Filed electronically with the Securities and Exchange Commission
on May 21, 1999
File No. 2-14400
File No. 811-642
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 70
----
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 50
----
Scudder International Fund, Inc.
--------------------------------
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
----------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2565
--------------
Caroline Pearson
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / days after filing pursuant to paragraph (a)(2)
/ X / On August 1, 1999 pursuant to paragraph (a)(1)
/ / days after filing pursuant to paragraph (a)(1)
/ / On ( date ) pursuant to paragraph (a)(2) of Rule 485.
/ / On August 1, 1999 pursuant to paragraph (b)
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER LATIN AMERICA FUND
SCUDDER PACIFIC OPPORTUNITIES FUND
SCUDDER GREATER EUROPE GROWTH FUND
SCUDDER EMERGING MARKETS GROWTH FUND
SCUDDER INTERNATIONAL GROWTH FUND
SCUDDER INTERNATIONAL VALUE FUND
SCUDDER INTERNATIONAL GROWTH AND INCOME FUND
SCUDDER INTERNATIONAL FUND
International Shares and Barrett International Shares
SCUDDER INTERNATIONAL FUND, INC.
<PAGE>
SCUDDER INTERNATIONAL FUND
International Shares
Barrett International Shares
SUPPLEMENT TO PROSPECTUSES
DATED AUGUST 1, 1999
The fund currently offers three classes of shares to provide investors with
different purchasing options. These are International Shares, which are
described in the International Shares' prospectus, the Barrett International
Shares, which are described in the Barrett International Shares' prospectus, and
the Class R shares, which are described in each prospectus as supplemented
hereby.
Class R shares are available for purchase by the employer sponsored retirement
plans KemFlex and KemStar, of Scudder Kemper Investments, Inc. and its
affiliates, and IRA rollover accounts from those plans. Class R shares are
currently available through intermediary-sold (brokers, planners and advisors)
retirement plans. Share certificates are not available for Class R shares.
The primary distinctions among the classes of the fund's shares lie in their
ongoing expenses, with Class R shares expenses including an administrative
services fee. Class R shares are offered at net asset value without an initial
sales charge and are not subject to a contingent deferred sales charge. As a
result of the relatively higher expenses for Class R shares, the level of income
dividends per share (as a percentage of net asset value) and, therefore, the
overall investment return, typically will be lower for Class R shares than for
International Shares and Barrett International Shares.
The following information supplements the indicated sections of each prospectus:
Past Performance
As Class R shares is a new class of the fund, no past performance data is
available.
Fee and Expense Information
The following information is designed to help you understand the fees and
expenses that you may pay if you buy and hold Class R shares of the fund.
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Shareholder Fees (fees paid directly from your investment):
- -------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a % of
offering price) NONE
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Maximum deferred sales charge (load) NONE
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Maximum sales charge (load) imposed on reinvested
dividends/distributions NONE
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Redemption fee (as % of amount redeemed, if applicable) NONE
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Exchange fee NONE
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses (expenses that are deducted from fund assets):
- -------------------------------------------------------------------------------
Management fee 1.00%
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Administrative service fee 0.25%
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Distribution (12b-1) fees NONE
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Other expenses 0.__%
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Total annual fund operating expenses 0.__%
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Example
This example is to help you compare the cost of investing in Class R shares of
the fund with the cost of investing in other mutual funds.
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "Total annual fund operating expenses" remaining the same each year. The
<PAGE>
expenses would be the same whether you sold your shares at the end of each
period or continued to hold them. Actual fund expenses and return vary from year
to year, and may be higher or lower than those shown.
- --------------------------------------------------------------------------------
One Year $___
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Three Years $___
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Five Years $___
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Ten Years $___
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Financial highlights
As this is a new class of the fund, no financial highlight data are available.
TRANSACTION INFORMATION
Exchanges
Shareholders of the fund's Class R shares may exchange those shares only for
shares of funds authorized by the Plan Sponsor on the sub-account record keeping
system made available through the Transfer Agent.
August 1, 1999
2
<PAGE>
Prospectus
Equity/Global
Scudder International
Fund Fund #000
International Shares
Prospectus
August 1, 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>
Scudder International Fund
How the fund works
2 Investment Approach
3 Main Risks to Investors
4 The Fund's Track Record
5 How Much Investors Pay
6 Other Policies and Risks
7 Who Manages the Fund
8 Financial Highlights
How to invest in the fund
10 How to Buy Shares
11 How to Exchange or Sell Shares
12 Policies You Should Know About
16 Understanding Distributions and Taxes
<PAGE>
How
the fund
works
On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.
You'll also be able to look at the fund's track record and get an idea of the
costs you should expect to pay as a fund shareholder.
Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol XXXXX fund number 000
Scudder International Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing mainly in foreign
equities (equities issued by foreign-based companies and listed on foreign
exchanges). The fund generally focuses on established companies in countries
with developed economies.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have sound
balance sheets, attractive valuations, good business prospects, and strong
positions in their core markets, among other factors.
Top-down analysis. The managers consider the economic outlooks for various
countries and geographical regions, looking for long-term changes that could
affect the fund's individual securities.
Analysis of global themes. The managers look for significant changes in the
business environment, with an eye toward identifying industries that may benefit
from these changes.
The managers intend to keep the fund's holdings diversified 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 it no longer looks attractive, based on their overall
assessment.
DOCUMENT CONTAINS THE FOLLOWING SIDEBAR NEXT TO THE PRECEDING THREE PARAGRAPHS.
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OTHER INVESTMENTS
While most of the fund's foreign equities are common stocks, some may be other
types of equities, such as convertible securities, preferred stocks, and
depositary receipts. The fund may also invest up to 20% of assets in foreign or
U.S. debt securities in the top four grades of credit quality.
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.
- --------------------------------------------------------------------------------
SCUDDER INTERNATIONAL FUND 2
<PAGE>
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[ICON] This fund was designed for investors who want a broadly diversified
international investment with the emphasis squarely on long-term growth
of capital.
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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 American 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. 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 economic trends,
geographical areas, industries, companies, or other matters
o some derivatives could produce disproportionate losses
o in unusual circumstances, the fund might find it hard to value some
investments accurately or to get a fair price for them
SCUDDER INTERNATIONAL FUND 3
<PAGE>
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[ICON] If you'd like up-to-date information on this fund's performance since
inception, call 1-800-225-5163 or visit the Scudder Web site at
www.scudder.com.
- --------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how the total returns for the fund's International Shares
have varied from year to year, which may give some idea of risk. Below the chart
is a table showing how the fund's returns over different periods average out.
For context, the table also includes a broad-based market index (which, unlike
the fund, does not have any fees or expenses). All figures on this page assume
reinvestment of dividends and distributions.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
Annual Total Return (%) as of 12/31 each year
BAR CHART DATA:
00.00 00.00
'97 '98
1999 Total Return as of June 30: 0.00%
Best Quarter: 0.00%, Q0 '90 Worst Quarter: -0.00%, Q0 '90
Average Annual Total Returns (%) as of 12/31/98
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Fund 0.00 0.00 0.00
- --------------------------------------------------------------------------------
Index 0.00 0.00 0.00
Index: MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted measure
of stock markets in Europe, Australia, the Far East and Canada.
SCUDDER INTERNATIONAL FUND 4
<PAGE>
How Much Investors Pay
Because this is a no-load fund, it doesn't charge you any shareholder fees. The
fund does have annual operating expenses, and as a shareholder you pay them
indirectly.
Fee Table
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
Sales Charges/Redemption Fees None
- --------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- --------------------------------------------------------------------------------
Management Fee 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None
- --------------------------------------------------------------------------------
Other Expenses* 0.00%
-----
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00%
* Includes costs of shareholder servicing, custody, accounting services, and
similar expenses, which may vary with fund size and other factors.
Expense Example
- --------------------------------------------------------------------------------
Based on the costs above, this example is designed to help you compare the
expenses of the fund's International Shares 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. Remember that
this is only an example, and that actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$000 $0,000 $0,000 $0,000
SCUDDER INTERNATIONAL FUND 5
<PAGE>
Other Policies and Risks
While the previous pages describe the main points of the fund's strategy and
risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund could change its
investment goal and certain other policies with the approval of its Board of
Directors and not its shareholders.
o As a temporary measure, the fund could shift up to 100% of assets into
defensive investments such as money market securities. This could help
prevent losses, but would mean that the fund was not pursuing its goal.
Year 2000 and Euro Readiness
Like all mutual funds, this fund could be affected by the inability of some
computer systems to recognize the year 2000. Also, because it invests in foreign
securities, the fund 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. Scudder Kemper 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 fund owns. Still, there's some risk that one or both of these
problems could materially affect the fund's operations (such as its ability to
calculate net asset value and to handle purchases and redemptions), its
investments, or securities markets in general.
DOCUMENT CONTAINS THE FOLLOWING SIDEBAR NEXT TO THE PRECEDING PARAGRAPH.
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
If you want more information on the 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).
- --------------------------------------------------------------------------------
SCUDDER INTERNATIONAL FUND 6
<PAGE>
- --------------------------------------------------------------------------------
[icon] Scudder Kemper, the company with overall responsibility for managing
the fund, takes a team approach to asset management.
- --------------------------------------------------------------------------------
Who Manages the Fund
The fund's investment adviser is Scudder Kemper Investments, Inc., located at
345 Park Avenue, New York, NY 10154-0010. Scudder Kemper has more than 70 years
of experience managing mutual funds, and currently has more than $xxx billion in
assets under management.
The fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders, and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was x.xx% of its average daily net assets.
Below are the people who handle the fund's day-to-day management.
Irene T. Cheng
Lead Portfolio Manager
o Began investment career
in 1983 [verify]
o Joined the adviser in 1993
o Joined the fund team in 19__
Nicholas Bratt
o Began investment career
in 19__
o Joined the adviser in 1976
o Joined the fund team in 1976
Carol L. Franklin
o Began investment career
in 1977 [verify]
o Joined the adviser in 1981
o Joined the fund team in 1986
SCUDDER INTERNATIONAL FUND 7
<PAGE>
Financial Highlights
This table is designed to help you understand the financial performance of the
fund's International Shares in recent years. The figures in the first half of
the table are for a single share. The total return figures represent the
percentage that an investor in the fund would have earned (or lost), assuming
all dividends and distributions were reinvested. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the fund's
financial statements, is included in the annual report (see "Shareholder
reports" on the back cover).
Years ended February 28, 1998 1997(a)
- --------------------------------------------------------------------------------
Per-share data ($)
- --------------------------------------------------------------------------------
Net asset value, beginning of period 00.00 00.00
- --------------------------------------------------------------------------------
Income from investment operations
- --------------------------------------------------------------------------------
Net investment income 00.00 00.00
- --------------------------------------------------------------------------------
Net gains or losses on securities
(both realized and unrealized) (00.00) 00.00
- --------------------------------------------------------------------------------
Total from investment operations 00.00 00.00
- --------------------------------------------------------------------------------
Less Distributions
- --------------------------------------------------------------------------------
Dividends from net investment income 00.00(00.00)
- --------------------------------------------------------------------------------
Distributions from capital gains 00.00 00.00
- --------------------------------------------------------------------------------
Returns of capital 00.00 00.00
------------
- --------------------------------------------------------------------------------
Total distributions 00.00 00.00
------------
- --------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00
------------
- --------------------------------------------------------------------------------
Total Return (%) 00.00 00.00
- --------------------------------------------------------------------------------
Ratios/supplemental data (%)
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.00 0.00
- --------------------------------------------------------------------------------
Ratio of net income to average net assets 00.00 00.00
- --------------------------------------------------------------------------------
Portfolio turnover rate 000.00 000.00
- --------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 000,000 000,000
SCUDDER INTERNATIONAL FUND 8
<PAGE>
How
to invest
in the fund
The following pages tell you how to invest with us and what to expect as a
shareholder. If you're investing directly with Scudder, this information applies
to you as it is given here.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket, or financial advisor -- 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>
First investment Additional investments
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular accounts $100 or more for regular accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic Investment Plan
- --------------------------------------------------------------------------------------------------------------------------------
By mail o Fill out and sign an o Send a check and a Scudder investment slip to us at the
or express application appropriate address below
(see below)
o Send it to us at the appropriate o If you don't have an investment slip, simply
address, along with an investment include a letter with your name, account number,
check the full name of the fund and the share class, and your
investment instructions
- --------------------------------------------------------------------------------------------------------------------------------
By wire o Call 1-800-225-5163 for instructions o Call 1-800-225-5163 for instructions
- --------------------------------------------------------------------------------------------------------------------------------
In person o Visit one of our Scudder Investor o Drop off your check and investment
(see below) Centers, where a representative can information at any Scudder Investor Center
help you fill out an application
- --------------------------------------------------------------------------------------------------------------------------------
By phone -- o Call 1-800-225-5163 for instructions
- --------------------------------------------------------------------------------------------------------------------------------
With an -- o To set up regular investments from a bank checking
automatic account, call 1-800-225-5163
investment
plan
- --------------------------------------------------------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-225-5163
- --------------------------------------------------------------------------------------------------------------------------------
</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
Scudder Investor Centers: Boca Raton, FL o Boston, MA o
Chicago, IL o New York, NY o San Francisco, CA
Fax number: 1-800-821-6234 (for exchanging and selling only)
- --------------------------------------------------------------------------------
HOW TO BUY SHARES 10
<PAGE>
How to Exchange or Sell Shares
Use these instructions to sell or exchange shares in an account opened directly
with Scudder.
<TABLE>
<CAPTION>
Exchanging into another fund Selling shares
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more to open a new account Some transactions, including most for over
($1,000 for IRAs) $100,000, can only be ordered in writing; if
you're in doubt, see page 13
$100 or more for exchanges between existing
accounts
- ------------------------------------------------------------------------------------------------------------------------------------
By phone o Call 1-800-225-5163 for instructions o Call 1-800-225-5163 for instructions
or wire
- ------------------------------------------------------------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800-343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
- ------------------------------------------------------------------------------------------------------------------------------------
By mail, Write a letter that includes: Write a letter that includes:
express, or fax
(see previous o the fund, class, and account number you're o the fund, class, and account number
page) exchanging out of from which you want to sell shares
o the dollar amount or number of shares you o the dollar amount or number of
want to exchange shares you want to sell
o the name and class of the fund you want to o your name(s), signature(s), and address,
exchange into as they appear on your account
o your name(s), signature(s), and address, o a daytime telephone number
as they appear on your account
o a daytime telephone number
- ------------------------------------------------------------------------------------------------------------------------------------
With an -- o To set up regular cash payments from
automatic a Scudder fund account, call 1-800-225-5163
withdrawal
plan
- ------------------------------------------------------------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO EXCHANGE OR SELL SHARES 11
<PAGE>
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 fund is open for business whenever the New York Stock Exchange is open. The
fund calculates the share price for its International Shares 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 or at a Scudder Investor
Center 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 or the Investor Center should be able to tell you when your order will
be processed.
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.
POLICIES YOU SHOULD KNOW ABOUT 12
<PAGE>
- --------------------------------------------------------------------------------
[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 1-800-225-5163.
- --------------------------------------------------------------------------------
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 1-800-225-5163.
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. It's also possible that your bank may have its own fees for
handling wires. The fund can only accept wires of $100 or more.
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 any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject purchase orders, for these
reasons or any other.
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.
POLICIES YOU SHOULD KNOW ABOUT 13
<PAGE>
- --------------------------------------------------------------------------------
[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.
- --------------------------------------------------------------------------------
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.
How the fund calculates share price
The share price for the fund's International Shares is the net asset value per
share, or NAV. To calculate NAV, the fund uses the following equation, taking
figures for this share class only:
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 value securities instead by using 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 values.
Because the fund invests in securities that are traded primarily in foreign
markets, the value of its 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 fund doesn't price its shares.
POLICIES YOU SHOULD KNOW ABOUT 14
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you can
always send us your order in writing.
- --------------------------------------------------------------------------------
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 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 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 yourself (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 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; a redemption in kind may be for an entire
order or only part of an order, but in any case is unlikely except with
orders involving more than $250,000 or 1% of the fund's assets
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 15
<PAGE>
Understanding Distributions and Taxes
You're entitled to receive your share of the net earnings of any fund you are
invested in. 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 fund intends to pay dividends and distributions to its shareholders in
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). 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.
UNDERSTANDING DISTRIBUTIONS AND TAXES 16
<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.
- --------------------------------------------------------------------------------
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 income dividends you receive from the fund
- --------------------------------------------------------------------------------
o short-term capital gains distributions you receive from the 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 the fund
You may be able to claim a tax credit or deduction for your share of any foreign
taxes the fund pays.
The 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.
UNDERSTANDING DISTRIBUTIONS AND TAXES 17
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. These reports are mailed
automatically to fund shareholder (one copy per household).
Statement of Additional Information (SAI) -- This tells you more about the
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 duplicating fee. If you
like, you can look over these materials in person at the SEC's Public Reference
Room in Washington, DC.
SEC File Number 811-642
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-225-5163 1-800-SEC-0330
www.scudder.com www.sec.gov
XX-0-00 XXX000000
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Equity/Global
- --------------------------------------------------------------------------------
Scudder International
Fund Fund #000
Barrett International Shares
Prospectus
August 1, 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>
Scudder International Fund
How the fund works
2 Investment Approach
3 Main Risks to Investors
4 The Fund's Track Record
5 How Much Investors Pay
6 Other Policies and Risks
7 Who Manages the Fund
8 Financial Highlights
How to invest in the fund
10 How to Buy Shares
11 How to Sell Shares
12 Policies You Should Know About
16 Understanding Distributions and Taxes
<PAGE>
How the fund works
On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.
