissible, economically feasible or effective for their intended
purposes in all markets. Certain practices, techniques, or instruments may not
be principal activities of a Fund but, to the extent employed, could from time
to time have a material impact on that Fund's performance.
General Investment Objective and Policies
Scudder International Growth Fund and Scudder International Value Fund
each seek long-term capital appreciation from foreign equity securities by each
employing a distinct investment style.
Scudder International Growth Fund seeks long-term capital appreciation through
investment primarily in the equity securities of foreign companies with high
growth potential. This Fund will focus on issuers located primarily in Europe,
Latin America, the emerging markets of the Pacific Basin, and Japan, but may
also invest in select issues from elsewhere outside U.S. boundaries. The Fund
will invest in a variety of high growth opportunities in both developed and
developing markets. Scudder International Growth Fund will seek to invest in
those companies that the Adviser believes are best able to capitalize on the
growth and changes taking place within and between various regions of the world.
Typically, these are companies with leading or rapidly-developing business
franchises, strong financial positions, and high quality management capable of
defining and implementing company strategies to take advantage of local,
regional or global market changes.
Scudder International Value Fund seeks long-term capital appreciation through
investment primarily in undervalued foreign equity securities. This Fund will
focus its investments on securities of mid-and large-cap companies, based
outside the U.S., that are either included in, or have similar characteristics
to those included in, the Morgan Stanley Capital International (MSCI) Value
Index. The Adviser looks for companies selling at what it deems attractive
valuations, and will attempt to further control for downside risk through wide
diversification and other portfolio construction methods.
Both Funds intend to diversify investments among several countries and
each will have companies from at least three different countries other than the
U.S. represented in its portfolio. The Funds do not intend to concentrate
investments in any particular industry.
While the Funds offer the potential for substantial appreciation over
time, they also involve above-average investment risk in comparison to a mutual
fund investing in a broad range of U.S. equity securities. Each Fund is designed
as a long-term investment and not for short-term trading purposes. Neither of
the Funds, nor the Funds together, should be considered a complete investment
program, although each could serve as a core international holding for an
individual's portfolio. Each Fund's net asset value, or price, can fluctuate
significantly with changes in stock market levels, political developments,
movements in currencies, global investment flows and other factors. The
International Growth Fund is expected to exhibit greater day-to-day price
volatility than the International Value Fund.
Investment Strategy
Scudder International Growth Fund
In selecting high growth potential industries and companies for
investment, the Adviser will consider a wide assortment of companies located
primarily in Europe, Latin America, the emerging markets of the Pacific Basin,
and
<PAGE>
Japan, as well as select issues from elsewhere outside U.S. boundaries. The
Adviser will conduct regional, country, industry and company analyses in search
of investments likely to benefit from economic, political, industrial and other
changes occurring across developed and emerging markets outside of the U.S.
The Adviser relies heavily on fundamental analysis, supplemented by
field research, in evaluating investment opportunities. Regional and country
analysis involves evaluating such factors as projected levels of economic
growth, changes in interest rates and inflation, trade patterns, fluctuations in
currencies and political developments within and among nations. Understanding
regional themes enables the Adviser to identify the industries and companies
most likely to benefit from the political, social and economic changes taking
place in a given region of the world. Within a market, the Adviser looks for
individual companies with leading or rapidly-developing business franchises,
strong financial positions, and high quality management capable of defining and
implementing company strategies to take advantage of local, regional or global
market changes.
Scudder International Value Fund
Scudder International Value Fund is actively-managed using a
disciplined, value-oriented investment management approach. Within the large and
diverse universe of overseas companies, the Adviser focuses investments on
securities of mid-and large-cap companies that are either included in, or have
similar characteristics to those included in, the Morgan Stanley Capital
International (MSCI) Value Index -- a widely used benchmark of foreign security
performance based on price-to-book value ratios (see "Comparison of Fund
Performance").
The Adviser, using a proprietary, quantitative, investment strategy,
employing a computerized model, and utilizing, among other measures,
price-to-book, price-to-earning, and price-to-cash flow ratios, looks for
companies trading at what it deems attractive valuations. In addition to these
traditional valuation benchmarks, the portfolio management team will look for
positive changes in earnings growth rate, favorable stock price momentum, or
changes triggered by some characteristic, event, or catalyst for improvement.
Geographic allocation of fund assets will be accomplished through use of
proprietary, computer-based models that incorporate country or region specific
valuation measures as well as general market and economic indicators. In
addition to its value style, the Adviser will attempt to control for downside
risk through wide diversification and other portfolio construction methods.
Master/feeder structure
The Board of Directors has the discretion to retain the current
distribution arrangement for each Fund while investing in a master fund in a
master/feeder structure fund as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Investments. Under normal market conditions, each Fund will invest at least 80%
of its total assets in foreign equity securities. The Funds' equity investments
are common stock, preferred stock (convertible or non-convertible), and
warrants. These may be illiquid securities. Equity securities may also be
purchased through rights offerings. Securities may be listed on securities
exchanges, traded over-the-counter or have no organized market. In addition, the
Funds may engage in strategic transactions. When the Adviser believes that it is
appropriate to do so in order to achieve a Fund's investment objective, the Fund
may invest up to 20% of its total assets in foreign debt securities as well as
cash and cash equivalents, including foreign money market instruments,
short-term government and corporate obligations, and repurchase agreements. Such
debt securities include debt securities of foreign governments, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (ECU). Portfolio debt investments will be selected on the basis
of, among other things, yield, credit quality, and the fundamental outlooks for
currency and interest rate trends in different parts of the globe, taking into
account the ability to hedge a degree of currency or local bond price risk. The
Funds may purchase "investment-grade" bonds, which are those rated Aaa, Aa, A or
Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by
Standard & Poor's Corporation ("S&P") or, if
2
<PAGE>
unrated, judged by the Adviser to be of equivalent quality. Each Fund may also
invest up to 5% of its total assets in debt securities which are rated below
investment-grade (see "Appendix").
In addition, the Funds may enter into reverse repurchase agreements,
invest in securities of other investment companies, and engage in securities
lending.
When the Adviser determines that exceptional conditions exist abroad,
each Fund may, for temporary defensive purposes, invest all or a portion of its
assets in Canadian or U.S. Government obligations or currencies, or securities
of companies incorporated in and having their principal activities in Canada or
the U.S. It is impossible to accurately predict for how long such alternative
strategies may be utilized.
Each Fund's investments are generally denominated in foreign
currencies. The strength or weakness of the U.S. dollar against these currencies
is responsible for part of a Fund's investment performance. If the dollar falls
in value relative to the Japanese yen, for example, the dollar value of a
Japanese stock held in a portfolio will rise, even though the price of the stock
remains unchanged. Conversely, if the dollar rises in value relative to the yen,
the dollar value of the Japanese stock will fall.
Investing in Emerging Markets
Most emerging securities markets may have substantially less volume and
are subject to less government supervision than U.S. securities markets.