You'll also be able to look at the fund's track record and get an idea of the
costs you should expect to pay as a fund shareholder.
Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol XXXXX fund number 000
Scudder International Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing mainly in foreign
equities (equities issued by foreign-based companies and listed on foreign
exchanges). The fund generally focuses on established companies in countries
with developed economies.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies that have sound
balance sheets, attractive valuations, good business prospects, and strong
positions in their core markets, among other factors.
Top-down analysis. The managers consider the economic outlooks for various
countries and geographical regions, looking for long-term changes that could
affect the fund's individual securities.
Analysis of global themes. The managers look for significant changes in the
business environment, with an eye toward identifying industries that may benefit
from these changes.
The managers intend to keep the fund's holdings diversified 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 it no longer looks attractive, based on their overall
assessment.
DOCUMENT CONTAINS THE FOLLOWING SIDEBAR NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's foreign equities are common stocks, some may be other
types of equities, such as convertible securities, preferred stocks, and
depositary receipts. The fund may also invest up to 20% of assets in foreign or
U.S. debt securities in the top four grades of credit quality.
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.
- --------------------------------------------------------------------------------
SCUDDER INTERNATIONAL FUND 2
<PAGE>
- --------------------------------------------------------------------------------
[ICON] This fund was designed for investors who want a broadly diversified
international investment with the emphasis squarely on long-term growth
of capital.
- --------------------------------------------------------------------------------
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 American 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. 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
economic trends, geographical areas, industries, companies, or other matters
o some derivatives could produce disproportionate losses
o in unusual circumstances, the fund might find it hard to value some
investments accurately or to get a fair price for them
SCUDDER INTERNATIONAL FUND 3
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you'd like up-to-date information on the performance of Barrett
International Shares since inception, call 1-800-225-5163 or visit the
Scudder Web site at www.scudder.com.
- --------------------------------------------------------------------------------
The Fund's Track Record
Because the Barrett International Shares is a new class of the fund, it did not
have a full calendar year of performance to report as of the date of this
prospectus.
SCUDDER INTERNATIONAL FUND 4
<PAGE>
How Much Investors Pay
Because this is a no-load fund, it doesn't charge you any shareholder fees. The
fund does have annual operating expenses, and as a shareholder you pay them
indirectly.
- --------------------------------------------------------------------------------
Fee Table
- --------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- --------------------------------------------------------------------------------
Sales Charges/Redemption Fees None
- --------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- --------------------------------------------------------------------------------
Management Fee 0.00%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fee None
Other Expenses* 0.00%
-----
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.00%
- --------------------------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services, and
similar expenses, which may vary with fund size and other factors.
- --------------------------------------------------------------------------------
Expense Example
- --------------------------------------------------------------------------------
Based on the costs above, this example is designed to help you compare the
expenses of the fund's Barrett International Shares 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.
Remember that this is only an example, and that actual expenses will be
different.
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
$000 $0,000 $0,000 $0,000
SCUDDER INTERNATIONAL FUND 5
<PAGE>
Other Policies and Risks
While the previous pages describe the main points of the fund's strategy and
risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund could change its
investment goal and certain other policies with the approval of its Board of
Directors and not its shareholders.
o As a temporary measure, the fund could shift up to 100% of assets into
defensive investments such as money market securities. This could help
prevent losses, but would mean that the fund was not pursuing its goal.
Year 2000 and Euro Readiness
Like all mutual funds, this fund could be affected by the inability of some
computer systems to recognize the year 2000. Also, because it invests in foreign
securities, the fund could be affected by accounting differences, changes in tax
treatment or other issues related to the conversion of certain European
currencies into the euro. Scudder Kemper 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 fund owns. Still, there's
some risk that one or both of these problems could materially affect the fund's
operations (such as its ability to calculate net asset value and to handle
purchases and redemptions), its investments, or securities markets in general.
DOCUMENT CONTAINS THE FOLLOWING SIDEBAR NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
If you want more information on the 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).
- --------------------------------------------------------------------------------
SCUDDER INTERNATIONAL FUND 6
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for managing
the fund, takes a team approach to asset management.
- --------------------------------------------------------------------------------
Who Manages the Fund
The fund's investment adviser is Scudder Kemper Investments, Inc., located at
345 Park Avenue, New York, NY 10154-0010. Scudder Kemper has more than 70 years
of experience managing mutual funds, and currently has more than $xxx billion in
assets under management.
The fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders, and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was x.xx% of its average daily net assets.
Below are the people who handle the fund's day-to-day management.
Irene T. Cheng
Lead Portfolio Manager
o Began investment career
in 1983 [verify]
o Joined the adviser in 1993
o Joined the fund team in 19__
Nicholas Bratt
o Began investment career
in 19__
o Joined the adviser in 1976
o Joined the fund team in 1976
Carol L. Franklin
o Began investment career
in 1977 [verify]
o Joined the adviser in 1981
o Joined the fund team in 1986
SCUDDER INTERNATIONAL FUND 7
<PAGE>
Financial Highlights
This table is designed to help you understand the financial performance of the
fund's Barrett International Shares in recent years. The figures in the first
half of the table are for a single share. The total return figures represent the
percentage that an investor in the fund would have earned (or lost), assuming
all dividends and distributions were reinvested. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the fund's
financial statements, is included in the annual report (see "Shareholder
reports" on the back cover).
- --------------------------------------------------------------------------------
Years ended February 28, 1998 1997(a)
- --------------------------------------------------------------------------------
Per-share data ($)
- --------------------------------------------------------------------------------
Net asset value, beginning of period 00.00 00.00
- --------------------------------------------------------------------------------
Income from investment operations
- --------------------------------------------------------------------------------
Net investment income 00.00 00.00
- --------------------------------------------------------------------------------
Net gains or losses on securities
(both realized and unrealized) (00.00) 00.00
- --------------------------------------------------------------------------------
Total from investment operations 00.00 00.00
- --------------------------------------------------------------------------------
Less Distributions
- --------------------------------------------------------------------------------
Dividends from net investment income 00.00 (00.00)
- --------------------------------------------------------------------------------
Distributions from capital gains 00.00 00.00
- --------------------------------------------------------------------------------
Returns of capital 00.00 00.00
- --------------------------------------------------------------------------------
Total distributions 00.00 00.00
- --------------------------------------------------------------------------------
Net asset value, end of period 00.00 00.00
- --------------------------------------------------------------------------------
Total Return (%) 00.00 00.00
- --------------------------------------------------------------------------------
Ratios/supplemental data (%)
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.00 0.00
- --------------------------------------------------------------------------------
Ratio of net income to average net assets 00.00 00.00
- --------------------------------------------------------------------------------
Portfolio turnover rate 000.00 000.00
- --------------------------------------------------------------------------------
Net assets, end of period ($ x 1,000) 000,000 000,000
- --------------------------------------------------------------------------------
SCUDDER INTERNATIONAL FUND 8
<PAGE>
How to invest in the fund
The following pages tell you how to invest with us and what to expect as a
shareholder. If you're investing directly through Barrett Associates, this
information applies to you as it is given here.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket, or financial advisor -- 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 through Barrett Associates. Make out
your check to "The Scudder Funds."
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
First investment Additional investments
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
$25,000 or more for regular $1,000 or more for regular
accounts (may be reduced or accounts (may be reduced or
waived for IRAs and for waived for IRAs and for certain
certain other investors) other investors)
- ---------------------------------------------------------------------------------------------------
By mail o Fill out and sign an o Send a check and a Scudder
or express application investment slip to us at the
(see below) appropriate address below
o Send it to us at the appro-
priate address, along with o If you don't have an investment
an investment check slip, simply include a
letter with your name,
account number, the full
name of the fund and the
share class, and your
investment instructions
- ---------------------------------------------------------------------------------------------------
By wire o Call 1-800-854-8525 to place o Ask your bank to wire the
your order, tell us how you correct amount to:
want your account set up, The Scudder Funds
and get an account number State Street Bank and
Trust Company
o Ask your bank to wire Boston, MA 02101
the correct amount to: ABA# 011000028
The Scudder Funds DDA# 9903-5552
State Street Bank and
Trust Company
Boston, MA 02101
ABA# 011000028
DDA# 9903-5552
o Follow up by sending us a
completed application
- ---------------------------------------------------------------------------------------------------
By phone -- o Call 1-800-854-8525 for
instructions
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[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
- --------------------------------------------------------------------------------
HOW TO BUY SHARES 10
<PAGE>
How to Sell Shares
Use these instructions to sell shares in an account opened directly through
Barrett Associates.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Selling shares
- ---------------------------------------------------------------------------------------------------
<S> <C>
Some transactions, including most for over $100,000, can only
be ordered in writing; if you're in doubt, see page 13
- ---------------------------------------------------------------------------------------------------
By mail or express Write a letter that includes:
(see previous page)
o the fund, class, and account number from which you want to
sell shares
o the dollar amount or number of shares you want to sell
o your name(s), signature(s), and address, as they appear on
your account
o a daytime telephone number
- ---------------------------------------------------------------------------------------------------
By wire o Fill out the Expedited Redemption Service portion of your new
account application
o For existing accounts, call 1-800-854-8525 and ask for a form
to add this service; complete the form and send it back
o Once the service is in place on your account, call 1-800-854-
8525 to place orders, or send them to us in writing (see
previous page)
- ---------------------------------------------------------------------------------------------------
</TABLE>
HOW TO SELL SHARES 11
<PAGE>
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.
In either case, keep in mind that the information in this prospectus applies
only to the fund's Barrett International Shares. The fund does have two other
share classes, which are described in separate prospectuses and which have
different fees, requirements, and services.
Policies about transactions
The fund is open for business whenever the New York Stock Exchange is open. The
fund calculates the share price for its Barrett International Shares 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.
POLICIES YOU SHOULD KNOW ABOUT 12
<PAGE>
- --------------------------------------------------------------------------------
[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 1-800-225-5163.
- --------------------------------------------------------------------------------
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.
When buying shares by telephone, you'll generally need to invest at least
$10,000, but not more than four times the current balance in your account. In
certain cases, we may accept smaller orders or may allow an investor to open a
new account by telephone. When you call with an order, wegive you an order
number, and we'll also mail you a confirmation.
With all telephone orders, it's very important that you follow up immediately
with a check or wire to pay for your investment. If we haven't received the full
amount from you within three days, your order will be canceled and you'll have
to pay for any losses that occur. When you send in your payment for the order,
be sure to include the order number so that your payment can be credited
properly.
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. It's also possible that your bank may have its own fees for
handling wires.
POLICIES YOU SHOULD KNOW ABOUT 13
<PAGE>
- --------------------------------------------------------------------------------
[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.
- --------------------------------------------------------------------------------
The Expedited Redemption Service is designed for investors who want the proceeds
from shares they sell to be automatically wired to a bank account. If the
proceeds are less than $1,000, we will mail a check to address of record rather
than wiring the funds to your bank account.
To use the Expedited Redemption Service, you'll need to set it up in advance
(see instructions on page 11). Also, please note that if you opened your account
by wire, you can't use the Expedited Redemption Service until we have received
your written application.
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 14
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone, you can always
send us your order in writing. How the fund calculates share price The
share price for the fund's Barrett International Shares is the net
asset value per share, or NAV. To calculate NAV, the fund uses the
following equation, taking figures for this share class only:
- --------------------------------------------------------------------------------
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 value securities instead by using 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 values.
Because the fund invests in securities that are traded primarily in foreign
markets, the value of its 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 fund doesn't price its shares.
POLICIES YOU SHOULD KNOW ABOUT 15
<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 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 close your account and send you the proceeds if your balance falls below
$25,000 and, after 30 days' notice, you haven't either increased your balance
or closed your account; this policy doesn't apply in cases where a fall in
share price created the low balance, and it may be waived in certain cases or
for certain investors
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; a redemption in kind may be for an entire
order or only part of an order, but in any case is unlikely except with
orders involving more than $250,000 or 1% of the fund's assets
o change, add, or withdraw various services, fees, and account policies
POLICIES YOU SHOULD KNOW ABOUT 16
<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
You're entitled to receive your share of the net earnings of any fund you are
invested in. 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 fund intends to pay dividends and distributions to its shareholders in
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). 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.
UNDERSTANDING DISTRIBUTIONS AND TAXES 17
<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 income dividends you receive from the fund
- --------------------------------------------------------------------------------
o short-term capital gains distributions you receive from the 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 the fund
- --------------------------------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes the fund pays.
The 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.
UNDERSTANDING DISTRIBUTIONS AND TAXES 18
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. These reports are mailed
automatically to fund shareholders (one copy per household).
Statement of Additional Information (SAI) -- This tells you more about the
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 duplicating fee. If you
like, you can look over these materials in person at the SEC's Public Reference
Room in Washington, DC.
SEC File Number 811-642
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-225-5163 1-800-SEC-0330
www.scudder.com www.sec.gov
<PAGE>
SCUDDER INTERNATIONAL FUND
A series of Scudder International Fund, Inc.
International Shares
A Mutual Fund Which Seeks to Provide
Long-Term Growth of Capital Primarily
From Foreign Equity Securities
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus for the International Shares class of
Scudder International Fund dated August 1, 1999, a copy of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders for Scudder International Fund dated
March 31, 1999 is incorporated by reference and is hereby deemed to be a part of
this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investments
Master/feeder structure......................................................................................3
Specialized Investment Techniques
Investment Restrictions.....................................................................................16
PURCHASES............................................................................................................18
Additional Information About Opening An Account.............................................................18
Minimum Balances
Additional Information About Making Subsequent Investments..................................................19
Additional Information About Making Subsequent Investments by QuickBuy......................................19
Checks......................................................................................................19
Wire Transfer of Federal Funds..............................................................................20
Share Price.................................................................................................20
Share Certificates..........................................................................................20
Other Information...........................................................................................20
EXCHANGES AND REDEMPTIONS............................................................................................21
Exchanges...................................................................................................21
Redemption By Telephone.....................................................................................22
Redemption by QuickSell.....................................................................................22
Redemption by Mail or Fax...................................................................................23
Redemption-in-Kind..........................................................................................23
Other Information...........................................................................................23
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................24
The Pure No-Load(TM)Concept.................................................................................24
Internet access.............................................................................................25
Dividends and Capital Gains Distribution Options............................................................26
Scudder Investor Centers....................................................................................26
Reports to Shareholders.....................................................................................27
Transaction Summaries.......................................................................................27
THE SCUDDER FAMILY OF FUNDS..........................................................................................27
SPECIAL PLAN ACCOUNTS................................................................................................32
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and Self-
Employed Individuals..................................................................................33
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals........33
Scudder IRA: Individual Retirement Account.................................................................33
Scudder 403(b) Plan.........................................................................................34
Automatic Withdrawal Plan...................................................................................34
Group or Salary Deduction Plan..............................................................................34
Automatic Investment Plan...................................................................................35
Uniform Transfers/Gifts to Minors Act.......................................................................35
Scudder Roth IRA: Individual Retirement Account............................................................35
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................36
PERFORMANCE INFORMATION..............................................................................................36
Average Annual Total Return.................................................................................36
Cumulative Total Return.....................................................................................37
Total Return................................................................................................37
Comparison of Fund Performance..............................................................................37
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TABLE OF CONTENTS (continued)
Page
Taking a Global Approach
FUND ORGANIZATION....................................................................................................42
INVESTMENT ADVISER...................................................................................................43
Personal Investments by Employees of the Adviser............................................................46
DIRECTORS AND OFFICERS...............................................................................................47
REMUNERATION.........................................................................................................50
Responsibilities of the Board--Board and Committee Meetings.................................................50
Compensation of Officers and Directors......................................................................51
DISTRIBUTOR..........................................................................................................52
TAXES................................................................................................................53
PORTFOLIO TRANSACTIONS...............................................................................................57
Brokerage Commissions.......................................................................................57
Portfolio Turnover..........................................................................................58
NET ASSET VALUE......................................................................................................58
ADDITIONAL INFORMATION...............................................................................................59
Experts.....................................................................................................59
Other Information...........................................................................................59
FINANCIAL STATEMENTS.................................................................................................60
APPENDIX.............................................................................................................61
</TABLE>
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THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder International Fund (the "Fund"), is a diversified series of
Scudder International Fund, Inc. (the "Corporation"), a registered open-end
management investment company which continuously offers and redeems its shares
at net asset value. It is a company of the type commonly known as a mutual fund.
The Fund offers two classes of shares, International Shares (the "Shares") and
Barrett International Shares. This Statement of Additional Information applies
only to the Shares.
Except as otherwise indicated, the Fund's objectives and policies are
not fundamental and may be changed without a shareholder vote. There can be no
assurance that the Fund will achieve its objective.
General Investment Objective and Policies
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Fund may engage (such
as hedging, etc.) or a financial instrument which the Fund 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 the 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 the Fund but, to the extent employed, could from time to time have
a material impact on the Fund's performance.
The Fund's investment objective is to seek long-term growth of capital
primarily from foreign equity securities. These securities are selected
primarily to permit the Fund to participate in non-U.S. companies and economies
that are believed to have prospects for growth.
The Fund invests in companies, wherever organized, which do business
primarily outside the United States.