Securities of many issuers in emerging markets may be less liquid and more
volatile than securities of comparable domestic issuers. In addition, there is
less regulation of securities exchanges, securities dealers, and listed and
unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of a Fund is
uninvested and no cash is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause a Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Certain emerging markets require prior governmental approval of
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain emerging markets
may also restrict investment opportunities in issuers in industries deemed
important to national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
In the course of investment in emerging markets, a Fund will be exposed
to the direct or indirect consequences of political, social and economic changes
in one or more emerging markets. While a Fund will manage its assets in a manner
that will seek to minimize the exposure to such risks, there can be no assurance
that adverse political, social or economic changes will not cause the Fund to
suffer a loss of value in respect of the securities in the Fund's portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for a Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly if a Fund believes
that appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from a
Fund's identification of such condition until the date of the SEC action, the
Fund's securities in the affected markets will be valued at fair value
determined in good faith by or under the direction of the Corporation's Board of
Directors.
3
<PAGE>
Volume and liquidity in most foreign markets are less than in the U.S.,
and securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although a Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect a Fund's investments in those countries. Moreover, individual
emerging market economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Income from securities held by a Fund could be reduced by a withholding
tax on the source or other taxes imposed by the emerging market countries in
which the Fund makes its investments. A Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to the Fund
or to entities in which the Fund has invested. The Adviser will consider the
cost of any taxes in determining whether to acquire any particular investments,
but can provide no assurance that the taxes will not be subject to change.
Many emerging markets have experienced substantial, and, in some
periods, extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect a Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Foreign Securities
The Funds are intended to provide individual and institutional
investors with an opportunity to invest a portion of their assets in a
diversified group of securities of companies, wherever organized, which do
business primarily outside the U.S., and foreign governments. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In
4
<PAGE>
certain periods since World War II, many leading foreign economies and foreign
stock market indices have grown more rapidly than the U.S. economy and leading
U.S. stock market indices, although there can be no assurance that this will be
true in the future. Because of the Funds' investment policy, each Fund is not
intended to provide a complete investment program for an investor.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect a Fund's performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Fixed commissions on some foreign
securities exchanges and bid-to-asked spreads in foreign bond markets are
generally higher than commissions or bid-to-asked spreads on U.S. markets,
although each Fund will endeavor to achieve the most favorable net results on
its portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for each Fund's agents to keep currently informed
about corporate actions which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Payment for
securities without delivery may be required in certain foreign markets. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The management of each Fund seeks to mitigate the risks
associated with the foregoing considerations through continuous professional
management.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because each Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various currencies.
Although each Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
options or forward or futures contracts to purchase or sell foreign currencies.
Repurchase Agreements. Each Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investor Services ("Moody's") or Standard and Poor's
Corporation ("S&P").
A repurchase agreement provides a means for a Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., a Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to a Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to a Fund
is unrelated to the interest rate on the Obligation itself. Obligations will be
held by the Custodian or in the Federal Reserve Book Entry system.
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For purposes of The Investment Company Act of 1940 (the "1940 Act"), a
repurchase agreement is deemed to be a loan from the Fund to the seller of the
Obligation subject to the repurchase agreement and is therefore subject to a
Fund's investment restriction applicable to loans. It is not clear whether a
court would consider the Obligation purchased by a Fund subject to a repurchase
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, a Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the Obligation. If the court characterizes the
transaction as a loan and a Fund has not perfected a security interest in the
Obligation, the Fund may be required to return the Obligation to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, a Fund would be at risk of losing some or all of the principal and
income involved in the transaction. As with any unsecured debt instrument
purchased for a Fund, the Adviser seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case the seller of the Obligation. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the Obligation, in which case a Fund may incur a loss if the proceeds
to the Fund of the sale to a third party are less than the repurchase price.
However, if the market value of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including interest), a Fund
will direct the seller of the Obligation to deliver additional securities so
that the market value of all securities subject to the repurchase agreement will
equal or exceed the repurchase price. It is possible that a Fund will be
unsuccessful in seeking to enforce the seller's contractual obligation to
deliver additional securities.
Convertible Securities. Each Fund may invest in convertible securities, i.e.,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest are either
fixed-income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve each Fund's objective of long-term capital growth and current
income, each Fund may invest up to 20% of its net assets in debt securities
including bonds of foreign governments, supranational organizations and private
issuers, including bonds denominated in the ECU. Portfolio debt investments will
be selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency and interest rate trends in different parts of
the globe, taking into account the ability to
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hedge a degree of currency or local bond price risk. Each Fund may purchase
"investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by Moody's or
AAA, AA, A or BBB by S&P or, if unrated, judged to be of equivalent quality as
determined by the Adviser. Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics.
High Yield/High Risk Bonds. Each Fund may also purchase, to a limited extent,
debt securities which are rated below investment-grade (commonly referred to as
"junk bonds"), that is, rated below Baa by Moody's or below BBB by S&P and
unrated securities, which usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and may be less
liquid, than securities in the higher rating categories. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. A Fund will invest no more than 5% of its net assets in securities
rated BB or lower by Moody's or Ba by S&P, and may invest in securities which
are rated D by S&P. Securities rated D may be in default with respect to payment
of principal or interest. See the Appendix to this Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect a Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of a Fund to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of a Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
Illiquid Securities. Each Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. This investment
practice, therefore, could have the effect of increasing the level of
illiquidity of a Fund. It is the Funds' policy that illiquid securities
(including repurchase agreements of more than seven days duration, certain
restricted securities, and other securities which are not readily marketable)
may not constitute, at the time of purchase, more than 15% of the value of a
Fund's net assets. The Corporations Board of Directors has approved guidelines
for use by the Adviser in determining whether a security is illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration. Issuers of restricted securities may not be subject
to the disclosure and other investor protection requirements that would be
applicable if their
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securities were publicly traded. If adverse market conditions were to develop
during the period between a Fund's decision to sell a restricted or illiquid
security and the point at which a Fund is permitted or able to sell such
security, a Fund might obtain a price less favorable than the price that
prevailed when it decided to sell. Where a registration statement is required
for the resale of restricted securities, a Fund may be required to bear all or
part of the registration expenses. A Fund may be deemed to be an "underwriter"
for purposes of the 1933 Act when selling restricted securities to the public
and, in such event, a Fund may be liable to purchasers of such securities if the
registration statement prepared by the issuer is materially inaccurate or
misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Adviser will monitor such restricted securities subject to the supervision of
the Board of Trustees. Among the factors the Adviser may consider in reaching
liquidity decisions relating to Rule 144A securities are: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
the transfer).
Reverse Repurchase Agreements. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. Each Fund
will maintain a segregated account, as described under "Use of Segregated and
Other Special Accounts" in connection with outstanding reverse repurchase
agreements. Reverse repurchase agreements are deemed to be borrowings subject to
a Fund's investment restrictions applicable to that activity. Each Fund will
enter into a reverse repurchase agreement only when the Adviser believes that
the interest income to be earned from the investment of the proceeds of the
transaction will be greater than the interest expense of the transaction. There
is no current intention to invest more than 5% of a Fund's net assets in reverse
repurchase agreements.