The Fund intends to diversify investments among several countries and
to have represented in the portfolio, in substantial proportions, business
activities in not less than three different countries other than the U.S. The
Fund does not intend to concentrate investments in any particular industry.
As stated above, except as otherwise indicated, the Fund's investment
objective and policies are not fundamental and may be changed without a vote of
shareholders. If there is a change in investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs. There can be no assurance that the
Fund's objective will be met.
Investments
The Fund generally invests in equity securities of established
companies, listed on foreign exchanges (although the Fund may also invest in
securities traded over the counter), which the Adviser believes have favorable
characteristics. The Fund's equity investments include common stock, convertible
and non-convertible preferred stock, sponsored and unsponsored depository
receipts, and warrants.
When the Adviser believes that it is appropriate to do so in order to
achieve the Fund's investment objective of long-term capital growth, the Fund
may invest up to 20% of its total assets in debt securities. Such debt
securities include debt securities of governments, governmental agencies,
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 value of fixed-income investments will fluctuate with changes in
interest rates and bond market conditions, tending to rise as interest rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-
<PAGE>
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 Ratings
Services ("S&P") or, if unrated, judged by the Adviser to be of equivalent
quality. The Fund may also invest up to 5% of its total assets in debt
securities which are rated below investment-grade (see "Risk factors").
The Fund intends to diversify investments among several countries and
normally to have investments in securities of at least three different countries
other than the U.S. The Fund will invest primarily in securities of issuers in
the 21 developed foreign countries included in the Morgan Stanley Capital
International ("MSCI") World ex-US Index, but may invest in "emerging markets."
The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the International Bank of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.
The Adviser applies a disciplined, multi-part investment approach for
selecting stocks for the Fund. The first stage of this process involves
analyzing the pool of foreign dividend-paying securities, primarily from the
world's more mature markets, and targeting stocks that have high relative yields
compared to the average for their markets. In the Adviser's opinion, this group
of higher-yielding stocks offers the potential for returns that is greater than
or equal to the average market return, with price volatility that is lower than
the overall market volatility. The Adviser believes that these potentially
favorable risk and return characteristics exist because the higher dividends
offered by these stocks act as a "cushion" when markets are volatile and because
the stocks with higher yields tend to have more attractive valuations (e.g.,
lower price-to-earning ratios and lower price-to-book ratios). The second stage
of portfolio construction involves a fundamental analysis of each company's
financial strength, profitability, projected earnings, competitive positioning,
and ability of management. During this step, the Adviser's research team
identifies what it believes are the most promising stocks for the Fund's
portfolio. The third stage of the investment process involves diversifying the
portfolio among different industry sectors. The key element of this stage is
evaluating how the stocks in different sectors react to economic factors such as
interest rates, inflation, Gross Domestic Product, and consumer spending, and
then attaining a proper balance of stocks in these sectors based on the
Adviser's economic forecast. The fourth and final stage of this ongoing process
is diversifying the portfolio among different countries. The Adviser will seek
to have broad country representation, favoring those countries that it believes
have sound economic conditions and open markets. The Fund's strategy is to
manage risk and create opportunity at each of the four stages in its investment
process, starting with the focus on stocks with high relative yields.
The Fund may hold up to 20% of its net assets in U.S. and foreign fixed
income securities for temporary defensive purposes when the Adviser believes
that market conditions so warrant. The Fund may invest up to 20% of its net
assets under normal conditions, and without limit for temporary defensive
purposes, in cash or cash equivalents including domestic and foreign money
market instruments, short-term government and corporate obligations and
repurchase agreements, when the Adviser deems such a position advisable in light
of economic or market conditions. It is impossible to predict how long
alternative strategies may be utilized. In addition, the Fund may engage in
reverse repurchase agreements, illiquid securities and strategic transactions,
which may include derivatives.
Foreign securities such as those purchased by the Fund may be subject
to foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
From time to time, the Fund may be a purchaser of restricted debt or
equity securities (i.e., securities which may require registration under the
Securities Act of 1933, or an exemption therefrom, in order to be sold in the
ordinary course of business) in a private placement.
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Master/feeder structure
The Board of Directors has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Special Considerations
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less governmental supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of the Fund is
uninvested and no cash is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Certain emerging markets require prior governmental approval of
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain emerging markets
may also restrict investment opportunities in issuers in industries deemed
important to national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
In the course of investment in emerging markets, the Fund will be
exposed to the direct or indirect consequences of political, social and economic
changes in one or more emerging markets. While the Fund will manage its assets
in a manner that will seek to minimize the exposure to such risks, there can be
no assurance that adverse political, social or economic changes will not cause
the Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly if the Fund believes
that appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from
the Fund's identification of such condition until the date of the SEC action,
the Fund's
3
<PAGE>
securities in the affected markets will be valued at fair value determined in
good faith by or under the direction of the Corporation's Board of Directors.
Volume and liquidity in most foreign markets are less than in the U.S.,
and securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect the Fund's investments in those countries. Moreover, individual
emerging market economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The chart below sets for the risk ratings of selected emerging market
countries' sovereign debt securities.
Sovereign Risk Ratings for Selected Emerging Market Countries as of May, 1999:
Country Moody's* Standard & Poor's**
- ------- -------- -------------------
Chile Baa1 A-
Turkey B1 B
Mexico Ba2 BB
Czech Republic Baa1 A-
Hungary Baa2 BBB
Colombia Baa3 BBB-
Venezuela B2 B+
Morocco Ba1 BB
Argentina Ba3 BB
Brazil B2 B+
Poland Baa3 BBB-
Ivory Coast NR NR
* As of May 12, 1999. Source: Moody's Investors Service, Inc.
** As of May 5, 1999. Source: Standard & Poor's Corporation.
The Fund may have limited legal recourse in the event of a default with
respect to certain debt obligations it holds. If the issuer of a fixed-income
security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. Debt obligations issued by emerging market country governments
differ from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements.
Income from securities held by the 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. The 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
4
<PAGE>
controls have been imposed in certain countries. Of these countries, some, in
recent years, have begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Common Stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stock also offers the greatest potential for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents.
Depository Receipts. The Fund may invest indirectly in securities of foreign
issuers through sponsored or unsponsored American Depository Receipts ("ADRs"),
Global Depository Receipts ("GDRs"), International Depository Receipts ("IDRs")
and other types of Depository Receipts (which, together with ADRs, GDRs and IDRs
are hereinafter referred to as "Depository Receipts"). Prices of unsponsored
Depositary Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depository Receipts may not necessary be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depository Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depository Receipts. ADRs are
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<PAGE>
Depository Receipts which are bought and sold in the United States and are
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities by a foreign corporation. GDRs, IDRs and other types of
Depository Receipts are typically issued by foreign banks or trust companies,
although they may also be issued by United States banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form are
designed for use in the United States securities markets and Depositary Receipts
in bearer form are designed for use in securities markets outside the United
States. For purposes of each Fund's investment policies, a Fund's investments in
ADRs, GDRs and other types of Depositary Receipts will be deemed to be
investments in the underlying securities. Depositary Receipts other than those
denominated in U.S. dollars will be subject to foreign currency exchange rate
risk. However, by investing in ADRs rather than directly in foreign issuers'
stock, the Fund avoids currency risks during the settlement period. In general,
there is a large, liquid market in the United States for most ADRs. However,
certain Depositary Receipts may not be listed on an exchange and therefore may
be illiquid securities.
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.
Foreign Securities. The Fund is intended to provide individual and institutional
investors with an opportunity to invest a portion of their assets in a
diversified group of securities of companies, wherever organized, which do
business primarily outside the U.S., and foreign governments. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future. Because of the
Fund's investment policy, the Fund is not intended to provide a complete
investment program for an investor.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result 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. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgements in foreign courts. There
is generally less government supervision and regulation of securities exchanges,
brokers and listed companies than in the U.S. It may be more difficult for the
Fund's agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. Communications between the U.S. and
foreign countries may be less reliable than within the U.S., thus increasing the
risk of delayed settlements of portfolio transactions or loss of certificates
for portfolio securities. Payment for securities without delivery may be
required in certain foreign markets. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments
6
<PAGE>
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.
Many of the currencies of Eastern European countries have experienced a
steady devaluation relative to western currencies. Any future devaluation may
have a detrimental impact on any investments made by the Fund in Eastern Europe.
The currencies of most Eastern European countries are not freely convertible
into other currencies and are not internationally traded. The Fund will not
invest its assets in non-convertible fixed income securities denominated in
currencies that are not freely convertible into other currencies at the time the
investment is made.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various currencies. In
particular, many foreign currencies have experienced significant devaluation
relative to the dollar. Although the Fund values its assets daily in terms of
U.S. dollars, it does not intend to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. It will do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer. The Fund
will conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into options or forward or futures contracts to purchase or
sell foreign currencies.
Trust Preferred Securities. The Fund may invest in Trust Preferred Securities,
which are hybrid instruments issued by a special purpose trust (the "Special
Trust"), the entire equity interest of which is owned by a single issuer. The
proceeds of the issuance to the Fund of Trust Preferred Securities are typically
used to purchase a junior subordinated debenture, and distributions from the
Special Trust are funded by the payments of principal and interest on the
subordinated debenture.
If payments on the underlying junior subordinated debentures held by
the Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Fund, would be required to accrue daily for Federal income tax purposes, their
share of the stated interest and the de minimis OID on the debentures
(regardless of whether the Fund receives any cash distributions from the Special
Trust), and the value of Trust Preferred Securities would likely be negatively
affected. Interest payments on the underlying junior subordinated debentures
typically may only be deferred if dividends are suspended on both common and
preferred stock of the issuer. The underlying junior subordinated debentures
generally rank slightly higher in terms of payment priority than both common and
preferred securities of the issuer, but rank below other subordinated debentures
and debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust Preferred
Securities may be more volatile than those of conventional debt securities.
Trust Preferred Securities may be issued in reliance on Rule 144A under the
Securities Act of 1933, as amended, and, unless and until registered, are
restricted securities; there can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities,
such as the Fund, to sell their holdings.
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Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital growth, the Fund may
invest up to 20% of its total assets in debt securities including bonds of
foreign governments, supranational organizations and private issuers, including
bonds denominated in the ECU. Portfolio debt investments will be selected on the
basis of, among other things, yield, credit quality, and the fundamental
outlooks for currency and interest rate trends in different parts of the globe,
taking into account the ability to hedge a degree of currency or local bond
price risk. The Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's 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. The Fund may also purchase, to a limited extent,
debt securities which are rated below investment-grade (commonly referred to as
"junk bonds"), that is, rated below Baa by Moody's or below BBB by S&P and
unrated securities, which usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and may be less
liquid, than securities in the higher rating categories. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. The Fund will invest no more than 5% of its total assets in
securities rated BB or lower by Moody's or Ba by S&P, and may invest in
securities which are rated D by S&P. Securities rated D may be in default with
respect to payment of principal or interest. See the Appendix to this Statement
of Additional Information for a more complete description of the ratings
assigned by ratings organizations and their respective characteristics.
High yield, high-risk securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers and to price fluctuations in response to changes in interest
rates. An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect the Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Fund to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
On average, for the fiscal year ended March 31, 1998, the Fund's
holdings in debt securities rated below investment grade by one or more
nationally recognized rating services, or judged by the Adviser to be of
equivalent quality to the established categories of such rating services
comprised less than 5% of the Fund's total assets. For more information
regarding tax issues related to high yield securities, see "TAXES."
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Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended ("the 1933 Act") or the availability of an
exemption from registration (such as Rules 144 or 144A) or because they are
subject to other legal or contractual delays in or restrictions on resale.
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; or (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 securities were publicly traded. If adverse market
conditions were to develop during the period between the Fund's decision to sell
a restricted or illiquid security and the point at which the Fund is permitted
or able to sell such security, the 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, the Fund may be required to
bear all or part of the registration expenses. The 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, the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's or S&P.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be held by the Custodian or in the Federal Reserve Book Entry system.
For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to the
seller of the Obligation subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. However, if the market value of
the Obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The
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Fund maintains a segregated account in connection with outstanding reverse
repurchase agreements. The Fund will enter into reverse repurchase agreements
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.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in the Fund's portfolio, or enhancing
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.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, Strategic Transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect the Fund's unrealized gains in
the value of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter the fundamental investment purposes and characteristics of the Fund and
the Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the
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inability to deliver or receive a specified currency. The use of options and
futures transactions entails certain other risks. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of the Fund creates the possibility
that losses on the hedging instrument may be greater than gains in the value of
the Fund's position. In addition, futures and options markets may not be liquid
in all circumstances and certain over-the-counter options may have no markets.
As a result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
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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. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract, subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts, other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into 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, and for duration
management, for risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific
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type of 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.
The Fund's use of 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 for bona fide hedging, risk management (including duration management) or
other portfolio management and return enhancement purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the marked to market value of the
contract fluctuates. The purchase of an option on futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of, the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from an NRSRO or
(except for OTC currency options) are determined to be of equivalent credit
quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
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
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income therefrom. Position hedging is entering into a currency transaction with
respect to portfolio security positions denominated or generally quoted in that
currency.
The Fund will generally not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other
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instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into any offsetting position) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act, and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from 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. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
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<PAGE>
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Investment Restrictions
The fundamental policies of the Fund set forth below may not be changed
without the approval of a majority of the Fund's outstanding shares. As used in
this Statement of Additional Information, a "majority of the Fund's outstanding
shares" means the lesser of (1) 67% or more of the voting securities present at
such meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy; or (2) more than 50%
of the outstanding voting securities of the Fund. The Fund has elected to be
classified as a diversified series of an open-end investment company.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of the Fund's assets will
not be considered a violation of the restriction.
In addition, as a matter of fundamental policy, the Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
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(2) issue senior securities, except as permitted under the 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans 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.
The Directors of the Corporation have voluntarily adopted certain policies and
restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Directors based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice to or approval
of the shareholders
As a matter of nonfundamental policy, the Fund does not currently intend to:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
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<PAGE>
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
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 Shares
through Scudder Investor Services, Inc. by letter, telegram, fax, TWX, or
telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, class name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the tax identification number or Social Security number, address
and telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, Boston, MA 02101, ABA Number 011000028, DDA
Account 9903-5552. The investor must give the Scudder fund, class name, account
name and the new account number. Finally, the investor must send a 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 Gift to Minor Act, and Uniform Trust to Minor 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.
Reductions in value that result solely from market activity will not
trigger an 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.
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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.
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. Orders placed in this manner may be directed to any
office of the Distributor listed in the Fund's prospectus. 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 (3) 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 Fund 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 business days. If you
purchase shares and there are insufficient funds in your bank account the
purchase will be canceled and you will be subject to any losses or fees incurred
in the transaction. QuickBuy transactions are not available for most retirement
plan accounts. However, QuickBuy transactions are available for Scudder IRA
accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine. and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
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<PAGE>
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Corporation reserves the right to cancel the purchase
immediately and 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. Investors whose orders
have been canceled may be prohibited from or restricted in placing future orders
in any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the regular close of 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 Fund pays a fee for receipt by the Custodian of
"wired funds," but the right to charge investors for this service is reserved.
Boston banks are presently closed on certain holidays although the
Exchange may be open. These holidays are 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 the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
per Share next computed after receipt of the application in good order. Net
asset value normally will be computed as of the close of regular trading on each
day during which the Exchange is open for trading. Orders received after the
close of regular trading on the Exchange will be executed at the next business
day's net asset value. If the order has been placed by a member of the NASD,
other than the Distributor, it is the responsibility of that member broker,
rather than the Fund, to forward the purchase order to Scudder Service
Corporation (the "Transfer Agent") in Boston by the close of regular trading on
the Exchange.
Share Certificates
Due to the desire of the Fund's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Fund's
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
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Directors and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Directors and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
The Board of Directors of the Fund and 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 shares of the
Fund at any time for any reason.
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<PAGE>
The "Tax Identification Number" section of the Application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations a certification of exempt status), will be
returned to the investor. The Fund reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period.
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.
EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder Fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at 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.
An exchange into another Scudder fund is a redemption of shares and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Fund
and the Transfer Agent each reserves the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
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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 Scudder Investor Services, Inc. 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 of Scudder
Funds. 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 and have the proceeds mailed
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.
(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 Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase agreement
between a Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and have elected to participate in
the QuickSell program may sell shares of the Fund by telephone. Redemptions must
be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account in two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, normally 4 p.m. eastern time, Shares will be redeemed at the net
asset value per Share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange
22
<PAGE>
will begin their processing the following business day. QuickSell transactions
are not available for Scudder IRA accounts and most other retirement plan
accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account. New investors wishing to establish QuickSell may
so indicate on the application. Existing shareholders who wish to add QuickSell
to their account may do so by completing a QuickSell Enrollment Form. After
sending in an enrollment form, shareholders should allow for 15 days for this
service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
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).
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven (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 Corporation reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Corporation has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund at the beginning of the
period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order with a proper original signature
guarantee, as described in the Shares' prospectus, should be sent with a copy of
the invoice to Scudder Funds, c/o Scudder Confirmed Processing, Two
International Place, Boston, Massachusetts 02110-4103. Failure to deliver shares
or required documents (see above) by the settlement date
23
<PAGE>
may result in cancellation of the trade and the shareholder will be responsible
for any loss incurred by the Fund or the principal underwriter by reason of such
cancellation. Net losses on such transactions which are not recovered from the
shareholder will be absorbed by the principal underwriter. Any net gains so
resulting will accrue to the Fund. For this group, repurchases will be carried
out at the net asset value next computed after such repurchase requests have
been received. The arrangements described in this paragraph for repurchasing
shares are discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Fund does 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 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.
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 funds in its
Scudder Family of Funds from the vast majority of mutual funds available today.
The primary distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based Rule 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under Rule 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
24
<PAGE>
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.
Scudder pioneered the no-load concept when it created the nation's
first no-load fund in 1928, and later developed the nation's first family of
no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder Family of Funds pure no-load fund over investing
the same amount in a load fund that collects an 8.50% front-end load, a load
fund that collects only a 0.75% 12b-1 and/or service fee, and a no-load fund
charging only a 0.25% 12b-1 and/or service fee. The hypothetical figures in the
chart show the value of an account assuming a constant 10% rate of return over
the time periods indicated and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
====================================================================================================================
Scudder Load Fund with 0.75% No-Load Fund with
YEARS No-Load Fund 8.50% Load Fund 12b-1 Fee 0.25% 12b-1 Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- --------------------------------------------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- --------------------------------------------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
====================================================================================================================
</TABLE>
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://www.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning and Retirement" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Your Portfolio" page that
presents price information, updated daily, on funds they're interested in
following. The "Your Portfolio" page also offers easy navigation to other parts
of the site. Fund performance data from both Scudder and Lipper Analytical
Services, Inc. are available on the site. Also offered on the site is a news
feature, which provides timely and topical material on the Scudder Funds.
The Adviser has communicated with shareholders and other interested
parties on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
25
<PAGE>
Account Access -- The Adviser 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.
The Adviser's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
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 the Fund. A change of instructions for the method
of payment may be given to the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request.
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 the Fund.
Investors may also have dividends and distributions automatically
deposited to 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 Automated Clearing House Network (ACH) can have income
and capital gain distributions automatically deposited to their personal bank
account usually within three business days after the Fund pays its distribution.
A DistributionsDirect request form can be obtained by calling 1-800-225-5163.
Confirmation Statements will be mailed to shareholders as notification that
distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Centers maintained by the Distributor
listed in the Fund's Prospectus. The Centers are designed to provide individuals
with services during any business day. Investors may pick up literature or find
assistance with opening an account, adding monies or special options to existing
accounts, making exchanges within the Scudder Family of Funds, redeeming shares
or opening retirement plans. Checks should not be mailed to the Centers but
should be mailed to "The Scudder Funds" at the address listed under "How to
contact Scudder" in the prospectus.
26
<PAGE>
Reports to Shareholders
The Corporation issues to its shareholders audited semiannual 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 Corporation presently
intends to distribute to shareholders informal quarterly reports during the
intervening quarters, containing an unaudited statement of the investments of
the Fund. Each distribution will be accompanied by a brief explanation of the
source of the distribution.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital and, consistent therewith, to maintain the liquidity of
capital and to provide current income. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
Scudder Money Market Series+ seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series+ seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series+ seeks to provide investors with
as high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
+ The institutional class of shares is not part of the Scudder Family of Funds.
27
<PAGE>
[/R]
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
TAX FREE
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
- --------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
28
<PAGE>
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder Corporate Bond Fund seeks a high level of current income
through investment primarily in investment-grade corporate debt
securities.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As
a secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
29
<PAGE>
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Dividend & Growth Fund seeks high current income and long-term
growth of capital through investment in income paying equity
securities.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder Select 500 Fund seeks to provide long-term growth and income
through investment in selected stocks of companies in the S&P 500
Index.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund** seeks long-term growth of capital through
investment in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund** seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Select 1000 Growth Fund seeks to provide long-term growth of
capital through investment in selected stocks of companies in the
Russell 1000 Growth Index.
Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of medium-size companies with the potential for
sustainable above-average earnings growth.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
- --------
** Only the Scudder Shares are part of the Scudder Family of Funds.
30
<PAGE>
GLOBAL EQUITY
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Value Fund seeks long-term capital appreciation
through investment primarily in undervalued foreign equity securities.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund*** seeks long-term growth of capital
primarily through a diversified portfolio of marketable foreign equity
securities.
Scudder International Growth Fund seeks long-term capital appreciation
through investment primarily in the equity securities of foreign
companies with high growth potential.
Scudder Global Discovery Fund** seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
- --------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
31
<PAGE>
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts)
of Japanese companies.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.
Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.
Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund seeks long-term growth of capital on an
after-tax basis by investing primarily in established, medium- to
large-sized U.S. companies with leading competitive positions.
Scudder Tax Managed Small Company Fund seeks long-term growth of
capital on an after-tax basis through investment primarily in
undervalued stocks of small U.S. companies.
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. For more information, please call
1-800-225-5163.
SPECIAL PLAN ACCOUNTS
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 IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
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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.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- ---------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ----------------------------------------------
Contributions 5% 10% 15%
- ---------------------------------------------------------------------------
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
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This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
- ---------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ----------------------------------------------
Contributions 5% 10% 15%
- ---------------------------------------------------------------------------
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
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). 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
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reduces the account value to less than $1,000 and the account value is not
increased to $1,000 within a reasonable time after notification. An investor in
a plan who has not purchased shares for six months shall be presumed to have
stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
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.
Scudder Roth IRA: Individual Retirement Account
Shares of the Funds may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
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.
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DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Fund may be subject to that excise tax. (See "TAXES.") In certain
circumstances, the Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends paid deduction on its federal tax return.
The Fund intends to distribute its investment company taxable income
and any net realized capital gains in November or December to avoid federal
excise tax, although an additional distribution may be made if necessary.
Both types of distributions will be made in Shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in Shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
From time to time, quotations of the Shares' performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures will be calculated in the
following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years, and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
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):
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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 years ended March 31, 1999
One Year Five Years Ten Years
7.18% 11.01% 10.38%
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Shares and assume
that all dividends and capital gains distributions during the period were
reinvested in 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 years ended March 31, 1999
One Year Five Years Ten Years
7.18% 65.58% 168.58%
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.
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In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Corporation
Composite Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the
Nasdaq Industrials Index, the Russell 2000 Index, the Wilshire Real Estate
Securities Index and statistics published by the Small Business Administration.
Because some or all of the Fund's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations. In addition, the Fund's performance may also be
compared to the performance of broad groups of comparable mutual funds.
Unmanaged indices with which the Fund's performance may be compared include, but
are not limited to, the following:
The Europe/Australia/Far East (EAFE) Index
International Finance Corporation's Latin America Investable Total
Return Index
Morgan Stanley Capital International World Index
J.P. Morgan Global Traded Bond Index
Salomon Brothers World Government Bond Index
Nasdaq Composite Index
Wilshire 5000 Stock Index
From time to time, in marketing and other Fund literature, Directors
and officers of the Corporation, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The Fund may be advertised as an investment choice in the Adviser's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and
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<PAGE>
returns. Money market funds are designed to maintain a constant $1.00 share
price and have a fluctuating yield. Share price, yield and total return of a
bond fund will fluctuate. The share price and return of an equity fund also will
fluctuate. The description may also compare the Fund to bank products, such as
certificates of deposit. Unlike mutual funds, certificates of deposit are
insured up to $100,000 by the U.S. government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
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<PAGE>
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
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<PAGE>
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because
they assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity,
due partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global
stock markets do not move in lock step. When the valuations in one market rise,
there are other markets that are less expensive. There is also volatility within
markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S. investments
strike the best balance between risk and reward.
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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 1 billion
shares of a par value of $.01 each--all of one class for each series except for
Scudder International Fund which consists of two classes of shares, the Shares,
the Barrett International class of shares, and the Class R Shares. All shares
have equal rights as to voting, redemption, dividends and liquidation.
Shareholders have one vote for each share held. The Corporation's capital stock
is comprised of 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 Growth Fund and Scudder International Value Fund, both organized
in June 1998. Each series consists of 100 million shares except for the Fund
which consists of 300 million shares. The Directors have the authority to issue
additional series of shares and to designate the relative rights and preferences
as between the different series. All shares issued and outstanding are fully
paid and non-assessable, transferable, and redeemable at net asset value at the
option of the shareholder. Shares have no pre-emptive or conversion rights.
The shares of the Corporation have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with such a share of
the general liabilities of the Corporation. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
42
<PAGE>
The Directors, in their discretion, may authorize the division of
shares of the Corporation (or shares of a series) into different classes
permitting shares of different classes to be distributed by different methods.
Although shareholders of different classes of a series would have an interest in
the same portfolio of assets, shareholders of different classes may bear
different expenses in connection with different methods of distribution.
Pursuant to the approval of a majority of stockholders, the
Corporation's Directors have the discretion to retain the current distribution
arrangement while investing in a master fund in a master/feeder fund structure
if the Board determines that the objectives of the Fund would be achieved more
efficiently thereby.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall be immune from liability for any action
taken by them in good faith, in a manner reasonably believed to be in the best
interests of the Corporation and with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In so acting, a
Director shall be fully protected in relying in good faith upon the records of
the Corporation and upon reports made to the Corporation by persons selected in
good faith by the Directors as qualified to make such reports. The Articles and
the By-Laws provide that the Corporation will indemnify its Directors, officers,
employees or agents against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Corporation consistent with applicable law. Nothing in the Articles 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 Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Value
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Global/International
Fund, Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc.,
Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, The Argentina Fund, Inc., The
43
<PAGE>
Brazil Fund, Inc., The Korea Fund, Inc., and The Japan Fund, Inc.. Some of the
foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between 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.
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 Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The transaction between Scudder and Zurich resulted in the assignment
of the Fund's investment management agreement with Scudder, that agreement was
deemed to be automatically terminated at the consummation of the transaction. In
anticipation of the transaction, however, a new investment management agreement
between the Fund and the Adviser was approved by the Corporation's Directors on
October 29, 1997. At the special meeting of the Fund's stockholders held on
October 27, 1997, the stockholders also approved the new investment management
agreement. The new investment management agreement (the "Agreement") became
effective as of December 31, 1997.
44
<PAGE>
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) 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.
Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with the Adviser, which is substantially identical
to the current investment management agreement, except for the dates of
execution and termination. The Agreement became effective September 7, 1998,
upon the termination of the then current investment management agreement and was
approved at a shareholder meeting held on December 15, 1998.
The Agreement dated September 7, 1998 was approved by the Directors on
August 6, 1998. The Agreement will continue in effect until September 30, 1999
and from year to year thereafter only if its continuance is approved annually by
the vote of a majority of those Directors who are not parties to such Agreement
or interested persons of the Adviser or the 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 Fund. The Agreement 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 Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines which
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject always to the Corporation's Articles of
Incorporation and By-Laws, of the 1940 Act and the Code and to the Fund's
investment objective, policies and restrictions, and subject, further, to such
policies and instructions as the Board of Directors of the Corporation may from
time to time establish. The Adviser also advises and assists the officers of the
Corporation in taking such steps as are necessary or appropriate to carry out
the decisions of its Directors and the appropriate committees of the Directors
regarding the conduct of the business of the Corporation.
Under the Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
the Corporation's operations as an open-end investment company including, but
not limited to, preparing reports and notices to the Directors and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Fund (such as the Fund's transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the Commission and other regulatory agencies; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining the Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Fund's operating
budget; processing the payment of the Fund's bills; assisting the Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Directors.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York or Boston,
Massachusetts) of all Directors, officers and executive employees of the Fund
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
Under the Investment Management Agreement between the Fund and the
Adviser, effective September 7, 1998, the management fee payable under the
Agreement is equal to an annual rate of approximately 0.90% of the first
$500,000,000 of average daily net assets, 0.85% of the next $500,000,000 of such
net assets, 0.80% of the next $1,000,000,000 of such net assets, 0.75% of the
next $1,000,000,000 of such net assets, and 0.70% of such net assets in excess
of $3,000,000,000, computed and accrued daily and payable monthly.
Under the Investment Management Agreement between the Fund and Scudder
which was in effect prior to September 5, 1996 (the "Agreement"), the Fund
agreed to pay to the Adviser a fee equal to an annual rate of 0.90% on the first
$500,000,000 of the Fund's average daily net assets, 0.85% on the next
$500,000,000, 0.80% on the next $1,000,000,000, and 0.75% of such net assets in
excess of $2,000,000,000, computed and accrued daily and payable monthly.
45
<PAGE>
The net investment advisory fees for the fiscal years ended March 31,
1999, 1998 and 1997 were $___, $22,491,681, and $20,989,160, respectively, of
which $__ was unpaid at March 31, 1999.
Under the Agreement the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses of issue, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Directors, officers
and employees of the Fund who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to stockholders; and the fees and
disbursements of custodians. The Fund may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. The Fund is also responsible for its expenses of shareholders'
meetings, the cost of responding to shareholders' inquiries, and its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Directors of the
Corporation with respect thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens & Clark, Inc." (together, the "Scudder Marks"). Under
this license, the Corporation, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Corporation's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Fund 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 Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards
46
<PAGE>
recommended by the Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior approval,
imposes time periods during which personal transactions may not be made in
certain securities, and requires the submission of duplicate broker
confirmations and monthly reporting of securities transactions. Additional
restrictions apply to portfolio managers, traders, research analysts and others
involved in the investment advisory process. Exceptions to these and other
provisions of the Code of Ethics may be granted in particular circumstances
after review by appropriate personnel.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Date of Birth, and Scudder Investor
Address Position with Fund Principal Occupation** Services, Inc.
- ------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Lynn S. Birdsong (53)#* Chairman of the Board Managing Director of Scudder Kemper Senior Vice President
and Director Investments, Inc.
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 81615 Securities Corporation --
Sheryle J. Bolton (52) Director CEO and Director, Scientific Learning --
Scientific Learning Corporation Corporation, Former President and
1995 University Ave Chief Operating Officer, Physicians
Suite 400 Online, Inc. (electronic transmission
Berkeley, CA 94704 of clinical information for
physicians (1994-1995))
William T. Burgin (55) Director General Partner, Bessemer Venture
83 Walnut Street Partners; General Partner, Deer &
Wellesley, MA 02181-2101 Company; Director, Fort James
Corporation; Director of various
privately held companies --
Keith R. Fox (45) Director Private Equity Investor, Exeter
10 East 53rd Street Capital Management Corporation --
New York, NY 10022
47
<PAGE>
Position with
Underwriter,
Name, Date of Birth, and Scudder Investor
Address Position with Fund Principal Occupation** Services, Inc.
- ------- ------------------ ---------------------- --------------
William H. Luers (69) Director Chairman and President, 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; Department of State -
Foundation Undersecretary of State for Economic,
650 Fifth Avenue Business and Agricultural Affairs
New York, NY 10128 (March 1993 to January 1997)
Thomas J. Devine (72) Honorary Director Consultant --
450 Park Avenue
New York, NY 10022
William H. Gleysteen, Jr. (72) Honorary Director Consultant; Guest Scholar, Brookings --
4937 Crescent Street Institute
Bethesda, MD 20816
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 Emeritus and Director, Kirby --
405 Lexington Avenue Corporation (inland and offshore
39th Floor marine transportation and diesel
New York, NY 10174 repairs)
Senior Vice President of Scudder
Elizabeth J. Allan (46) # Vice President Kemper Investments, Inc. --
48
<PAGE>
Position with
Underwriter,
Name, Date of Birth, and Scudder Investor
Address Position with Fund Principal Occupation** Services, 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
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.
Managing Director of Scudder Kemper
Philip S. Fortuna ##(41) Vice President Investments, Inc. --
John R. Hebble (41)+ Treasurer Senior Vice President of Scudder Assistant Treasurer
Kemper Investments, Inc.
Richard W. Desmond (63)# Assistant Secretary Vice President of Scudder Kemper Vice President
Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Senior Vice President of Scudder Clerk
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
Sheridan Reilly (47)# Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
49
<PAGE>
Position with
Underwriter,
Name, Date of Birth, and Scudder Investor
Address Position with Fund Principal Occupation** Services, Inc.
- ------- ------------------ ---------------------- --------------
Shahram Tajbakhsh ##(42) Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
</TABLE>
* Mr. Birdsong, Mr. Bratt and Ms. Quirk are considered by the Fund and
its counsel to be persons who are "interested persons" of the Adviser
or of the Corporation as defined in 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
The Directors and officers of the Corporation also serve in similar
capacities with respect to other Scudder Funds.
With respect to International Shares class of the Fund:
TO BE UPDATED As of June 30, 1999, all Directors and officers of the Corporation
as a group owned beneficially (as that term is defined under Section 13(d) of
the Securities Exchange Act of 1934) less than 1% of the shares of the Fund
outstanding on such date.
As of June 30, 1999, 6,116,968 shares in the aggregate, 10.89% of the
outstanding Shares of the Fund, were held in the name of Charles Schwab, c/o
Charles Schwab & Co., Inc., Attn: Mutual Fund Department, 101 Montgomery Street,
San Francisco, CA 94104-4122, who may be deemed to be the beneficial owner of
certain of these shares, but disclaims any beneficial ownership therein.
To the best of the Fund's knowledge, as of June 30, 1999 no person
owned beneficially (as so defined) more than 5% of the Fund's outstanding Shares
except as stated above.
With respect to Barrett Shares class of the Fund:
TO BE UPDATED As of June 30, 1999, all Directors and officers of the Corporation
as a group owned beneficially (as that term is defined under Section 13(d) of
the Securities Exchange Act) less than 1% of the Shares of the Fund outstanding
on such date.