Investment Company Securities. Securities of other investment companies may be
acquired by a Fund to the extent permitted under the 1940 Act. Investment
companies incur certain expenses such as management, custodian, and transfer
agency fees, and, therefore, any investment by a Fund in shares of other
investment companies may be subject to such duplicate expenses.
Lending of Portfolio Securities. Each Fund may seek to increase its net income
by lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions and are required to be secured
continuously by collateral in cash or liquid assets maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. A Fund has the right to call a loan and obtain the
securities loaned on five days notice or, in connection with securities trading
on foreign markets, within such longer period of time which coincides with the
normal settlement period for purchases and sales of such securities in such
foreign markets. During the existence of a loan, a Fund will continue to receive
the equivalent of any distributions paid by the issuer on the securities loaned
and will also receive compensation based on investment of the collateral. The
risks in lending securities, as with other extensions of secured credit, consist
of a possible delay in recovery or even a loss of rights in the collateral
should the borrower of the securities fail financially. Loans will only be made
to firms deemed by the Adviser to be of good standing, and will not be made
unless, in the judgment of the Adviser, the consideration to be earned from such
loans would justify the risk. The value of the securities loaned will not exceed
5% of the value of a Fund's total assets at the time any loan is made.
Warrants. The Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Strategic Transactions and Derivatives. Each Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
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In the course of pursuing these investment strategies, a Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of a Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. Each Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in a Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to a Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving a Fund the right to sell such instrument at the option exercise price.
A call option, upon payment of a premium, gives the purchaser of the option the
right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. A Fund's purchase of a call option on a security,
financial future, index, currency or other instrument might be intended to
protect the Fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may
purchase such instrument. An American style put or call option may be exercised
at any time during the option period while a European style put or call option
may be exercised only upon expiration or during a fixed period prior thereto. A
Fund is authorized to purchase and sell exchange listed options and
over-the-counter
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options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC-issued and exchange-listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
A Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A Fund
will only sell OTC options (other than OTC currency options) that are subject to
a buy-back provision permitting the Fund to require the Counterparty to sell the
option back to the Fund at a formula price within seven days. A Fund expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. A Fund will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of the
SEC currently takes the position that OTC options purchased by a Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its total assets in illiquid securities.
If a Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
A Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on
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securities indices, currencies and futures contracts. All calls sold by a Fund
must be "covered" (i.e., the Fund must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. Even though a Fund will receive the
option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.
A Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. A Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by a Fund, as seller, to deliver to the buyer
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
A Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
A Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. Each Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
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Currency Transactions. Each Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange-listed currency
futures, exchange-listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. A Fund may enter into currency transactions with Counterparties
which have received (or the guarantors of the obligations which have received) a
credit rating of A-1 or P-1 by S&P or Moody's, respectively, or that have an
equivalent rating from a NRSRO or are determined to be of equivalent credit
quality by the Adviser.
A Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
A Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
A Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that a Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to each Fund if it is unable to deliver or receive currency or funds
in settlement of obligations and could also cause hedges it has entered into to
be rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest
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rate transactions and any combination of futures, options, currency and interest
rate transactions ("component transactions"), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
each Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. Each Fund expects to enter into
these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. Each Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act, and, accordingly, will not treat them as being subject to its
borrowing restrictions. A Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. Each Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. A Fund might use Eurodollar futures contracts and options thereon to
hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that each Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a Fund to pay
or deliver securities or assets must be covered at all times by the securities,
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instruments or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid securities at least equal to the
current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by a Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Fund on an index will require the Fund to own
portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by a Fund requires a Fund to segregate
cash or liquid assets equal to the exercise price.
Except when a Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by a Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when a
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by a Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when a Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by a Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, a Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to a Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. A Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if a
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Investment Restrictions
The policies set forth below are fundamental policies of the Funds and
may not be changed without the approval of a majority of each Fund's outstanding
shares. As used in this Statement of Additional Information, a "majority of the
outstanding voting securities of the Fund" means the lesser of (1) 67% or more
of the voting securities present at such meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy; or (2) more than 50% of the outstanding voting securities of the Fund.
Each Fund has elected to be classified as a diversified series of an open-end
investment company.
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In addition, as a matter of fundamental policy, each Fund will not:
(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(3) purchase physical commodities or contracts relating to
physical commodities;
(4) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(5) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(6) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities; and
(7) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests
in indebtedness in accordance with the Fund's investment
objective and policies may be deemed to be loans.
With respect to fundamental policy number six above, each Fund has no
current intention to hold and sell real estate acquired as a result of a Fund's
ownership of securities.
As a matter of nonfundamental policy, each Fund currently does not
intend to:
(a) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(b) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(c) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(d) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(e) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(f) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(g) lend portfolio securities in an amount greater than 5% of its
total assets.
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The foregoing nonfundamental Policies are in addition to Policies
otherwise stated in the Prospectus or Statement of Additional Information.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, a Fund.
PURCHASES
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Minimum Balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gifts to Minors Act, and Uniform Transfers to Minors Act accounts),
which amount may be changed by the Board of Directors. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for fiduciary/custodial
accounts) is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid
to the Fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder at the
address of record.
Reductions in value that result solely from market activity will not
trigger an annual fee or involuntary redemption. Shareholders with a combined
household account balance in any of the Scudder Funds of $100,000 or more, as
well as group retirement and certain other accounts will not be subject to a fee
or automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
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Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Contact the Distributor at 1-800-SCUDDER for additional
information. A confirmation of the purchase will be mailed out promptly
following receipt of a request to buy. Federal regulations require that payment
be received within three business days. If payment is not received within that
time, the order is subject to cancellation. In the event of such cancellation or
cancellation at the purchaser's request, the purchaser will be responsible for
any loss incurred by the Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Corporation shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange, Inc. (the "Exchange"), normally 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. QuickBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
QuickBuy and redeem them within seven days of the purchase, the Fund may hold
the redemption proceeds for a period of up to seven days. If you purchase shares
and there are insufficient funds in your bank account the purchase will be
canceled and you may be subject to any losses or fees incurred in the
transaction. QuickBuy transactions are not available for most retirement plan
accounts. However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Funds will not be liable
for acting upon instructions communicated by telephone that they reasonably
believe to be genuine.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of a Fund are purchased by a check which proves to be
uncollectible, the Corporation reserves the right to cancel the purchase
immediately and the purchaser may be responsible for any loss incurred by the
Trust or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Corporation will have the authority, as agent of
the shareholder, to redeem shares in the account in order to reimburse the Fund
or the principal underwriter for the loss incurred. Investors whose orders have
been canceled may be prohibited from, or restricted in, placing future orders in
any of the Scudder funds.
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Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of a Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after the receipt of a purchase request in good order. Net asset
value normally will be computed as of the close of regular trading on each day
during which the Exchange is open for trading. Orders received after the close
of regular trading on the Exchange will receive the next business day's net
asset value. If the order has been placed by a member of the NASD, other than
the Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Corporation's management to afford ease of
redemption, certificates will not be issued to indicate ownership in a Fund.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
Each Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for its shares. Those
brokers may also designate other parties to accept purchase and redemption
orders on the Funds' behalf. Orders for purchase or redemption will be deemed to
have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Directors and the Distributor, also the Funds' principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Directors and the Distributor may suspend or terminate the
offering of Fund shares at any time for any reason.