To the best of the Fund's knowledge, as of June 30, 1999 no person
owned beneficially (as so defined) more than 5% of the Fund's outstanding Shares
except as stated above.
The Directors and officers of the Corporation also serve in similar
capacities with other Scudder Funds.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Directors is responsible for the general oversight of the
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 the Fund is managed in the best interests of
its shareholders.
50
<PAGE>
The Board of Directors meets at least quarterly to review the
investment performance of the 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, the Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by the Fund's independent
public accountants and by independent legal counsel selected by the Independent
Directors.
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
The Independent Directors receive the following compensation from the
Funds of Scudder 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 on behalf of 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 or retirement benefits 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, $45,200 $2,550 $174,200 $ 8,925
Director (25 Funds)
Sheryle J. Bolton,
Director $45,200 $0.00 $149,050 $0.00
(25 Funds)
William T. Burgin,
Director $45,200 $2,550 $150,950 $8,920
(25 Funds)
Thomas J. Devine,
Honorary Director $48,500 $2,550 $178,000 $8,920
(25 Funds)
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<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 $48,500 $2,550 $172,350 $8,920
(25 Funds)
William H. Gleysteen,
Jr., Honorary Director*** $45,200 $2,550 $123,200 $4,675
(14 Funds)
William H. Luers,
Director $40,700 $2,550 $147,050 $8,925
(25 Funds)
Wilson Nolen, Honorary
Director $45,200 $2,550 $189,075 $6,375
(24 Funds)
Joan E. Spero, Director** $10,008 $0.00 $29,736 $0.00
(25 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 in September, 1998.
*** This amount does not reflect $6,208 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., Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
corporation. The Corporation's underwriting agreement dated September 7, 1998
will remain in effect until September 30, 1999 and from year to year thereafter
only if its continuance is approved annually by a majority of the members of the
Board of Directors who are not parties to such agreement or interested persons
of any such party and either by vote of a majority of the Board of Directors or
a majority of the outstanding voting securities of the Fund. The underwriting
agreement was last approved by the Directors on August 6, 1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the Commission of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Fund as a broker or
dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor); notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance
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<PAGE>
taxes and/or any initial transfer taxes; a portion of shareholder toll-free
telephone charges and expenses of shareholder service representatives; the cost
of wiring funds for share purchases and redemptions (unless paid by the
shareholder who initiates the transaction); the cost of printing and postage of
business reply envelopes; and a portion of the cost of computer terminals used
by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
As agent, the Distributor currently offers shares of the Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund.
Presently, the Fund has no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such reported gains and the
shareholder's tax credit.
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<PAGE>
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholders, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
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 the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional Shares will have a cost basis for federal income tax purposes in each
Share so received equal to the net asset value of a Share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,000 per individual for married couples if only one spouse has earned income)
for that year. There are special rules for determining how withdrawals are to be
taxed if an IRA contains both deductible and nondeductible amounts. In general,
a proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and will be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
54
<PAGE>
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code, except in the case of
certain electing individual taxpayers who have limited creditable foreign taxes
and no foreign source income other than passive investment-type income.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the 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.
If the Fund does not make the election permitted under section 853 any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income. Absent this election, shareholders
will not be able to claim either a credit or a deduction for their pro rata
portion of such taxes paid by the Fund, nor will shareholders be required to
treat as part of the amounts distributed to them their pro rata portion of such
taxes paid.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be recognized by the Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option, and
in the case of the exercise of a put option, on the Fund's holding period for
the underlying property. The purchase of a put option may constitute a short
sale for federal income tax purposes, causing an adjustment in the holding
period of any stock in the Fund's portfolio similar to the stocks on which the
index is based. If the Fund writes an option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as short-term capital gain or loss. If a call option is exercised, the
character of the gain or loss depends on the holding period of the underlying
stock.
Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term, and on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options and
similar financial instruments entered into or acquired by the Fund will be
treated as ordinary income or loss.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
Similarly, if the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will recognize gain at that time as
though it had closed the short sale. Future regulations regulatories may apply
similar treatment to other transactions with respect to property that becomes
substantially worthless.
55
<PAGE>
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark-to-market losses and any loss from an actual disposition of
shares would be reported as ordinary loss to the extent of any net
mark-to-market gains included in income in prior years. The effect of the
election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a fund level tax when distributed to
shareholders as a dividend. Alternatively, the Fund may elect to include as
income and gain its share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.
If the Fund invests in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from the Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
the Fund in a written notice to shareholders.
The Fund will be required to report to the IRS all distributions of
investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of investment company taxable income and capital gains
and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under
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<PAGE>
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 the Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the 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 Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or the
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
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of researchservices. 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 the 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 broker/dealers on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting transactions
in over-the-counter securities, orders are placed with the principal market
makers for the security being traded unless, after exercising care, it appears
that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research services from broker/dealers may be useful to
the Fund and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Fund, and not all such information is used by the Adviser
in connection with the Fund. Conversely, such information provided to the
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to
the Fund.
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The Directors review, from time to time, whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
For the fiscal years ended March 31, 1999, 1997 and 1996, the Fund paid
brokerage commissions of $__, 6,904,371.62, and $5,275,727 respectively. For the
fiscal year ended March 31, 1999, $__ (__%) of the total brokerage commissions
paid by the Fund resulted from orders for transactions, placed consistent with
the policy of seeking to obtain the most favorable net results, with brokers and
dealers who provided supplementary research, market and statistical information
to the Fund or the Adviser. The amount of such transactions aggregated $__ (__%
of all brokerage transactions). The balance of such brokerage was not allocated
to particular broker or dealer with regard to the above-mentioned or other
special factors.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. The Fund's
portfolio turnover rates for the fiscal years ended March 31, 1999, 1998 and
1997 were __%, 55.7% and 35.8%, respectively. Purchases and sales are made for
the Fund's portfolio whenever necessary, in management's opinion, to meet the
Fund's objective.
NET ASSET VALUE
The net asset value of Shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Net asset value per Share is determined by
dividing the value of the total assets of the Fund attributable to the Shares,
less all liabilities attributable to the Shares, by the total number of Shares
outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at its most recent sale price. Lacking
any sales, the security is valued at the most recent bid quotation. The value of
an equity security not quoted on the Nasdaq System, but traded in another
over-the-counter market, is its most recent sale price. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
purchased with remaining maturities of sixty days or less shall be valued by the
amortized cost method, which the Board believes approximates market value. If it
is not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
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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 the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the Shares' 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 accountants, and given on the authority
of that firm as experts in accounting and auditing. PricewaterhouseCoopers LLP
is responsible for performing annual and semiannual audits of the financial
statements and financial highlights of the Fund in accordance with generally
accepted auditing standards, and the preparation of federal tax returns.
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of the International Shares is 811165-10-9.
The Fund has a fiscal year end of March 31.
The Fund employs Brown Brothers Harriman & Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian for the Fund.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee of $26.00 for each retail account
and $29.00 for each retirement account. The Fund incurred fees of $__,
$3,394,358, and $3,050,321 during the fiscal years ended March 31, 1999, 1998,
and 1997 respectively, of which $ was unpaid at March 31, 1999 for the fiscal
year ended March 31, 1999.
59
<PAGE>
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are generally
held in an omnibus account.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.065% of the first $150 million of average daily net assets, 0.040% of
such assets in excess of $150 million, 0.020% of such assets in excess of $1
billion, plus holding and transaction charges for this service. The Fund
incurred fees of $__, $838,885, and $795,122 during the fiscal years ended March
31, 1999, 1998, and 1997, respectively, of which $__ was unpaid at March 31,
1999 for the fiscal year ended March 31, 1999.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Adviser, for such accounts. The Fund pays
Scudder Trust Company an annual fee of $29 per shareholder account. The Fund
incurred fees of $__, $1,561,049, and $930,582 during the fiscal years ended
March 31, 1999, 1998, and 1997, respectively, of which $__ was unpaid at March
31, 1999 for the fiscal year ended March 31, 1999.
The Shares' prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement which the Fund
has filed with the Commission under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. This Registration Statement and
its amendments are available for inspection by the public at the Commission in
Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of the
Fund, together with the Report of Independent Accountants, Financial Highlights
and notes to financial statements in the Annual Report to the Shareholders of
the Fund dated March 31, 1999 are incorporated herein by reference and are
hereby deemed to be a part of this Statement of Additional Information by
reference in its entirety.
60
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds.
Ratings of Corporate Bonds
S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
<PAGE>
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
SCUDDER INTERNATIONAL FUND
A Series of Scudder International Fund, Inc.
Barrett International Shares
A Mutual Fund Which Seeks to Provide
Long-Term Growth of Capital Primarily
From Foreign Equity Securities
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus for the Barrett International Shares,
a class of Scudder International Fund, dated August 1, 1999, as amended from
time to time, a copy of which may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
The Annual Report to Shareholders for Scudder International Fund dated
March 31, 1999 is incorporated by reference and is hereby deemed to be a part of
this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investments
Master/feeder structure......................................................................................3
Specialized Investment Techniques
Investment Restrictions.....................................................................................16
PURCHASES............................................................................................................18
Redemption-in-Kind..........................................................................................18
REDEEMING SHARES.....................................................................................................19
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................19
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................19
PERFORMANCE INFORMATION..............................................................................................20
Average Annual Total Return.................................................................................20
Cumulative Total Return.....................................................................................20
Total Return................................................................................................20
Comparison of Fund Performance..............................................................................21
Taking a Global Approach
FUND ORGANIZATION....................................................................................................25
INVESTMENT ADVISER...................................................................................................26
Personal Investments by Employees of the Adviser............................................................30
DIRECTORS AND OFFICERS...............................................................................................30
REMUNERATION.........................................................................................................34
Responsibilities of the Board--Board and Committee Meetings.................................................34
Compensation of Officers and Directors......................................................................34
DISTRIBUTOR..........................................................................................................36
TAXES................................................................................................................36
PORTFOLIO TRANSACTIONS...............................................................................................40
Brokerage Commissions.......................................................................................40
Portfolio Turnover..........................................................................................41
NET ASSET VALUE......................................................................................................41
ADDITIONAL INFORMATION...............................................................................................42
Experts.....................................................................................................42
Other Information...........................................................................................42
FINANCIAL STATEMENTS.................................................................................................43
APPENDIX.............................................................................................................44
</TABLE>
i
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder International Fund (the "Fund"), is a diversified series of
Scudder International Fund, Inc. (the "Corporation"), a registered open-end
management investment company which continuously offers and redeems its shares
at net asset value. It is a company of the type commonly known as a mutual fund.
The Fund offers two classes of shares, Barrett International Shares (the
"Shares") and International Shares. This Statement of Additional Information
applies only to the Shares.
Except as otherwise indicated, the Fund's objectives and policies are
not fundamental and may be changed without a shareholder vote. There can be no
assurance that the Fund will achieve its objective.
General Investment Objective and Policies
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which the Fund may engage (such
as hedging, etc.) or a financial instrument which the Fund 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 the 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 the Fund but, to the extent employed, could from time to time have
a material impact on the Fund's performance.
The Fund's investment objective is to seek long-term growth of capital
primarily from foreign equity securities. These securities are selected
primarily to permit the Fund to participate in non-U.S. companies and economies
that are believed to have prospects for growth.
The Fund invests in companies, wherever organized, which do business
primarily outside the United States.
The Fund intends to diversify investments among several countries and
to have represented in the portfolio, in substantial proportions, business
activities in not less than three different countries other than the U.S. The
Fund does not intend to concentrate investments in any particular industry.
As stated above, except as otherwise indicated, the Fund's investment
objective and policies are not fundamental and may be changed without a vote of
shareholders. If there is a change in investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs. There can be no assurance that the
Fund's objective will be met.
Investments
The Fund generally invests in equity securities of established
companies, listed on foreign exchanges (although the Fund may invest in
securities traded over the counter), which the '"Adviser" believes have
favorable characteristics. The Fund's equity investments include common stock,
convertible and non-convertible preferred stock, sponsored and unsponsored
depository receipts, and warrants.
When the Adviser believes that it is appropriate to do so in order to
achieve the Fund's investment objective of long-term capital growth, the Fund
may invest up to 20% of its total assets in debt securities. Such debt
securities include debt securities of governments, governmental agencies,
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 value of fixed-income investments will fluctuate with changes in
interest rates and bond market conditions, tending to rise as interest rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-
<PAGE>
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 Ratings
Services ("S&P") or, if unrated, judged by the Adviser to be of equivalent
quality. The Fund may also invest up to 5% of its total assets in debt
securities which are rated below investment-grade (see "Risk factors").
The Fund intends to diversify investments among several countries and
normally to have investments in securities of at least three different countries
other than the U.S. The Fund will invest primarily in securities of issuers in
the 21 developed foreign countries included in the Morgan Stanley Capital
International ("MSCI") World ex-US Index, but may invest in "emerging markets."
The Fund considers "emerging markets" to include any country that is defined as
an emerging or developing economy by any of the International Bank of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.
The Adviser applies a disciplined, multi-part investment approach for
selecting stocks for the Fund. The first stage of this process involves
analyzing the pool of foreign dividend-paying securities, primarily from the
world's more mature markets, and targeting stocks that have high relative yields
compared to the average for their markets. In the Adviser's opinion, this group
of higher-yielding stocks offers the potential for returns that is greater than
or equal to the average market return, with price volatility that is lower than
the overall market volatility. The Adviser believes that these potentially
favorable risk and return characteristics exist because the higher dividends
offered by these stocks act as a "cushion" when markets are volatile and because
the stocks with higher yields tend to have more attractive valuations (e.g.,
lower price-to-earning ratios and lower price-to-book ratios). The second stage
of portfolio construction involves a fundamental analysis of each company's
financial strength, profitability, projected earnings, competitive positioning,
and ability of management. During this step, the Adviser's research team
identifies what it believes are the most promising stocks for the Fund's
portfolio. The third stage of the investment process involves diversifying the
portfolio among different industry sectors. The key element of this stage is
evaluating how the stocks in different sectors react to economic factors such as
interest rates, inflation, Gross Domestic Product, and consumer spending, and
then attaining a proper balance of stocks in these sectors based on the
Adviser's economic forecast. The fourth and final stage of this ongoing process
is diversifying the portfolio among different countries. The Adviser will seek
to have broad country representation, favoring those countries that it believes
have sound economic conditions and open markets. The Fund's strategy is to
manage risk and create opportunity at each of the four stages in its investment
process, starting with the focus on stocks with high relative yields.
The Fund may hold up to 20% of its net assets in U.S. and foreign fixed
income securities for temporary defensive purposes when the Adviser believes
that market conditions so warrant. The Fund may invest up to 20% of its assets
under normal conditions, and without limit for temporary defensive purposes, in
cash or cash equivalents including domestic and foreign money market
instruments, short-term government and corporate obligations and repurchase
agreements, when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to accurately predict how long
such alternative strategies may be utilized. In addition, the Fund may engage in
reverse repurchase agreements, illiquid securities and strategic transactions,
which may include derivatives.
Foreign securities such as those purchased by the Fund may be subject
to foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
From time to time, the Fund may be a purchaser of restricted debt or
equity securities (i.e., securities which may require registration under the
Securities Act of 1933, or an exemption therefrom, in order to be sold in the
ordinary course of business) in a private placement.
2
<PAGE>
Master/feeder structure
The Board of Directors has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Special Considerations
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less governmental supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
not kept pace with the volume of securities transactions. Delays in settlement
could result in temporary periods when a portion of the assets of the Fund is
uninvested and no cash is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities are generally higher than costs associated with transactions in U.S.
securities. Such transactions also involve additional costs for the purchase or
sale of foreign currency.
Certain emerging markets require prior governmental approval of
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain emerging markets
may also restrict investment opportunities in issuers in industries deemed
important to national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
In the course of investment in emerging markets, the Fund will be
exposed to the direct or indirect consequences of political, social and economic
changes in one or more emerging markets. While the Fund will manage its assets
in a manner that will seek to minimize the exposure to such risks, there can be
no assurance that adverse political, social or economic changes will not cause
the Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.
The risk also exists that an emergency situation may arise in one or
more emerging markets as a result of which trading of securities may cease or
may be substantially curtailed and prices for the Fund's securities in such
markets may not be readily available. The Corporation may suspend redemption of
its shares for any period during which an emergency exists, as determined by the
Securities and Exchange Commission (the "SEC"). Accordingly if the Fund believes
that appropriate circumstances exist, it will promptly apply to the SEC for a
determination that an emergency is present. During the period commencing from
the Fund's identification of such condition until the date of the SEC action,
the Fund's
3
<PAGE>
securities in the affected markets will be valued at fair value determined in
good faith by or under the direction of the Corporation's Board of Directors.
Volume and liquidity in most foreign markets are less than in the U.S.,
and securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. In addition, with respect to certain
emerging markets, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect the Fund's investments in those countries. Moreover, individual
emerging market economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position. The chart below sets for the risk ratings of selected emerging market
countries' sovereign debt securities.
Sovereign Risk Ratings for Selected Emerging Market Countries as of May, 1999:
Country Moody's* Standard & Poor's**
- ------- -------- -------------------
Chile Baa1 A-
Turkey B1 B
Mexico Ba2 BB
Czech Republic Baa1 A-
Hungary Baa2 BBB
Colombia Baa3 BBB-
Venezuela B2 B+
Morocco Ba1 BB
Argentina Ba3 BB
Brazil B2 B+
Poland Baa3 BBB-
Ivory Coast NR NR
* As of May 12, 1999. Source: Moody's Investors Service, Inc.