The Board of Directors and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of Fund shares at any
time for any reasons.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations , certification of exempt status)
will be returned to the investor . The Funds reserve the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number . A shareholder may avoid
involuntary redemption by providing the Funds with a tax identification number
during the 30-day notice period.
The Corporation may issue shares at net asset value in connection with
any merger or consolidation with, or acquisition of the assets of, any
investment company or personal holding company, subject to the requirements of
the 1940 Act.
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EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in another fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges into a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee .
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Corporation and the Transfer Agent each reserves the right to
suspend or terminate the privilege of the Automatic Exchange Program at any
time.
There is no charge to the shareholder for any exchange described above
(except for exchanges from funds which impose a redemption fee on shares held
less than a year). An exchange into another Scudder fund is a redemption of
shares, and therefore may result in tax consequences (gain or loss) to the
shareholder and the proceeds of such exchange may be subject to backup
withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. Each Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Funds do not follow such
procedures, they may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Funds and the Transfer Agent each reserves the right to suspend or
terminate the privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds or classes thereof. For more information,
please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption By Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 to their address of record.
Shareholders may also request by telephone to have the proceeds mailed or wired
to their predesignated bank account. In order to request wire redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish the telephone redemption
privilege must complete the appropriate section on the
application.
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(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder pension and profit-sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption proceeds
should either return a Telephone Redemption Option Form
(available upon request), or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
If a request for a redemption to a shareholder's bank account is made
by telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
The Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Funds do not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Funds will not be liable
for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Funds by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4:00 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange will begin their processing and be redeemed at the net asset value
calculated the following business day. QuickSell transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
The Funds employ procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. The Funds will not be liable
for acting upon instructions communicated by telephone that they reasonably
believe to be genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
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It is suggested that shareholders holding share certificates or shares
registered in other than individual names contact the Transfer Agent prior to
any redemptions to ensure that all necessary documents accompany the request.
When shares are held in the name of a corporation, trust, fiduciary agent,
attorney or partnership, the Transfer Agent requires, in addition to the stock
power, certified evidence of authority to sign. These procedures are for the
protection of shareholders and should be followed to ensure prompt payment.
Redemption requests must not be conditional as to date or price of the
redemption. Proceeds of a redemption will be sent within seven (7) business days
after receipt by the Transfer Agent of a request for redemption that complies
with the above requirements. Delays of more than seven (7) days of payment for
shares tendered for repurchase or redemption may result, but only until the
purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Funds reserve the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
each Fund and valued as they are for purposes of computing each Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Funds do not impose
a redemption or repurchase charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemption of shares,
including redemptions undertaken to effect an exchange for shares of another
Scudder fund, may result in tax consequences (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding. (See
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value may be suspended at times and a
shareholder's right to redeem shares and to receive payment therefore may be
suspended at times (a) during which the Exchange is closed, other than customary
weekend and holiday closings, (b) during which trading on the Exchange is
restricted for any reason, (c) during which an emergency exists as a result of
which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during which the Securities and Exchange
Commission (the "Commission"), by order permits a suspension of the right of
redemption or a postponement of the date of payment or of redemption; provided
that applicable rules and regulations of the Commission (or any succeeding
governmental authority) shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist.
Shareholders should maintain a share balance worth at least $2,500
($1,000 for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts), which amount may be changed by the Board of Directors. Scudder
retirement plans have similar or lower minimum balance requirements. A
shareholder may open an account with at least $1,000 ($500 for an IRA), if an
automatic investment plan ("AIP") of $100/month ($50/month for an IRA) is
established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in a Fund, without establishing an AIP, will be assessed an annual $10.00
per fund charge with the fee to be reinvested in the Fund. The $10.00 charge
will not apply to shareholders with a combined household account balance in any
of the Scudder funds of $25,000 or more. Each Fund reserves the right, following
60 days' written notice to shareholders, to redeem all shares in accounts below
$250, including accounts of new investors, where a reduction in value has
occurred due to a redemption or exchange out of the account. Each Fund will mail
the proceeds of the redeemed account to the shareholder at the address of
record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.
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FEATURES AND SERVICES OFFERED BY THE FUND
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Because funds and classes in the Scudder Family of Funds do not pay any
asset-based sales charges or service fees, Scudder uses the phrase no-load to
distinguish Scudder funds and classes from other no-load funds. Scudder
pioneered the no-load concept when it created the nation's first no-load fund in
1928, and later developed the nation's first family of no-load mutual funds.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the
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method of payment must be received by the Transfer Agent at least five days
prior to a dividend record date. Shareholders also may change their dividend
option either by calling 1-800-225-5163 or by sending written instructions to
the Transfer Agent. Please include your account number with your written
request. See "Purchases" in the Funds' prospectuses for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by the
Distributor listed in the Funds' prospectuses. The Centers are designed to
provide individuals with services during any business day. Investors may pick up
literature or obtain assistance with opening an account, adding monies or
special options to existing accounts, making exchanges within the Scudder Family
of Funds, redeeming shares or opening retirement plans. Checks should not be
mailed to the Centers but should be mailed to "The Scudder Funds" at the address
listed under "Purchases" in the prospectus.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. The Trust presently intends to
distribute to shareholders informal quarterly reports during the intervening
quarters, containing a statement of the investments of the Funds.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds; a list of Scudder's
funds follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series^+
Scudder Government Money Market Series^+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series^+
Scudder California Tax Free Money Fund*
- -------------------------------------
^+ The institutional class of shares is not part of the Scudder Family of
Funds.
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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*
U.S. INCOME
Scudder Short Term Bond 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 Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 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 Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
- ----------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
** Only the Scudder Shares are part of the Scudder Family of Funds.
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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
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
Certain Scudder funds or classes thereof may not be available for
purchase or exchange. For more information, please call 1-800-225-5163.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
- -----------------------------------
*** Only the International Shares are part of the Scudder Family of Funds.
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Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to
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the death of the original account holder. If a Roth IRA has been established for
a minimum of five years, distributions can be taken tax-free after reaching age
59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or upon
death or disability. All other distributions of earnings from a Roth IRA are
taxable and subject to a 10% tax penalty unless an exception applies. Exceptions
to the 10% penalty include: disability, certain medical expenses, the purchase
of health insurance for an unemployed individual and qualified higher education
expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information -- Redeeming shares -- Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Corporation or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Corporation of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Corporation and its agents reserve the right to establish a
maintenance charge in the future depending on the services required by the
investor.
The Corporation reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
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<PAGE>
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.") If the
Fund does not distribute the amount of capital gain and/or ordinary income
required to be distributed by an excise tax provision of the Code, the Fund may
be subject to that excise tax. In certain circumstances, the Fund may determine
that it is in the interest of shareholders to distribute less than the required
amount. (See "TAXES.")
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends paid deduction on its federal tax return.
The Funds intend to distribute dividends from its net investment income
semiannually in December. The Funds intend to distribute net realized capital
gains after utilization of capital loss carryforwards, if any, in November or
December to prevent application of a federal excise tax. An additional
distribution may be made, if necessary.
Both types of distributions will be made in shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
28
<PAGE>
PERFORMANCE INFORMATION
From time to time, quotations of each Fund's performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures will be calculated in the
following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year and the life of the Fund, ended on the last
day of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Return for period ended August 31, 1999
Life of Fund(1)
International Growth Fund 28.25%
International Value Fund 22.49
^(1) For the period beginning September 1, 1998 (commencement of operations)
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P) -1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of
$1,000
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return for fiscal year ended August 31, 1999
Life of Fund(1)
International Growth Fund 28.25%
International Value Fund 22.49
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<PAGE>
^(1) For the period beginning September 1, 1998 (commencement of operations)
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Comparison of Fund Performance
In connection with communicating its performance to current or
prospective shareholders, the Funds also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs.
Historical information on the value of the dollar versus foreign
currencies may be used from time to time in advertisements concerning the Funds.
Such historical information is not indicative of future fluctuations in the
value of the U.S. dollar against these currencies. In addition, marketing
materials may cite country and economic statistics and historical stock market
performance for any of the countries in which a Fund invests.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, Directors
and officers of a Fund, a Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Funds may be advertised as an investment choice in Scudder's
college planning program.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in a Fund. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning a Fund, including reprints of, or selections from, editorials or
articles about a Fund.
30
<PAGE>
FUND ORGANIZATION
The Corporation was organized as Scudder Fund of Canada Ltd. in Canada
in 1953 by the investment management firm of Scudder, Stevens & Clark, Inc. On
March 16, 1964, the name of the Corporation was changed to Scudder International
Investments Ltd. On July 31, 1975, the corporate domicile of the Corporation was
changed to the U.S. through the transfer of its net assets to a newly formed
Maryland corporation, Scudder International Fund, Inc., in exchange for shares
of the Corporation which then were distributed to the shareholders of the
Corporation.
The authorized capital stock of the Corporation consists of 900 million
shares of a par value of $.01 each. Each series has one class of shares, except
for Scudder International fund, which has two classes of shares. All shares of a
class have equal rights as to voting, redemption, dividends and liquidation.
Shareholders have one vote for each share held. The Corporation's capital stock
is comprised of eight series: Scudder International Fund, the original series;
Scudder Latin America Fund, Scudder Pacific Opportunities Fund, both organized
in December 1992, Scudder Greater Europe Growth Fund, organized in October 1994,
Scudder Emerging Markets Growth Fund, organized in May 1996, Scudder
International Growth and Income Fund, organized in June 1997 and Scudder
International Value Fund and Scudder International Growth Fund, organized in
June 1998. Each series consists of 100 million shares except for Scudder
International Fund which consists of 200 million shares. The Directors have the
authority to issue additional series of shares and to designate the relative
rights and preferences as between the different series. All shares issued and
outstanding are fully paid and non-assessable, transferable, and redeemable at
net asset value at the option of the shareholder.
Shares have no pre-emptive or conversion rights.
The shares of the Corporation have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with such a share of
the general liabilities of the Corporation. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series and by class on matters affecting an individual class. For
example, a change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Directors, in their discretion, may authorize the division of
shares of the Corporation (or shares of a series) into different classes
permitting shares of different classes to be distributed by different methods.
Although shareholders of different classes of a series would have an interest in
the same portfolio of assets, shareholders of different classes may bear
different expenses in connection with different methods of distribution.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall be immune from liability for any action
taken by them in good faith, in a manner reasonably believed to be in the best
interests of the Corporation and with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In so acting, a
Director shall be fully protected in relying in good faith upon the records of
the Corporation and upon reports made to the Corporation by persons selected in
good faith by the Directors as qualified to make such reports. The Articles and
the By-Laws provide that the Corporation will indemnify its Directors, officers,
employees or agents against liabilities and expenses incurred in connection with
litigation in which they may be involved
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<PAGE>
because of their offices with the Corporation consistent with applicable law.
Nothing in the Articles or the By-Laws protects or indemnifies a Director,
officer, employee or agent against any liability to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
INVESTMENT ADVISER
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Funds. This organization, the
predecessor of which is Scudder, Stevens & Clark, Inc., is one of the most
experienced investment counsel firms in the U. S. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 the Adviser introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The
predecessor firm reorganized from a partnership to a corporation on June 28,
1985. On December 31, 1997, Zurich Insurance Company ("Zurich") acquired a
majority interest in the Adviser, and Zurich Kemper Investments, Inc., a Zurich
subsidiary, became part of the Adviser. The Adviser's name changed to Scudder
Kemper Investments, Inc. On September 7, 1998, the businesses of Zurich
(including Zurich's 70% interest in Scudder Kemper) and the financial services
businesses of B.A.T Industries p.l.c. ("B.A.T") were combined to form a new
global insurance and financial services company known as Zurich Financial
Services Group. By way of a dual holding company structure, former Zurich
shareholders initially owned approximately 57% of Zurich Financial Services
Group, with the balance initially owned by former B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over [XX] open and
closed-end mutual funds.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. The Adviser's international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Funds may invest, the conclusions and
investment decisions of the Adviser with respect to the Funds are based
primarily on the analyses of its own research department.
Certain investments may be appropriate for a fund and also for other
clients advised by the Adviser. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for a fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to that fund.
In certain cases, the investments for a fund are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser,
that have similar names, objectives and investment styles. You should be aware
that the Funds are likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Funds can be expected to vary from those of these other mutual funds.
For Scudder International Growth Fund and Scudder International Value
Fund the Investment Management Agreements (the "Agreements"), both dated June
29, 1998, were approved by the Directors on June 7, 1999. The
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<PAGE>
Agreements will continue in effect until September 30, 2000 and from year to
year thereafter only if their continuance is approved annually by the vote of a
majority of those Directors who are not parties to such Agreements or interested
persons of the Adviser or the Corporation, cast in person at a meeting called
for the purpose of voting on such approval, and either by a vote of the
Corporation's Directors or of a majority of the outstanding voting securities of
the respective Fund. The Agreements may be terminated at any time without
payment of penalty by either party on sixty days' written notice and
automatically terminate in the event of their assignment.
Under the Agreements, the Adviser regularly provides each Fund with
continuing investment management for the Fund's portfolio consistent with each
Fund's investment objectives, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Corporation's Articles, By-Laws,
the 1940 Act, the Code and to each Fund's investment objectives, policies and
restrictions, and subject, further, to such policies and instructions as the
Board of Directors of the Corporation may from time to time establish.
Under the Agreements, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for each Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Directors and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Funds (such as the Funds' transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the Commission and other regulatory agencies; assisting in the preparation and
filing of the Funds' federal, state and local tax returns; preparing and filing
the Funds' federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of each Fund under
applicable federal and state securities laws; maintaining each Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of each Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring each Fund's operating
budget; processing the payment of each Fund's bills; assisting each Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Directors.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York or Boston,
Massachusetts) of all Directors, officers and executive employees of the
Corporation affiliated with the Adviser and makes available, without expense to
the Fund, the services of such Directors, officers and employees of the Adviser
as may duly be elected officers of the Corporation, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Fund's
office space and facilities.