** As of May 5, 1999. Source: Standard & Poor's Corporation.
The Fund may have limited legal recourse in the event of a default with
respect to certain debt obligations it holds. If the issuer of a fixed-income
security owned by the Fund defaults, the Fund may incur additional expenses to
seek recovery. Debt obligations issued by emerging market country governments
differ from debt obligations of private entities; remedies from defaults on debt
obligations issued by emerging market governments, unlike those on private debt,
must be pursued in the courts of the defaulting party itself. The Fund's ability
to enforce its rights against private issuers may be limited. The ability to
attach assets to enforce a judgment may be limited. Legal recourse is therefore
somewhat diminished. Bankruptcy, moratorium and other similar laws applicable to
private issuers of debt obligations may be substantially different from those of
other countries. The political context, expressed as an emerging market
governmental issuer's willingness to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt may not contest payments to the holders
of debt obligations in the event of default under commercial bank loan
agreements.
Income from securities held by the 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. The 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
4
<PAGE>
controls have been imposed in certain countries. Of these countries, some, in
recent years, have begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make
timely payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Common Stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stock also offers the greatest potential for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents.
Depository Receipts. The Fund may invest directly in securities of foreign
issuers through sponsored or unsponsored American Depository Receipts ("ADRs"),
Global Depository Receipts ("GDRs"), International Depository Receipts ("IDRs")
and other types of Depository Receipts (which, together with ADRs, GDRs and IDRs
are hereinafter referred to as "Depository Receipts"). Prices of unsponsored
Depositary Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depository Receipts may not necessary be
denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of the stock of unsponsored
Depository Receipts are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of the Depository Receipts. ADRs are
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Depository Receipts which are bought and sold in the United States and are
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities by a foreign corporation. GDRs, IDRs and other types of
Depository Receipts are typically issued by foreign banks or trust companies,
although they may also be issued by United States banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in registered form are
designed for use in the United States securities markets and Depositary Receipts
in bearer form are designed for use in securities markets outside the United
States. For purposes of each Fund's investment policies, a Fund's investments in
ADRs, GDRs and other types of Depositary Receipts will be deemed to be
investments in the underlying securities. Depositary Receipts other than those
denominated in U.S. dollars will be subject to foreign currency exchange rate
risk. However, by investing in ADRs rather than directly in foreign issuers'
stock, the Fund avoids currency risks during the settlement period. In general,
there is a large, liquid market in the United States for most ADRs. However,
certain Depositary Receipts may not be listed on an exchange and therefore may
be illiquid securities.
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.
Foreign Securities. The Fund is intended to provide individual and institutional
investors with an opportunity to invest a portion of their assets in a
diversified group of securities of companies, wherever organized, which do
business primarily outside the U.S., and foreign governments. The Adviser
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future. Because of the
Fund's investment policy, the Fund is not intended to provide a complete
investment program for an investor.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result 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. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgements in foreign courts. There
is generally less government supervision and regulation of securities exchanges,
brokers and listed companies than in the U.S. It may be more difficult for the
Fund's agents to keep currently informed about corporate actions which may
affect the prices of portfolio securities. Communications between the U.S. and
foreign countries may be less reliable than within the U.S., thus increasing the
risk of delayed settlements of portfolio transactions or loss of certificates
for portfolio securities. Payment for securities without delivery may be
required in certain foreign markets. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or
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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.
Many of the currencies of Eastern European countries have experienced a
steady devaluation relative to western currencies. Any future devaluation may
have a detrimental impact on any investments made by the Fund in Eastern Europe.
The currencies of most Eastern European countries are not freely convertible
into other currencies and are not internationally traded. The Fund will not
invest its assets in non-convertible fixed income securities denominated in
currencies that are not freely convertible into other currencies at the time the
investment is made.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various currencies. In
particular, many foreign currencies have experienced significant devaluation
relative to the dollar. Although the Fund values its assets daily in terms of
U.S. dollars, it does not intend to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. It will do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer. The Fund
will conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into options or forward or futures contracts to purchase or
sell foreign currencies.
Trust Preferred Securities. The Fund may invest in Trust Preferred Securities,
which are hybrid instruments issued by a special purpose trust (the "Special
Trust"), the entire equity interest of which is owned by a single issuer. The
proceeds of the issuance to the Fund of Trust Preferred Securities are typically
used to purchase a junior subordinated debenture, and distributions from the
Special Trust are funded by the payments of principal and interest on the
subordinated debenture.
If payments on the underlying junior subordinated debentures held by
the Special Trust are deferred by the debenture issuer, the debentures would be
treated as original issue discount ("OID") obligations for the remainder of
their term. As a result, holders of Trust Preferred Securities, such as the
Fund, would be required to accrue daily for Federal income tax purposes, their
share of the stated interest and the de minimis OID on the debentures
(regardless of whether the Fund receives any cash distributions from the Special
Trust), and the value of Trust Preferred Securities would likely be negatively
affected. Interest payments on the underlying junior subordinated debentures
typically may only be deferred if dividends are suspended on both common and
preferred stock of the issuer. The underlying junior subordinated debentures
generally rank slightly higher in terms of payment priority than both common and
preferred securities of the issuer, but rank below other subordinated debentures
and debt securities. Trust Preferred Securities may be subject to mandatory
prepayment under certain circumstances. The market values of Trust Preferred
Securities may be more volatile than those of conventional debt securities.
Trust Preferred Securities may be issued in reliance on Rule 144A under the
Securities Act of 1933, as amended, and, unless and until registered, are
restricted securities; there can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities,
such as the Fund, to sell their holdings.
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Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital growth, the Fund may
invest up to 20% of its total assets in debt securities including bonds of
foreign governments, supranational organizations and private issuers, including
bonds denominated in the ECU. Portfolio debt investments will be selected on the
basis of, among other things, yield, credit quality, and the fundamental
outlooks for currency and interest rate trends in different parts of the globe,
taking into account the ability to hedge a degree of currency or local bond
price risk. The Fund may purchase "investment-grade" bonds, which are those
rated Aaa, Aa, A or Baa by Moody's 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. The Fund may also purchase, to a limited extent,
debt securities which are rated below investment-grade (commonly referred to as
"junk bonds"), that is, rated below Baa by Moody's or below BBB by S&P, and
unrated securities, which usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and may be less
liquid, than securities in the higher rating categories. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. The Fund will invest no more than 5% of its total assets in
securities rated BB or lower by Moody's or Ba by S&P, and may invest in
securities which are rated D by S&P. Securities rated D may be in default with
respect to payment of principal or interest. See the Appendix to this Statement
of Additional Information for a more complete description of the ratings
assigned by ratings organizations and their respective characteristics.
High yield, high-risk securities are especially subject to adverse
changes in general economic conditions, to changes in the financial condition of
their issuers and to price fluctuations in response to changes in interest
rates. An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would have a greater adverse impact on the value of such
obligations than on higher quality debt securities. During an economic downturn
or period of rising interest rates, highly leveraged issues may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high yield
securities will fluctuate over time and, during periods of economic uncertainty,
volatility of high yield securities may adversely affect the Fund's net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds,
rather than income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in interest
rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Fund to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly
and unexpectedly, and even recently-issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of the Fund's
investment objective by investment in such securities may be more dependent on
the Adviser's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Adviser will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, new federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type.
For more information regarding tax issues related to high yield
securities, see "TAXES."
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
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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 Rules 144 or 144A) or because they are
subject to other legal or contractual delays in or restrictions on resale.
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; or (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 securities were publicly traded. If adverse market
conditions were to develop during the period between the Fund's decision to sell
a restricted or illiquid security and the point at which the Fund is permitted
or able to sell such security, the 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, the Fund may be required to
bear all or part of the registration expenses. The 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, the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's or S&P.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be held by the Custodian or in the Federal Reserve Book Entry system.
For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to the
seller of the Obligation subject to the repurchase agreement and is therefore
subject to the Fund's investment restriction applicable to loans. It is not
clear whether a court would consider the Obligation purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the Obligation. If the court characterizes the transaction as a loan and the
Fund has not perfected a security interest in the Obligation, the Fund may be
required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for the Fund, the
Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the Obligation, in which
case the Fund may incur a loss if the proceeds to the Fund of the sale to a
third party are less than the repurchase price. However, if the market value of
the Obligation subject to the repurchase agreement becomes less than the
repurchase price (including interest), the Fund will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will
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enter into reverse repurchase agreements 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.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, to managing the effective
maturity or duration of fixed-income securities in the Fund's portfolio, or
enhancing 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.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures and
various other currency transactions (collectively, all of the above are called
"Strategic Transactions"). In addition, Strategic Transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect the Fund's unrealized gains in
the value of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter the fundamental investment purposes and characteristics of the Fund and
the Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks.
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In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options, other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into 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 and for duration
management, for risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on
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securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position.
The Fund's use of 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 for bona fide hedging, risk management (including duration management) or
other portfolio management and return enhancement purposes. Typically,
maintaining a futures contract or selling an option thereon requires the Fund to
deposit with a financial intermediary as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited thereafter on a daily basis as the marked to market value of the
contract fluctuates. The purchase of an option on futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of, the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from an NRSRO or
(except for OTC currency options) are determined to be of equivalent credit
quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
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The Fund will generally not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to
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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.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Fund will segregate
assets (or enter into any offsetting position) to cover its obligations under
swaps, the Adviser and the Fund believe such obligations do not constitute
senior securities under the 1940 Act, and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from an NRSRO or is determined to be of equivalent credit quality by the
Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency
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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 the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Investment Restrictions
The fundamental policies of the Fund set forth below may not be changed
without the approval of a majority of the Fund's outstanding shares. As used in
this Statement of Additional Information, a "majority of the Fund's outstanding
shares" means the lesser of (1) 67% or more of the voting securities present at
such meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy; or (2) more than 50%
of the outstanding voting securities of the Fund. The Fund has elected to be
classified as a diversified series of an open-end investment company.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of the Fund's assets will
not be considered a violation of the restriction.
In addition, as a matter of fundamental policy, the Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
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<PAGE>
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans to other persons, except 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.
The Directors of the Corporation have voluntarily adopted certain
policies and restrictions which are observed in the conduct of the Fund's
affairs. These represent intentions of the Directors based upon current
circumstances. They differ from fundamental investment policies in that they may
be changed or amended by action of the Directors without requiring prior notice
to or approval of the shareholders.
As a matter of nonfundamental policy, the Fund does not currently
intend to:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
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PURCHASES
There is a $25,000 minimum initial investment in the Shares. The
minimum subsequent investment in the Shares is $1,000. Investment minimums may
be waived for Directors and officers of the Corporation and certain other
affiliates and entities. The Fund and Scudder Investor Services, Inc. (the
"Distributor") reserve the right to reject any purchase order. All funds will be
invested in full and fractional Shares.
Shares of the Fund may be purchased by writing or calling Scudder
Service Corporation, a subsidiary of the Adviser (the "Transfer Agent"). Due to
the desire of the Corporation to afford ease of redemption, certificates will
not be issued to indicate ownership in the Fund. Orders for Shares of the Fund
will be executed at the net asset value per Share next determined after an order
has become effective.
Checks drawn on a non-member bank or a foreign bank may take
substantially longer to be converted into federal funds and, accordingly, may
delay the execution of an order. Checks must be payable in U.S. dollars and will
be accepted subject to collection at full face value.
By investing in the Fund, a shareholder appoints the Transfer Agent to
establish an open account to which all shares purchased will be credited with
any dividends and capital gains distributions that are paid in additional
Shares. See "Distribution and Performance Information--Dividends and Capital
Gains Distributions" in the Shares' Prospectus.
Redemption-in-Kind
The Corporation reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Corporation has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of that Fund at the beginning of the
period.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Directors and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Directors and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
The Board of Directors of the Fund and the Distributor, each has the
right to limit the amount of purchases by and to refuse to sell to any person
and each may suspend or terminate the offering of shares of the Fund at any
time.
The "Tax Identification Number" section of the Application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations a certification of exempt status), may be
returned to the investor if a correct, certified tax identification number and
certain other required certificates are not supplied.
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The Fund may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
REDEEMING SHARES
Payment of redemption proceeds may be made in securities. The
Corporation may suspend the right of redemption with respect to the Fund during
any period when (i) trading on the New York Stock Exchange (the "Exchange") is
restricted or the Exchange is closed, other than customary weekend and holiday
closings, (ii) the SEC has by order permitted such suspension or (iii) an
emergency, as defined by rules of the SEC, exists making disposal of Fund
securities or determination of the value of the net assets of the Fund not
reasonably practicable.
A shareholder's account remains open for up to one year following
complete redemption and all costs during the period will be borne by the Fund.
This permits an investor to resume investments.
FEATURES AND SERVICES OFFERED BY THE FUND
Special Monthly Summary of Accounts. A special service is available to
banks, brokers, investment advisers, trust companies and others who have a
number of accounts in the Fund. In addition to the copy of the regular Statement
of Account furnished to the registered holder after each transaction, a monthly
summary of accounts can be provided. The monthly summary will show for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month. All costs of this service will be borne by
the Corporation. For information on the special monthly summary of accounts,
contact the Corporation.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Fund may be subject to that excise tax. (See "TAXES.") In certain
circumstances, the Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends paid deduction on its federal tax return.
The Fund intends to distribute its investment company taxable income
and any net realized capital gains in November or December to avoid federal
excise tax, although an additional distribution may be made if necessary.
Both types of distributions will be made in Shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in Shares or cash.
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Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
From time to time, quotations of the Shares' performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures will be calculated in the
following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year, five years, and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in the
Shares. Average annual total return is calculated by finding the average annual
compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Shares and assume
that all dividends and capital gains distributions during the period were
reinvested in the Shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P)-1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
Quotations of the Fund's performance are historical and are not
intended to indicate future performance. An investor's shares when redeemed may
be worth more or less than their original cost. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.
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.
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Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Shares with performance quoted with respect to other
investment companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Corporation
Composite Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the
Nasdaq Industrials Index, the Wilshire Real Estate Securities Index, the Russell
2000 Index, and statistics published by the Small Business Administration.
Because some or all of the Fund's investments are denominated in
foreign currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Shares' investment performance.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.
From time to time, in advertising and marketing literature, The Shares'
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations. In addition, the Shares' performance may also be
compared to the performance of broad groups of comparable mutual funds.
Unmanaged indices with which the Fund's performance may be compared include, but
are not limited to, the following:
The Europe/Australia/Far East (EAFE) Index
International Finance Corporation's Latin America Investable
Total Return Index
Morgan Stanley Capital International World Index
J.P. Morgan Global Traded Bond Index
Salomon Brothers World Government Bond Index
Nasdaq Composite Index
Wilshire 5000 Stock Index
From time to time, in marketing and other Fund literature, Directors
and officers of the Corporation, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The Fund may be advertised as an investment choice in the Adviser's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.
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Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund and the
Shares. The description may include a "risk/return spectrum" which compares the
Fund to other Scudder funds or broad categories of funds, such as money market,
bond or equity funds, in terms of potential risks and returns. Money market
funds are designed to maintain a constant $1.00 share price and have a
fluctuating yield. Share price, yield and total return of a bond fund will
fluctuate. The share price and return of an equity fund also will fluctuate. The
description may also compare the Fund to bank products, such as certificates of
deposit. Unlike mutual funds, certificates of deposit are insured up to $100,000
by the U.S. government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
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<PAGE>
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
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<PAGE>
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
Taking a Global Approach
Many U.S. investors limit their holdings to U.S. securities because
they assume that international or global investing is too risky. While there are
risks connected with investing overseas, it's important to remember that no
investment -- even in blue-chip domestic securities -- is entirely risk free.
Looking outside U.S. borders, an investor today can find opportunities that
mirror domestic investments -- everything from large, stable multinational
companies to start-ups in emerging markets. To determine the level of risk with
which you are comfortable, and the potential for reward you're seeking over the
long term, you need to review the type of investment, the world markets, and
your time horizon.
The U.S. is unusual in that it has a very broad economy that is well
represented in the stock market. However, many countries around the world are
not only undergoing a revolution in how their economies operate, but also in
terms of the role their stock markets play in financing activities. There is
vibrant change throughout the global economy and all of this represents
potential investment opportunity.
Investing beyond the United States can open this world of opportunity,
due partly to the dramatic shift in the balance of world markets. In 1970, the
United States alone accounted for two-thirds of the value of the world's stock
markets. Now, the situation is reversed -- only 35% of global stock market
capitalization resides here. There are companies in Southeast Asia that are
starting to dominate regional activity; there are companies in Europe that are
expanding outside of their traditional markets and taking advantage of faster
growth in Asia and Latin America; other companies throughout the world are
getting out from under state control and restructuring; developing countries
continue to open their doors to foreign investment.
Stocks in many foreign markets can be attractively priced. The global
stock markets do not move in lock step. When the valuations in one market rise,
there are other markets that are less expensive. There is also volatility within
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markets in that some sectors may be more expensive while others are depressed in
valuation. A wider set of opportunities can help make it possible to find the
best values available.
International or global investing offers diversification because the
investment is not limited to a single country or economy. In fact, many experts
agree that investment strategies that include both U.S. and non-U.S. investments
strike the best balance between risk and reward.