For these services, each Fund pays the Adviser an annual fee equal to
1.00% of the Fund's average daily net assets, payable monthly, provided the Fund
will make such interim payments as may be requested by the adviser not to exceed
75% of the amount of the fee then accrued on the books of the Fund and unpaid.
Until December 31, 2000, the Adviser had agreed not to impose all or a portion
of its management fees in order to maintain the total annualized expenses of
each Fund at not more than 1.75% of average daily net assets of the Fund.
For the fiscal year ended August 31, 1999, the Adviser did not impose
any of its management fee for International Growth Fund amounting to $44,526.
Further, International Growth Fund's reimbursement due from the Adviser at
August 31, 1999 amounted to $201,421. For the fiscal year ended August 31, 1999,
the Adviser did not impose any of its management fee for International Value
Fund amounting to $26,917. Further, International Value Fund's reimbursement due
from the Adviser at August 31, 1999 amounted to $176,090.
Under the Agreements each Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses of issue, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Directors, officers
and employees of the Fund who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to stockholders; and the fees and
disbursements of custodians. Each Fund may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. Each Fund is also responsible for its expenses of shareholders'
meetings, the cost of responding to shareholders' inquiries, and its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Directors of the
Corporation with respect thereto.
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<PAGE>
The Agreements expressly provide that the Adviser shall not be required
to pay a pricing agent of each Fund for portfolio pricing services, if any.
The Agreements identify the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Fund, has the
non-exclusive right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Corporation's investment products
and services.
In reviewing the terms of each Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of each Fund who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
Each Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by each Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under each Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including each Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Directors of the Corporation may have dealings
with the Funds as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Funds.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
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DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Funds Principal Occupation** Services, Inc.
- ---------------------- ------------------- ---------------------- --------------
<S> <C> <C> <C>
Paul Bancroft III (69) Director Venture Capitalist and Consultant; --
79 Pine Lane Retired President, Chief Executive
Box 6639 Officer and Director, Bessemer
Snowmass Village, CO Securities Corporation
81615
Lynn S. Birdsong*+@ (52) Director and Chairman Managing Director of Scudder Kemper Vice President,
of the Board Investments, Inc. Director and Assistant
Treasurer
Sheryle J. Bolton (53) Director CEO, Scientific Learning Corporation, --
Scientific Learning Former President and Chief Operating
Corporation Officer, Physicians Online, Inc.
417 Montgomery Street (electronic transmission of clinical
Suite 500 information for physicians
San Francisco, CA 94104 (1994-1995); Member, Senior
Management Team, Rockefeller & Co.
(1990-1993)
William T. Burgin (55) Director General Partner, Bessemer Venture --
83 Walnut Street Partners; General Partner, Deer &
Wellesley, MA 02181 Company; Director, James River Corp.;
Director, Galile Corp.; Director of
various privately held companies
Keith R. Fox (45) Director Private Equity Investor; President, --
10 East 53rd Street Exeter Capital Management Corporation
New York, NY 10022
William H. Luers (70) Director Chairman of the Board, U.N. --
993 Fifth Avenue Association of the U.S.A.; President,
New York, NY 10028 The Metropolitan Museum of Art (1986
to 1998)
Kathryn L. Quirk (46) #@ Director, Vice Managing Director of Scudder Kemper Director, Senior Vice
President and Investments, Inc. President, Chief Legal
Assistant Secretary Officer and Assistant
Clerk
Joan E. Spero (54) Director President, Doris Duke Charitable --
Doris Duke Charitable Foundation (February 1997-Present);
Foundation Department of State -Undersecretary
650 Fifth Avenue - 19th Floor of State for Economic, Business and
New York, NY 10019 Agricultural Affairs (March
1993-January 1997)
Thomas J. Devine (72) Honorary Director Consultant --
450 Park Avenue
New York, NY 10022
35
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Funds Principal Occupation** Services, Inc.
- ---------------------- ------------------- ---------------------- --------------
William H. Gleysteen, Jr. (73) Honorary Director Consultant, Guest Scholar, Brookings --
4937 Crescent Street Institute, formerly President, The
Bethesday, MD 20816 Japan Society, Inc.
Wilson Nolen (72) Honorary Director Consultant (1989 to present); --
1120 Fifth Avenue, #10-B Corporate Vice President, Becton,
New York, NY 10128-0144 Dickinson & Company (manufacturer of
medical and scientific products)
until 1989
Robert G. Stone, Jr. (76) Honorary Director Chairman of the Board and Director, --
405 Lexington Avenue, 39th Kirby Corporation (inland and
Floor offshore marine transportation and
New York, NY 10174 diesel repairs)
Elizabeth J. Allan (46) # Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Nicholas Bratt (51)#* President Managing Director of Scudder Kemper --
Investments, Inc.
Irene T. Cheng (45)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Joyce E. Cornell (55)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Susan E. Dahl (34)+ Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Philip S. Fortuna (41)& Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Carol L. Franklin (46)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Edmund B. Games, Jr. (62)+ Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Theresa Gusman (39)# Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Ann M. McCreary (42)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Sheridan Reilly (47)# Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Shahram Tajbakhsh (42)& Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
36
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Funds Principal Occupation** Services, Inc.
- ---------------------- ------------------- ---------------------- --------------
John Millette (37)+ Vice President and Assistant Vice President of Scudder --
Secretary Kemper Investments, Inc. since
September 1994; previously employed
by the law firm Kaye, Scholer,
Fierman, Hays & Handler
Richard W. Desmond (63)# Assistant Secretary Vice President of Scudder Kemper Vice President
Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of Scudder Assistant Treasurer
Kemper Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Senior Vice President of Scudder Clerk
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
</TABLE>
* Mr. Birdsong, Mr. Bratt and Ms. Quirk are considered by the Funds and
its counsel to be persons who are "interested persons" of the Adviser
or of the Corporation within the meaning of the 1940 Act.
** Unless otherwise stated, all officers and Directors have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
@ Mr. Birdsong and Ms. Quirk are members of the Executive Committee which
may exercise substantially all of the powers of the Board of Directors
when it is not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154
& Address: 101 California Street, Suite 4100, San Francisco, CA
94111-5886
The Directors and officers of the Corporation also serve in similar
capacities with respect to other Scudder Funds.
As of September 30, 1999, all Directors and officers of the Corporation
as a group owned beneficially (as that term is defined in Section 13(d) under
the Securities Exchange Act of 1934) less than 1% of the outstanding shares of
each Fund on such date.
As of September 30, 1999, 14,131 shares in the aggregate, or 6.40% of
the outstanding shares of Scudder International Growth Fund were held in the
name of Charles Schwab, 101 Montgomery Street, San Francisco, CA 94101, who may
be deemed to be the beneficial owner of certain of these shares, but disclaims
any beneficial ownership therein.