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 1 billion
shares of a par value of $.01 each--all of one class for each series except for
Scudder International Fund which consists of three classes of shares, the Shares
and the International Shares and the Class R Shares. All shares have equal
rights as to voting, redemption, dividends and liquidation. Shareholders have
one vote for each share held. The Corporation's capital stock is comprised of
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 Growth
Fund and Scudder International Value Fund, both organized in June 1998. Each
series consists of 100 million shares except for the Fund which consists of 300
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.
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Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Directors, in their discretion, may authorize the division of
shares of the Corporation (or shares of a series) into different classes
permitting shares of different classes to be distributed by different methods.
Although shareholders of different classes of a series would have an interest in
the same portfolio of assets, shareholders of different classes may bear
different expenses in connection with different methods of distribution.
Pursuant to the approval of a majority of stockholders, the
Corporation's Directors have the discretion to retain the current distribution
arrangement while investing in a master fund in a master/feeder fund structure
if the Board determines that the objectives of the Fund would be achieved more
efficiently thereby.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall be immune from liability for any action
taken by them in good faith, in a manner reasonably believed to be in the best
interests of the Corporation and with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In so acting, a
Director shall be fully protected in relying in good faith upon the records of
the Corporation and upon reports made to the Corporation by persons selected in
good faith by the Directors as qualified to make such reports. The Articles and
the By-Laws provide that the Corporation will indemnify its Directors, officers,
employees or agents against liabilities and expenses incurred in connection with
litigation in which they may be involved because of their offices with the
Corporation consistent with applicable law. Nothing in the Articles 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 Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Value
Equity Trust, Scudder Fund, Inc.,
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Scudder Funds Trust, Global/International Fund, Inc., Scudder Global High Income
Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional
Fund, Inc., Scudder International Fund, Inc., Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax Free
Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment Fund,
The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc. and The
Japan Fund, Inc. Some of the foregoing companies or trusts have two or more
series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between 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 InvestmentLinkSM Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLinkSM Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. The Adviser's international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
The transaction between Scudder and Zurich resulted in the assignment
of the Fund's investment management agreement with Scudder, that agreement was
deemed to be automatically terminated at the consummation of the transaction. In
anticipation of the transaction, however, a new investment management agreement
between the Fund and the Adviser was approved by the Corporation's Directors on
October 29, 1997. At the special meeting of the Fund's stockholders held on
October 27, 1997, the stockholders also approved the new investment management
agreement. The new investment management agreement (the "Agreement") became
effective as of December 31, 1997.
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On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) 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.
Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with the Adviser, which is substantially identical
to the current investment management agreement, except for the dates of
execution and termination. The Agreement became effective September 7, 1998,
upon the termination of the then current investment management agreement and was
approved at a shareholder meeting held on December 15, 1998.
The Agreement dated September 7, 1998 was approved by the Directors on
August 6, 1998. The Agreement will continue in effect until September 30, 1999
and from year to year thereafter only if its continuance is approved annually by
the vote of a majority of those Directors who are not parties to such Agreement
or interested persons of the Adviser or the 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 Fund. The Agreement 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 Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objectives, policies and restrictions and determines which
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject always to the Corporation's Articles of
Incorporation and By-Laws, of the 1940 Act and the Code and to the Fund's
investment objective, policies and restrictions, and subject, further, to such
policies and instructions as the Board of Directors of the Corporation may from
time to time establish. The Adviser also advises and assists the officers of the
Corporation in taking such steps as are necessary or appropriate to carry out
the decisions of its Directors and the appropriate committees of the Directors
regarding the conduct of the business of the Corporation.
Under the Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
the Corporation's operations as an open-end investment company including, but
not limited to, preparing reports and notices to the Directors and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Fund (such as the Fund's transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the Commission and other regulatory agencies; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining the Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Fund's operating
budget; processing the payment of the Fund's bills; assisting the Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Directors.
The Adviser pays the compensation and expenses (except those of
attending Board and committee meetings outside New York, New York or Boston,
Massachusetts) of all Directors, officers and executive employees of the Fund
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
28
<PAGE>
Under the Investment Management Agreement between the Fund and the
Adviser, effective September 7, 1998, the management fee payable under the
Agreement is equal to an annual rate of approximately 0.90% of the first
$500,000,000 of average daily net assets, 0.85% of the next $500,000,000 of such
net assets, 0.80% of the next $1,000,000,000 of such net assets, 0.75% of the
next $1,000,000,000 of such net assets, and 0.70% of such net assets in excess
of $3,000,000,000, computed and accrued daily and payable monthly.
Under the Investment Management Agreement between the Fund and the
Adviser which was in effect prior to September 5, 1996 (the "Agreement"), the
Fund agreed to pay to the Adviser a fee equal to an annual rate of 0.90% on the
first $500,000,000 of the Fund's average daily net assets, 0.85% on the next
$500,000,000, 0.80% on the next $1,000,000,000, and 0.75% of such net assets in
excess of $2,000,000,000, computed and accrued daily and payable monthly.
The net investment advisory fees for the fiscal years ended March 31,
1999, 1998 and 1997 were $__, $22,491,681 and $20,989,160, respectively, of
which $__ was unpaid at March 31, 1999.
Under the Agreement the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; brokers' commissions; legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses of issue, sale, underwriting, distribution,
redemption or repurchase of shares; the expenses of and the fees for registering
or qualifying securities for sale; the fees and expenses of Directors, officers
and employees of the Fund who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to stockholders; and the fees and
disbursements of custodians. The Fund may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. The Fund is also responsible for its expenses of shareholders'
meetings, the cost of responding to shareholders' inquiries, and its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Directors of the
Corporation with respect thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Corporation, with respect to the Fund, has the
non-exclusive right to use and sublicense the Scudder name and marks as part of
its name, and to use the Scudder Marks in the Corporation's investment products
and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Fund 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 Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Fund.
29
<PAGE>
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Date of Birth, and Position with Fund Principal Occupation** Services, Inc.
- ------------------------- ------------------ ---------------------- --------------
Address
- -------
<S> <C> <C> <C>
Lynn S. Birdsong (53)#* Chairman of the Board Managing Director of Scudder Kemper Vice President and
and Director Investments, Inc. Assistant Treasurer
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 81615 Securities Corporation
Sheryle J. Bolton (52) Director CEO and Director, Scientific Learning --
Scientific Learning Corporation Corporation, Former President and
1995 University Ave Chief Operating Officer, Physicians
Suite 400 Online, Inc. (electronic transmission
Berkely, CA 94704 of clinical information for
physicians (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 02181-2101 Company; Director, Fort James
Corporation; Director of various
privately held companies
Keith R. Fox (45) Director Private Equity Investor, Exeter --
10 East 53rd Street Capital Management Corporation
New York, NY 10022
30
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Date of Birth, and Position with Fund Principal Occupation** Services, Inc.
- ------------------------- ------------------ ---------------------- --------------
Address
- -------
William H. Luers (69) Director Chairman and President, 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; Department of State -
Foundation Undersecretary of State for Economic,
650 Fifth Avenue Business and Agricultural Affairs
New York, NY 10128 (March 1993 to January 1997)
Thomas J. Devine (72) Honorary Director Consultant --
450 Park Avenue
New York, NY 10022
William H. Gleysteen, Jr. (72) Honorary Director Consultant; Guest Scholar, Brookings --
4937 Crescent Street Institute
Bethesda, MD 20816
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 Emeritus and Director, Kirby --
405 Lexington Avenue Corporation (inland and offshore
39th Floor marine transportation and diesel
New York, NY 10174 repairs)
31
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Date of Birth, and Position with Fund Principal Occupation** Services, Inc.
- ------------------------- ------------------ ---------------------- --------------
Address
- -------
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.
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.
Philip S. Fortuna ##(41) Vice President Managing Director of Scudder Kemper --
Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of Scudder Assistant Treasurer
Kemper Investments, Inc.
Richard W. Desmond (63)# Assistant Secretary Vice President of Scudder Kemper Vice President
Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Senior Vice President of Scudder Clerk
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
32
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Date of Birth, and Position with Fund Principal Occupation** Services, Inc.
- ------------------------- ------------------ ---------------------- --------------
Address
- -------
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.
* Mr. Birdsong, Mr. Bratt and Ms. Quirk are considered by the Fund and its counsel to be persons who are
"interested persons" of the Adviser or of the Corporation as defined in 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
</TABLE>
The Directors and officers of the Corporation also serve in similar
capacities with respect to other Scudder Funds.
With respect to Barrett Shares class of the Fund:
TO BE UPDATED
As of June 30, 1999, all Directors and officers of the Corporation as a
group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act) less than 1% of the Shares of the Fund outstanding on
such date.
To the best of the Fund's knowledge, as of June 30, 1999 no person
owned beneficially (as so defined) more than 5% of the Fund's outstanding Shares
except as stated above.
With respect to International Shares class of the Fund:
TO BE UPDATED
As of June 30, 1999, all Directors and officers of the Corporation as a
group owned beneficially (as that term is defined under Section 13(d) of the
Securities Exchange Act of 1934) less than 1% of the shares of the Fund
outstanding on such date.
As of June 30, 1999, 6,116,968 shares in the aggregate, 10.89% of the
outstanding Shares of the Fund, were held in the name of Charles Schwab, c/o
Charles Schwab & Co., Inc., Attn: Mutual Fund Department, 101 Montgomery Street,
San Francisco, CA 94104-4122, who may be deemed to be the beneficial owner of
certain of these shares, but disclaims any beneficial ownership therein.
To the best of the Fund's knowledge, as of June 30, 1999 no person
owned beneficially (as so defined) more than 5% of the Fund's outstanding Shares
except as stated above.
The Directors and officers of the Corporation also serve in similar
capacities with other Scudder Funds.
33
<PAGE>
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Directors is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Directors" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Directors meets at least quarterly to review the
investment performance of the Fund and other operational matters, including
policies and procedures 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, the Fund's investment performance, the quality and efficiency of
the various other services provided, costs incurred by the Adviser and its
affiliates, and comparative information regarding fees and expenses of
competitive funds. They are assisted in this process by the Fund's independent
public accountants and by independent legal counsel selected by the Independent
Directors.
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
The Independent Directors receive the following compensation from the
Funds of Scudder 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 on behalf of 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 or retirement benefits 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 1997 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, $45,200 $2,550 $174,200 $ 8,925
Director (25 Funds)
Sheryle J. Bolton, $45,200 $0.00 $149,050 $0.00
Director (25 Funds)
34
<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)
---- --------------- -------------- --------- --------------
William T. Burgin, $45,200 $2,550 $150,950 $8,920
Director (25 Funds)
Thomas J. Devine, $48,500 $2,550 $178,000 $8,920
Director (25 Funds)
Keith R. Fox, Director $48,500 $2,550 $172,350 $8,920
(25 Funds)
William H. Gleysteen, $45,200 $2,550 $123,200 $4,675
Jr., Honorary Director*** (14 Funds)
William H. Luers, $40,700 $2,550 $147,050 $8,925
Director (25 Funds)
Wilson Nolen, Honorary $45,200 $2,550 $189,075 $6,375
Director (24 Funds)
Joan E. Spero** $10,008 $0.00 $29,736 $0.00
(25 Funds)
(1) 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 in September, 1998.
*** This amount does not reflect $6,208 in retirement benefits accrued as
part of Fund Complex expenses, and $3,000 in estimated annual benefits
payable upon retirement. Retirement benefits accrued and proposed are
to be paid to Mr. Gleysteen as additional compensation for serving on
the Board of The Japan Fund, Inc.
</TABLE>
Members of the Board of Directors who are employees of the Adviser or
its affiliates receive no direct compensation from the Corporation, although
they are compensated as employees of the Adviser, or its affiliates, as a result
of which they may be deemed to participate in fees paid by each Fund.
35
<PAGE>
DISTRIBUTOR
The Corporation has an underwriting agreement with Scudder Investor
Services, Inc., Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
corporation. The Corporation's underwriting agreement dated September 7, 1998
will remain in effect until September 30, 1999 and from year to year thereafter
only if its continuance is approved annually by a majority of the members of the
Board of Directors who are not parties to such agreement or interested persons
of any such party and either by vote of a majority of the Board of Directors or
a majority of the outstanding voting securities of the Fund. The underwriting
agreement was last approved by the Directors on August 6, 1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the Commission of its registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Fund as a broker or
dealer in various states as required; the fees and expenses of preparing,
printing and mailing prospectuses annually to existing shareholders (see below
for expenses relating to prospectuses paid by the Distributor); notices, proxy
statements, reports or other communications to shareholders of the Fund; the
cost of printing and mailing confirmations of purchases of shares and any
prospectuses accompanying such confirmations; any issuance taxes and/or any
initial transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.
As agent, the Distributor currently offers shares of the Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code, or a predecessor statute and has qualified as
such since its inception. Such qualification does not involve governmental
supervision or management of investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
36
<PAGE>
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund. Presently, the
Fund has no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between such reported gains and the
shareholder's tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if either those
shares or the shares of the Fund are deemed to have been held by the Fund or the
shareholders, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
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 the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional Shares will have a cost basis for federal income tax purposes in each
Share so received equal to the net asset value of a Share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions
37
<PAGE>
up to $2,000 to an IRA (up to $2,000 per individual for married couples if only
one spouse has earned income) for that year. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Also, annual
contributions may be made to a spousal IRA even if the spouse has earnings in a
given year if the spouse elects to be treated as having no earnings (for IRA
contribution purposes) for the year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund intends to qualify for and may make the election permitted
under Section 853 of the Code so that shareholders may (subject to limitations)
be able to claim a credit or deduction on their federal income tax returns for,
and will be required to treat as part of the amounts distributed to them, their
pro rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code, except in the case of
certain electing individual taxpayers who have limited creditable foreign taxes
and no foreign source income other than passive investment-type income.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the 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.
If the Fund does not make the election permitted under section 853 any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income. Absent this election, shareholders
will not be able to claim either a credit or a deduction for their pro rata
portion of such taxes paid by the Fund, nor will shareholders be required to
treat as part of the amounts distributed to them their pro rata portion of such
taxes paid.
Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be recognized by the Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on the Fund's holding period for the option, and
in the case of the exercise of a put option, on the Fund's holding period for
the underlying property. The purchase of a put option may constitute a short
sale for federal income tax purposes, causing an adjustment in the holding
period of any stock in the Fund's portfolio similar to the stocks on which the
index is based. If the Fund writes an option, no gain is recognized upon its
receipt of a premium. If the option lapses or is closed out, any gain or loss is
treated as short-term capital gain or loss. If a call option is exercised, the
character of the gain or loss depends on the holding period of the underlying
stock.
Positions of the Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options
38
<PAGE>
on currencies), will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term, and on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options and
similar financial instruments entered into or acquired by the Fund will be
treated as ordinary income or loss.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
Similarly, if the Fund enters into a short sale of property that
becomes substantially worthless, the Fund will recognize gain at that time as
though it had closed the short sale. Future regulations regulatories may apply
similar treatment to other transactions with respect to property that becomes
substantially worthless.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain options, futures
and forward contracts, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the Fund invests in stock of certain foreign investment companies,
the Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark-to-market losses and any loss from an actual disposition of
shares would be reported as ordinary loss to the extent of any net
mark-to-market gains included in income in prior years. The effect of the
election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a fund level tax when distributed to
shareholders as a dividend. Alternatively, the Fund may elect to include as
income and gain its share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.
If the Fund invests in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from the Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
the Fund in a written notice to shareholders.
39
<PAGE>
The Fund will be required to report to the IRS all distributions of
investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of investment company taxable income and capital gains
and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the 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 Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or the
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
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of research 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 the Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These
40
<PAGE>
arrangements regarding receipt of research services generally apply to equity
security transactions. The Adviser will not place orders with broker/dealers on
the basis that the broker/dealer has or has not sold shares of the Fund. In
effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research services from broker/dealers may be useful to
the Fund and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Fund, and not all such information is used by the Adviser
in connection with the Fund. Conversely, such information provided to the
Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to
the Fund.
The Directors review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
For the fiscal years ended March 31, 1999, 1998 and 1997, the Fund paid
brokerage commissions of $__, $6,904,371.62 and $5,275,727 respectively. For the
fiscal year ended March 31, 1999, $__ (__%) of the total brokerage commissions
paid by the Fund resulted from orders for transactions, placed consistent with
the policy of seeking to obtain the most favorable net results, with brokers and
dealers who provided supplementary research, market and statistical information
to the Fund or the Adviser. The amount of such transactions aggregated $__ (__%
of all brokerage transactions). The balance of such brokerage was not allocated
to particular broker or dealer with regard to the above-mentioned or other
special factors.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. The Fund's
portfolio turnover rates for the fiscal years ended March 31, 1999, 1998 and
1997 were __%, 55.7% and 35.8%, respectively. Purchases and sales are made for
the Fund's portfolio whenever necessary, in management's opinion, to meet the
Fund's objective.
NET ASSET VALUE
The net asset value of Shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Dr. Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas and on the preceding
Friday or subsequent Monday when one of these holidays falls on a Saturday or a
Sunday, respectively. Net asset value per Share is determined by dividing the
value of the total assets of the Fund attributable to the Shares, less all
liabilities attributable to the Shares, by the total number of shares
outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at its most recent sale price. Lacking
any sales, the security is valued at the most recent bid quotation. The value of
an equity security not quoted on the Nasdaq System, but traded in another
over-the-counter market, is its most recent sale price. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.