As of September 30, 1999, 14,131 shares in the aggregate, or 6.79% of
the outstanding shares of Scudder International Value Fund were held in the name
of Charles Schwab, 101 Montgomery Street, San Francisco, CA 94101, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of September 30, 1999, no person owned beneficially more than 5% of
each Fund's outstanding shares except as stated above.
To the knowledge of the Corporation, all Directors and officers as a
group owned less than 1% of each Fund's outstanding shares as of the
commencement of operations.
37
<PAGE>
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Directors is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Directors" have primary
responsibility for assuring that each Fund is managed in the best interests of
its shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of each Fund and other operational matters, including
policies and procedures designed to ensure compliance with various regulatory
requirements. At least annually, the Independent Directors review the fees paid
to the Adviser and its affiliates for investment advisory services and other
administrative and shareholder services. In this regard, they evaluate, among
other things, each Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by each Fund's independent
public accountants and by independent legal counsel selected by the Independent
Directors.
All the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
The Independent Directors receive the following compensation from the
Funds Scudder of International Fund, Inc.: an annual director's fee of $3,500; a
fee of $325 for attendance at each board meeting, audit committee meeting or
other meeting held for the purposes of considering arrangements between the
Corporation for the Fund and the Adviser or any affiliate of the Adviser; $100
for all other committee meetings; and reimbursement of expenses incurred for
travel to and from Board Meetings. No additional compensation is paid to any
Independent Director for travel time to meetings, attendance at directors'
educational seminars or conferences, service on industry or association
committees, participation as speakers at directors' conferences or service on
special director task forces or subcommittees. Independent Directors do not
receive any employee benefits such as pension, retirement or health insurance.
Notwithstanding the schedule of fees, the Independent Directors have in the past
and may in the future waive a portion of their compensation.
The Independent Directors also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Director fee schedules. The
following table shows the aggregate compensation received by each Independent
Director during 1998 from the Corporation and from all of the Scudder funds as a
group.
<TABLE>
<CAPTION>
Scudder International Fund, Inc.* All Scudder Funds
--------------------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Corporation the Adviser(1) the Funds The Adviser(1)
---- --------------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Paul Bancroft III, $43,400 $8,100 $156,922 $ 25,950 (20 funds)
Director
Sheryle J. Bolton, $9,285 $0.00 $86,213 $10,800 (20 funds)
Director**
William T. Burgin, $9,285 $0.00 $85,950 $17,550 (20 funds)
Director**
Thomas J. Devine, $50,400 $8,100 $187,348 $27,150 (21 funds)
Director
38
<PAGE>
Scudder International Fund, Inc.* All Scudder Funds
--------------------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Corporation the Adviser(1) the Funds The Adviser(1)
---- --------------- -------------- --------- --------------
Keith R. Fox, Director $52,950 $8,100 $134,390 $17,550 (18 funds)
William H. Gleysteen, $48,900 $8,100 $136,150 $19,850 (15 funds)
Jr., Director***
William H. Luers, $49,800 $8,100 $117,729 $16,350 (20 funds)
Director
Wilson Nolen, Director $46,900 $8,100 $189,548 $25,300 (21 funds)
</TABLE>
(1) The Adviser paid the compensation to Directors for meetings associated
with the Adviser's alliance with Zurich Insurance Company. See
"Investment Adviser" for additional information.
* Scudder International Fund, Inc. consists of eight funds: Scudder
International Fund, Scudder Latin America Fund, Scudder Pacific
Opportunities Fund, Scudder Greater Europe Growth Fund, Scudder
Emerging Markets Growth Fund, Scudder International Growth and Income
Fund, Scudder International Growth Fund and Scudder International Value
Fund.
** Elected as Director of the Corporation on October 27, 1997.
*** This amount does not reflect $6,098 in retirement benefits accrued as
part of Fund Complex expenses, and $3,000 in estimated annual benefits
payable upon retirement. Retirement benefits accrued and proposed are
to be paid to Mr. Gleysteen as additional compensation for serving on
the Board of The Japan Fund, Inc.
Members of the Board of Directors who are employees of the Adviser or
its affiliates receive no direct compensation from the Corporation, although
they are compensated as employees of the Adviser, or its affiliates, as a result
of which they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
The Corporation has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
subsidiary of the Adviser, a Delaware corporation. The Corporation's
underwriting agreement dated September 17, 1992 will remain in effect until
September 30, 2000 and from year to year thereafter only if its continuance is
approved annually by a majority of the members of the Board of Directors who are
not parties to such agreement or interested persons of any such party and either
by vote of a majority of the Board of Directors or a majority of the outstanding
voting securities of each Fund. The underwriting agreement was last approved by
the Directors on June 7, 1999.
Under the underwriting agreement, each Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the Commission of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Fund as a broker or
dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor); notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of each Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of
39
<PAGE>
toll-free telephone service and expenses of shareholder service representatives,
a portion of the cost of computer terminals, and expenses of any activity which
is primarily intended to result in the sale of shares issued by a Fund, unless a
Rule 12b-1 Plan is in effect which provides that the Fund shall bear some or all
of such expenses.
Note: Although neither Fund currently has a 12b-1 Plan, and the Directors
have no current intention of adopting one, a Fund would also pay those
fees and expenses permitted to be paid or assumed by the Fund pursuant
to a 12b-1 Plan, if any, were adopted by the Fund, notwithstanding any
other provision to the contrary in the underwriting agreement.
As agent, the Distributor currently offers shares of each Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of either Fund.
TAXES
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of a Fund's ordinary income for the calendar year, at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) realized during the one-year period ending August 31
during such year, and all ordinary income and capital gains for prior years that
were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of a Fund.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by a Fund, that Fund intends to elect to
treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by a Fund on such gains as a credit against the shareholder's federal income tax
liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such reported gains and the
shareholder's tax credit. If a Fund makes such an election, it may not be
treated as having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of a Fund's gross income. If any such dividends constitute a
portion of a Fund's gross income, a portion of the income distributions of that
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
a Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gains, regardless of the length of time the shares of a Fund
have been held by such individual shareholders. Such distributions are not
eligible for the dividends-received deduction. Any loss realized upon the
redemption of shares held at the time of redemption for six months or less will
be treated as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain during such six-month period.
40
<PAGE>
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by a Fund result in a reduction in the net asset value of
that Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Each Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and will be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by a Fund to foreign countries (which
taxes relate primarily to investment income). Each Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of a Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code except in the case of certain
electing individual shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend. In addition, if a Fund fails to satisfy these holding
period requirements, it cannot elect under Section 853 to pass through to
shareholders the ability to claim a deduction for the related foreign taxes.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by a
Fund will be subject to tax under Section 1234 of the Code. In general, no loss
will be recognized by a Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on a Fund's holding period for the option, and in the case
of the exercise of a put option, on a Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income
41
<PAGE>
tax purposes, causing an adjustment in the holding period of any property in a
Fund's portfolio similar to the property underlying the put option. If a Fund
writes an option, no gain is recognized upon its receipt of a premium. If the
option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If a call option is exercised, the character of the gain
or loss depends on the holding period of the underlying stock.
Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes that Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the relevant Fund.
Many futures and forward contracts entered into by a Fund and listed
nonequity options written or purchased by a Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by a Fund will be treated as ordinary income or loss.
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes that
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. Each Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time that Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If a Fund invests in stock of certain foreign investment companies,
that Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of a Fund's holding period for
42
<PAGE>
the stock. The distribution or gain so allocated to any taxable year of a Fund,
other than the taxable year of the excess distribution or disposition, would be
taxed to that Fund at the highest ordinary income rate in effect for such year,
and the tax would be further increased by an interest charge to reflect the
value of the tax deferral deemed to have resulted from the ownership of the
foreign company's stock. Any amount of distribution or gain allocated to the
taxable year of the distribution or disposition would be included in a Fund's
investment company taxable income and, accordingly, would not be taxable to that
Fund to the extent distributed by the Fund as a dividend to its shareholders.
Each Fund may make an election to mark to market its shares of these
foreign investment companies, in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, each
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark-to-market losses and any loss from an actual disposition of
stock would be deductible as ordinary losses to the extent of any net
mark-to-market gains previously included in income in prior years. The effect of
this election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a Fund-level tax when distributed to
shareholders as a dividend. Alternatively, the Funds may elect to include as
income and gain their share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.
If a Fund invests in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from a Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by a
Fund in a written notice to shareholders.
Each Fund will be required to report to the Internal Revenue Service
all distributions of investment company taxable income and capital gains as well
as gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of each Fund may be subject to state and local taxes on
distributions received from a Fund and on redemptions of a Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall
43
<PAGE>
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by a Fund to reported
commissions paid by others. The Adviser routinely reviews commission rates,
execution and settlement services performed and makes internal and external
comparisons.
The Funds' purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or a
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research services. The Adviser has negotiated arrangements, which
are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or a Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser will not place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
Although certain research services from broker/dealers may be useful to
a Fund and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than a Fund, and not all such information is used by the Adviser
in connection with a Fund. Conversely, such information provided to the Adviser
by broker/dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to a Fund.
In the fiscal period ended August 31, 1999, Scudder International
Growth Fund paid brokerage commissions of $27,184 and Scudder International
Value Fund paid brokerage commissions of $17,286. For Scudder International
Growth Fund, for the fiscal period ended August 31, 1999, $21,687 (79.78% of the
total brokerage commissions paid) resulted from orders placed, consistent with
the policy of obtaining the most favorable net results, with brokers and dealers
who provided supplementary research information to the Fund or the Adviser. The
amount of such transactions aggregated $11,612,172 (55.86% of all transactions).
For Scudder International Value Fund, for the fiscal period ended August 31,
1998, $12,393 (71.70% of the total brokerage commissions paid) resulted from
orders placed, consistent with the policy of obtaining the most favorable net
results, with brokers and dealers who provided supplementary research
information to the Fund or the Adviser. The amount of such transactions
aggregated $6,892,169 (53.30% of all transactions).
The Directors review, from time to time, whether the recapture for the
benefit of the Funds of some portion of the brokerage commissions or similar
fees paid by the Funds on portfolio transactions is legally permissible and
advisable.
Portfolio Turnover
The portfolio turnover rate is defined by the SEC as the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding all securities with maturities at time of
acquisition of
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one year or less. The portfolio turnover rate for International Growth Fund was
89.6% for the period ended August 31, 1999. The portfolio turnover rate for
International Value Fund was 75.3% for the period ended August 31, 1999.
Purchases and sales are made for a Fund whenever necessary, in
management's opinion, to meet the Fund's objective.
NET ASSET VALUE
The net asset value of shares of a Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value
per share is determined by dividing the value of the total assets of the Fund,
less all liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the most recent bid quotation. The value of an equity security not quoted on
the Nasdaq System, but traded in another over-the-counter market, is its most
recent sale price. Lacking any sales, the security is valued at the Calculated
Mean. Lacking a Calculated Mean, the security is valued at the most recent bid
quotation.
Debt securities, other than money market instruments, are valued at
prices supplied by the Funds' pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money market
instruments purchased with an original maturity of sixty days or less, maturing
at par, shall be valued at amortized cost, which the Board believes approximates
market value. If it is not possible to value a particular debt security pursuant
to these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange-traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Corporation's Valuation Committee, the value
of a portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is determined
in a manner which, in the discretion of the Valuation Committee most fairly
reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
The financial highlights of each Fund included in the Funds' prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 160 Federal Street, Boston
Massachusetts 02110, independent
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accountants, given on the authority of said firm as experts in auditing and
accounting. PricewaterhouseCoopers LLP audits the financial statements of each
Fund and provides other audit, tax, and related services.
Other Information
Many of the investment changes in the Funds will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Funds. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of Scudder International Growth Fund is 811165 80 2.
The CUSIP number of Scudder International Value Fund is 811165 88 5.
Each Fund has a fiscal year end of August 31.
Each Fund employs Brown Brothers Harriman & Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian. Brown Brothers Harriman & Company has
entered into agreements with foreign subcustodians approved by the Directors of
the Corporation pursuant to Rule 17f-5 of the 1940 Act.
Costs estimated at $12,500 incurred by Scudder International Growth
Fund in conjunction with its organization will be amortized over a five year
period beginning at the commencement of operations of the Fund.
Costs estimated at $12,500 incurred by Scudder International Value Fund
in conjunction with its organization will be amortized over a five year period
beginning at the commencement of operations of the Fund.
The law firm of Dechert Price & Rhoads acts as general counsel to the
Funds.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for each Fund. SSC also serves as shareholder service
agent and provides subaccounting and recordkeeping services for shareholder
accounts in certain retirement and employee benefit plans. Each Fund pays SSC an
annual fee for each account maintained for a participant. For the period ended
August 31, 1999, SSC did not impose any of its fees for International Growth
Fund and International Value Fund amounting to $35,750 and $20,491,
respectively.
The Funds, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for each Fund. Each Fund pays SFAC an annual fee equal to 0.065% of
the first $150 million of average daily net assets, 0.04% of such assets in
excess of $150 million and 0.02% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the period ended August
31, 1999, SFAC did not impose any of its fees for International Growth Fund and
International Value Fund amounting to $50,012 and $50,004, respectively.
Scudder Trust Company ("STC"), Two International Place, Boston, MA
02110-4103, a subsidiary of the Adviser, provides recordkeeping and other
services for certain retirement and employee benefit plan accounts. The Fund
pays STC an annual fee per shareholder account.
The Funds' prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which each Fund has
filed with the Commission under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to each Fund and the securities offered hereby. This Registration Statement and
its amendments are available for inspection by the public at the Commission in
Washington, D.C.
FINANCIAL STATEMENTS
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The financial statements, including the investment portfolio, together
with the Report of Independent Accountants, financial highlights and notes to
the financial statements in the Annual Report to Shareholders dated August 31,
1999 of each Fund, are incorporated by reference and hereby deemed to be part of
this Statement of Additional Information.
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APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds.
Ratings of Corporate Bonds
S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
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judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