41
<PAGE>
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
purchased with remaining maturities of sixty days or less shall be valued by the
amortized cost method, which the Board believes approximates market value. If it
is not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the 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 the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, independent accountants, and given on the authority of that
firm as experts in accounting and auditing. PricewaterhouseCoopers, LLP is
responsible for performing annual and semiannual audits of the financial
statements and financial highlights of the Fund in accordance with generally
accepted auditing standards, and the preparation of federal tax returns.
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of the Shares is 811165703.
42
<PAGE>
The Fund has a fiscal year end of March 31.
The Fund employs Brown Brothers Harriman & Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian for the Fund.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee of $26.00 for each retail account
and $29.00 for each retirement account. The Fund incurred fees of $__,
$3,394,358 and $3,050,321 during the fiscal years ended March 31, 1999, 1998 and
1997 1996 respectively, of which $__ was unpaid at March 31, 1999 for the fiscal
year ended March 31, 1999.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.065% of the first $150 million of average daily net assets, 0.040% of
such assets in excess of $150 million, 0.020% of such assets in excess of $1
billion, plus holding and transaction charges for this service. The Fund
incurred fees of $__, $838,885 and $795,122 during the fiscal years ended March
31, 1999, 1998 and 1997 respectively, of which $__ was unpaid at March 31, 1999
for the fiscal year ended March 31, 1999.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by the Fund
to Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Adviser, for such accounts. The Fund pays
Scudder Trust Company an annual fee of $29 per shareholder account. The Fund
incurred fees of $__, $1,561,049 and $930,582 during the fiscal years ended
March 31, 1999, 1998 and 1997, respectively, of which $__ was unpaid at March
31, 1999 for the fiscal year ended March 31, 1999.
The Share's prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement which the Fund
has filed with the Commission under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. This Registration Statement and
its amendments are available for inspection by the public at the Commission in
Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of the
Fund, together with the Report of Independent Accountants, Financial Highlights
and notes to financial statements in the Annual Report to the Shareholders of
the Fund dated March 31, 1999 are incorporated herein by reference and are
hereby deemed to be a part of this Statement of Additional Information by
reference in its entirety.
43
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate bonds.
Ratings of Corporate Bonds
S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities. Bonds which are rated
A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
<PAGE>
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
PART C.
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
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<S> <C> <C>
(a) (a)(1) Articles of Amendment and Restatement of the Registrant as of
January 24, 1991.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(a)(2) Articles Supplementary dated September 17, 1992.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(a)(3) Articles Supplementary dated December 1, 1992.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(a)(4) Articles Supplementary dated August 3, 1994.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(a)(5) Articles Supplementary dated February 20, 1996.
(Incorporated by reference to Exhibit 1(e) to Post-Effective
Amendment No. 46 to the Registration Statement.)
(a)(6) Articles Supplementary dated September 5, 1996.
(Incorporated by reference to Exhibit 1(f) to Post-Effective
Amendment No. 52 to the Registration Statement.)
(a)(7) Articles Supplementary dated December 12, 1996.
(Incorporated by reference to Post-Effective Amendment No. 55 to
the Registration Statement.)
(a)(8) Articles Supplementary dated March 3, 1997.
(Incorporated by reference to Post-Effective Amendment No. 55 to
the Registration Statement.)
(a)(9) Articles Supplementary dated December 23, 1997. (Incorporated by
reference to Post-Effective Amendment No. 65 to the Registration
Statement.)
(a)(10) Articles Supplementary dated March 2,1998. (Incorporated by
reference to Post-Effective Amendment No. 65 to the Registration
Statement.)
(a)(11) Articles Supplementary dated March 31, 1998. (Incorporated by
reference to Post-Effective Amendment No. 65 to the Registration
Statement.)
(a)(12) Articles of Transfer from Scudder Institutional Fund Inc., dated
April 3, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
2
<PAGE>
(a)(13) Articles Supplementary dated June 7, 1999.
To be filed by amendment.
(b) (b)(1) Amended and Restated By-Laws of the Registrant dated March 4,
1991. (Incorporated by reference to Post-Effective Amendment No.
56 to the Registration Statement.)
(b)(2) Amended and Restated By-Laws of the Registrant dated September 20,
1991. (Incorporated by reference to Post-Effective Amendment No.
56 to the Registration Statement.)
(b)(3) Amended and Restated By-Laws of the Registrant dated December 12,
1991. (Incorporated by reference to Post-Effective Amendment No.
56 to the Registration Statement.)
(b)(4) Amended and Restated By-Laws of the Registrant dated September 4,
1996. (Incorporated by reference to Post-Effective Amendment No.
55 to the Registration Statement.)
(b)(5) Amended and Restated By-Laws of the Registrant dated December 3,
1997. (Incorporated by reference to Post-Effective Amendment No.
59 to the Registration Statement.)
(c) Inapplicable.
(d) (d)(1) Investment Management Agreement between the Registrant, on behalf
of Scudder International Fund, and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(d)(2) Investment Management Agreement between the Registrant, on behalf
of Scudder Latin America Fund, and Scudder Kemper Investments,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(d)(3) Investment Management Agreement between the Registrant, on behalf
of Scudder Pacific Opportunities Fund, and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(d)(4) Investment Management Agreement between the Registrant, on behalf
of Scudder Greater Europe Growth Fund, and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(d)(5) Investment Management Agreement between the Registrant, on behalf
of Scudder Emerging Markets Growth Fund, and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
3
<PAGE>
(d)(6) Investment Management Agreement between the Registrant, on behalf
of Scudder International Growth and Income Fund, and Scudder
Kemper Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(d)(7) Investment Management Agreement between the Registrant, on behalf
of Scudder International Value Fund, and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(d)(8) Investment Management Agreement between the Registrant, on behalf
of Scudder International Growth Fund, and Scudder Kemper
Investments, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(e) (e)(1) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc., dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(f) Inapplicable.
(g) (g)(1) Custodian Contract between the Registrant, on behalf of Scudder
Latin America Fund, and Brown Brothers Harriman & Co. dated
November 25, 1992.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(2) Custodian Contract between the Registrant, on behalf of Scudder
Pacific Opportunities Fund, and Brown Brothers Harriman & Co.
dated November 25, 1992.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(3) Custodian Contract between the Registrant, on behalf of Scudder
Greater Europe Growth Fund, and Brown Brothers Harriman & Co.
dated October 10, 1994.
(Incorporated by reference to Post-Effective Amendment No. 44 to
the Registration Statement.)
(g)(4) Custodian Contract between the Registrant and Brown Brothers
Harriman & Co. dated March 7, 1995.
(Incorporated by reference to Post-Effective Amendment No. 55 to
the Registration Statement.)
(g)(5) Fee schedule for Exhibit (g)(4).
(Incorporated by reference to Post-Effective Amendment No. 55 to
the Registration Statement.)
4
<PAGE>
(g)(6) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and Morgan Guaranty Trust Company of New York, Brussels
office, dated November 15, 1976.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(7) Fee schedule for Exhibit (g)(6).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(8) Subcustodian Agreement between Brown Brothers Harriman & Co. and
The Bank of New York, London office, dated January 30, 1979.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(9) Fee schedule for Exhibit (g)(8).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(10) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and The Chase Manhattan Bank, N.A., Singapore office, dated
June 9, 1980.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(11) Fee schedule for Exhibit (g)(10).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.).
(g)(12) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and The Chase Manhattan Bank, N.A., Hong Kong office, dated
June 4, 1979.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(13) Fee schedule for Exhibit (g)(12).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(14) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and Citibank, N.A. New York office, dated July 16, 1981.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(15) Fee schedule for Exhibit (g)(14).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h) (h)(1) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
5
<PAGE>
(h)(2) Fee schedule for Exhibit 9(a)(1).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(3) Service Agreement between Copeland Associates, Inc. and Scudder
Service Corporation dated June 8, 1995.
(Incorporated by reference to Post-Effective Amendment No. 45 to
the Registration Statement.)
(h)(4) Letter Agreement between the Registrant and Cazenove, Inc. dated
January 23, 1978, with respect to the pricing of securities.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(5) COMPASS and TRAK 2000 Service Agreement between the Registrant and
Scudder Trust Company dated October 1, 1995.
(Incorporated by reference to Exhibit 9(c)(3) to Post-Effective
Amendment No. 47 to the Registration Statement.)
(h)(6) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(7) Administrative Services Agreement between the Registrant and
McGladrey & Pullen, Inc. dated September 30, 1995.
(Incorporated by reference to Exhibit 9(d)(2) to Post-Effective
Amendment No. 47 to the Registration Statement.)
(h)(8) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Greater Europe Growth Fund, and Scudder Fund
Accounting Corporation dated October 10, 1994.
(Incorporated by reference to Post-Effective Amendment No. 44 to
the Registration Statement.)
(h)(9) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Fund, and Scudder Fund Accounting
Corporation dated April 12, 1995 is filed herein.
(Incorporated by reference to Post-Effective Amendment No. 45 to
the Registration Statement.)
(h)(10) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Latin America Fund, dated May 17, 1995.
(Incorporated by reference to Exhibit 9(e)(3) to Post-Effective
Amendment No. 47 to the Registration Statement.)
(h)(11) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Pacific Opportunities Fund, dated May 5, 1995.
(Incorporated by reference to Exhibit 9(e)(4) to Post-Effective
Amendment No. 47 to the Registration Statement.)
(h)(12) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Emerging Markets Growth Fund dated May 8, 1996.
(Incorporated by reference to Exhibit 9(e)(5) to Post-Effective
Amendment No. 49 to the Registration Statement.)
6
<PAGE>
(h)(13) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Growth and Income Fund dated June
3, 1997.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(14) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Growth Fund dated June 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(h)(15) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Value Fund dated June 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(h)(16) Administrative Services Agreement between Scudder International
Fund, Inc., on behalf of Scudder International Fund, and Scudder
Investors Service Company.
(h)(17) Agency Agreement between Scudder International Fund, Inc., and
Kemper Service Company, dated June 7, 1999.
(i) Inapplicable.
(j) Consent of Independent Accountants to be filed by amendment.
(k) Inapplicable.
(l) Inapplicable.
(m) Rule 12(b)-1 and Administrative Services Plan with respect to
Scudder International Fund.
To be filed by amendment.
(n) Financial Data Schedules to be filed by amendment.
(o) (o)(1) Plan with respect to Scudder International Fund pursuant to
Rule 18f-3.
(Incorporated by reference to Post-Effective Amendment No. 58 to
the Registration Statement.)
(o)(2) Amended Plan with respect to Scudder International Fund pursuant
to Rule 18f-3, dated June 7, 1999.
To be filed by amendment.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its affiliates including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
directors and officers and others against
7
<PAGE>
liability arising by reason of an alleged breach of duty
caused by any negligent act, error or accidental omission in
the scope of their duties.
Article Tenth of Registrant's Articles of Incorporation state
as follows:
TENTH: Liability and Indemnification
------ -----------------------------
To the fullest extent permitted by the Maryland
General Corporation Law and the Investment Company Act of
1940, no director or officer of the Corporation shall be
liable to the Corporation or to its stockholders for damages.
The limitation on liability applies to events occurring at the
time a person serves as a director or officer of the
Corporation, whether or not such person is a director or
officer at the time of any proceeding in which liability is
asserted. No amendment to these Articles of Amendment and
Restatement or repeal of any of its provisions shall limit or
eliminate the benefits provided to directors and officers
under this provision with respect to any act or omission which
occurred prior to such amendment or repeal.
The Corporation, including its successors and
assigns, shall indemnify its directors and officers and make
advance payment of related expenses to the fullest extent
permitted, and in accordance with the procedures required by
Maryland law, including Section 2-418 of the Maryland General
Corporation law, as may be amended from time to time, and the
Investment Company Act of 1940. The By-Laws may provide that
the Corporation shall indemnify its employees and/or agents in
any manner and within such limits as permitted by applicable
law. Such indemnification shall be in addition to any other
right or claim to which any director, officer, employee or
agent may otherwise be entitled.
The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or
other enterprise or employee benefit plan against any
liability asserted against and incurred by such person in any
such capacity or arising out of such person's position,
whether or not the Corporation would have had the power to
indemnify against such liability.
The rights provided to any person by this Article
shall be enforceable against the Corporation by such person
who shall be presumed to have relied upon such rights in
serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Amendment and
Restatement shall impair the rights of any person arising at
any time with respect to events occurring prior to such
amendment.
Nothing in these Articles of Amendment and
Restatement shall be deemed to (i) require a waiver of
compliance with any provision of the Securities Act of 1933,
as amended, or the Investment Company Act of 1940, as amended,
or of any valid rule, regulation or order of the Securities
and Exchange Commission under those Acts or (ii) protect any
director or officer of the Corporation against any liability
to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of his or
her obligations and duties hereunder.
Article V of Registrant's Amended and Restated
By-Laws states as follows:
ARTICLE V
---------
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 1. Indemnification of Directors and Officers. Any person who
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
8
<PAGE>
administrative or investigative, by reason of the fact that such person is a
current or former Director or officer of the Corporation, or is or was serving
while a Director or officer of the Corporation at the request of the Corporation
as a Director, officer, partner, trustee, employee, agent or fiduciary or
another corporation, partnership, joint venture, trust, enterprise or employee
benefit plan, shall be indemnified by the Corporation against judgments,
penalties, fines, excise taxes, settlements and reasonable expenses (including
attorneys' fees) actually incurred by such person in connection with such
action, suit or proceeding to the fullest extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 and the 1940 Act, as such
statutes are now or hereafter in force, except that such indemnity shall not
protect any such person against any liability to the Corporation or any
stockholder thereof to which such person 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 office ("disabling conduct").
SECTION 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the fullest extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 and the 1940 Act, as such statutes
are now or hereafter in force; provided however, that the person seeking
indemnification shall provide to the Corporation a written affirmation of his
good faith belief that the standard of conduct necessary for indemnification by
the Corporation has been met and a written undertaking by or on behalf of the
Director to repay any such advance if it is ultimately determined that he is not
entitled to indemnification, and provided further that at least one of the
following additional conditions is met: (1) the person seeking indemnification
shall provide a security in form and amount acceptable to the Corporation for
his undertaking; (2) the Corporation is insured against losses arising by reason
of the advance; or (3) a majority of a quorum of Directors of the Corporation
who are neither "interested persons" as defined in Section 2(a)(19) of the 1940
Act, as amended, nor parties to the proceeding ("disinterested non-party
Directors") or independent legal counsel, in a written opinion, shall determine,
based on a review of facts readily available to the Corporation at the time the
advance is proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
SECTION 3. Procedure. At the request of any current or former Director
or officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the 1940 Act, as such statutes are now or hereafter in force, whether the
standards required by this Article V have been met; provided, however, that
indemnification shall be made only following: (1) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct or (2) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct, by (a) the vote of the majority of a quorum of disinterested
non-party Directors or (b) an independent legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or Directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933 and the 1940 Act, as such statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as may be provided by action
of the Board of Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action by a Director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a Director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
SECTION 6. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a Director,
officer, employee or agent
9
<PAGE>
of a constituent corporation or is or was serving at the request of a
constituent corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under this Article V with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
Item 26. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
10
<PAGE>
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
Xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
O Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
11
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President Assistant Secretary
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
Caroline Pearson Clerk Senior Vice President &
Two International Place Assistant Secretary
Boston, MA 02110
12
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Daniel Pierce Director, Vice President Chairman of the Board and
Two International Place and Assistant Treasurer Director
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Director, Vice President &
345 Park Avenue Legal Officer and Assistant Clerk Assistant Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions And Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, New York 10154.
Records relating to the duties of the Registrant's custodian
are maintained by Brown Brothers Harriman & Co., 40 Water
Street,
13
<PAGE>
Boston, Massachusetts. Records relating to the duties
of the Registrant's transfer agent are maintained by Scudder
Service Corporation, Two International Place, Boston,
Massachusetts 02110-4103.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(a) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of New York and the
State of New York on May 21, 1999.
SCUDDER INTERNATIONAL FUND, INC.
By /s/Nicholas Bratt
----------------------------
Nicholas Bratt
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Paul Bancroft, III
- --------------------------------------
Paul Bancroft, III* Director May 21, 1999
/s/Sheryle J. Bolton
- --------------------------------------
Sheryle J. Bolton* Director May 21, 1999
/s/William T. Burgin
- --------------------------------------
William T. Burgin* Director May 21, 1999
/s/Keith R. Fox
- --------------------------------------
Keith R. Fox* Director May 21, 1999
/s/William H. Luers
- --------------------------------------
William H. Luers* Director May 21, 1999
/s/Joan Spero
- --------------------------------------
Joan Spero* Director May 21, 1999
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce* Chairman of the Board and Director May 21, 1999
<PAGE>
/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Director, Vice President and May 21, 1999
Assistant Secretary
/s/John R. Hebble
- --------------------------------------
John R. Hebble Treasurer May 21, 1999
</TABLE>
*By: /s/Sheldon A. Jones
----------------------------------------------------
Sheldon A. Jones,
Attorney-in-Fact pursuant to a power of
attorney contained in the signature page of
Post-Effective Amendment Nos. 33, 47, 49, 54,
56, 58 and 67 to the Registration Statement,
filed May 31, 1991, February 27, 1996, July 17,
1996, June 2, 1997, July 31, 1997, December 4,
1997 and December 1998, respectively.
<PAGE>
File No. 2-14400
File No. 811-642
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT No. 70
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 50
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER INTERNATIONAL FUND, INC.
<PAGE>
SCUDDER INTERNATIONAL FUND, INC.
EXHIBIT INDEX
Exhibits to be filed by amendment.
