Filed electronically with the Securities and Exchange
Commission on June 30, 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. 71
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 51
--
Scudder International Fund, Inc.
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(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2565
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Caroline Pearson
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110-4103
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(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)
/ / On ( date ) pursuant to paragraph (a)(1)
/ / days after filing pursuant to paragraph (a)(1)
/ / On ( date ) pursuant to paragraph (a)(2) of Rule 485.
/ X / On July 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
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EQUITY/GLOBAL
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Scudder International
Growth and Income Fund Fund #300
Prospectus
July 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
Growth and Income 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 and Oversees the Fund
9 Financial Highlights
How to invest in the fund
11 How to Buy Shares
12 How to Exchange or Sell Shares
13 Policies You Should Know About
18 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.
Remember that mutual funds are investments, not bank
deposits. They're not insured or guaranteed by the FDIC or
any other organization. Their share prices will go up and
down, so be aware that you could lose money.
You can access all Scudder fund prospectuses online at
www.scudder.com
<PAGE>
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ticker symbol | SIGIX fund number | 300
Scudder International Growth and
Income Fund
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Investment Approach
The fund seeks long-term growth of capital and current
income by investing at least 80% of net assets in foreign
equities (equities issued by foreign-based companies and
generally listed on foreign exchanges). Although the fund
can invest in stocks of any size and from any region or
country, it invests primarily in common stocks of
established companies in countries with developed economies
(other than the United States).
In choosing stocks, the portfolio managers begin by
screening for yields. Each month, they examine a universe of
about 1,200 stocks, seeking those with dividends at least
25% above the stock's three-year average or the median for
the stock's local market.
To further narrow the pool of potential stocks, the managers
use bottom-up analysis, looking for companies with sound
balance sheets, good business prospects, strong competitive
positioning, and effective management. The managers assemble
the fund's portfolio from among the qualifying stocks,
drawing on analysis of economic outlooks for various
countries and industries. The managers intend to keep the
fund's holdings diversified across countries and industries,
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 its dividends are
25% lower than the stock's own three-year average or the
median for the stock's local market. It may also sell a
stock when it reaches a target price or when the managers
believe other investments offer better opportunities.
THE ORIGINAL DOCUMENT CONTAINS THE FOLLOWING SIDEBAR INFORMATION NEXT TO THE
PRECEDING TWO 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 stocks, preferred stocks, and depositary
receipts. The fund may also invest up to 20% of net assets in foreign debt
securities, including convertible bonds.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, commodities,
currencies, or securities), the managers don't intend to use them as principal
investments.
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2 | Scudder International Growth and Income Fund
<PAGE>
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[GRAPHIC OMITTED] This fund may make sense for investors who are looking for
a fund that takes a relatively conservative approach to
international investing.
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Main Risks to Investors
There are several risk factors that could hurt the fund's
performance, cause you to lose money, or make the fund
perform less well than other investments.
As with most stock funds, the most important factor with
this fund is how stock markets perform -- in this case,
foreign markets. When foreign stock prices fall, you should
expect the value of your investment to fall as well. Foreign
stocks also tend to be more volatile than their U.S.
counterparts, for reasons ranging from political and
economic uncertainties to a higher risk that essential
information may be incomplete or wrong. While developed
foreign markets may be less risky than emerging markets,
increasing globalization can make any market vulnerable to
events elsewhere in the world. 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 to the extent that the fund focuses on income, it may
end up avoiding opportunities in faster-growing
industries or companies
o some derivatives could produce disproportionate losses
o in unusual circumstances, the fund might find it
difficult to value some investments accurately or to
get a fair price for them
3 | Scudder International Growth and Income Fund
<PAGE>
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[GRAPHIC OMITTED] While a fund's past performance isn't necessarily a sign of
how it will do in the future, it can be valuable for an
investor to know. This page looks at fund performance two
different ways: year by year and over time.
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The Fund's Track Record
The bar chart below shows the fund's total return for its
first complete calendar year. Below the chart is a table
showing average annual total returns for the fund and a
broad-based market index (which, unlike the fund, does not
have any fees or expenses). The performance of both the fund
and the index varies over time. All figures on this page
assume reinvestment of dividends and distributions.
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Annual Total Returns (%) as of 12/31 each year
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THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
'98 9.45
1999 Total Return as of March 31: -3.07%
Best Quarter: 15.37%, Q1 `98 Worst Quarter: -17.48%, Q3 `98
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Average Annual Total Returns (%) as of 12/31/98
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Since
1 Year Inception^1
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Fund 9.45 4.57
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Index 18.76 6.05
Index: MSCI EAFE plus Canada Index, an unmanaged
capitalization- weighted measure of stock markets in Europe,
Australia, the Far East, and Canada.
1 Since 6/30/97.
4 | Scudder International Growth and Income Fund
<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.
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Fee Table
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Shareholder Fees (paid directly from your investment)
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Sales Charges/Redemption Fees None
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Annual Operating Expenses (deducted from fund assets)
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Management Fee 1.00%
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Distribution (12b-1) Fee None
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Other Expenses* 1.19%
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Total Annual Operating Expenses 2.19%
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Expense Reimbursement 0.44%
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Net Annual Operating Expenses** 1.75%
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* Includes costs of shareholder servicing, custody,
accounting services, and similar expenses, which may
vary with fund size and other factors.
** By contract, expenses are capped at 1.75% through
6/30/00.
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Expense Example
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Based on the costs above (including one year of capped
expenses), this example is designed to help you compare this
fund's expenses to those of other funds. The example assumes
you invested $10,000, earned 5% annual returns, reinvested
all dividends and distributions, and sold your shares at the
end of each period. Remember that this is only an example,
and that actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
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$178 $643 $1,134 $2,489
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5 | Scudder International Growth and Income Fund
<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 Board
of Directors could change the fund's investment goal
and other policies without seeking shareholder
approval.
o This fund may trade more securities than some other
global equity funds. This could raise transaction costs
(and lower performance) and could mean higher taxable
distributions.
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.
THE ORIGINAL DOCUMENT CONTAINS THE FOLLOWING SIDEBAR INFORMATION NEXT TO THE
PRECEDING TWO PARAGRAPHS.
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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).
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6 | Scudder International Growth and Income Fund
<PAGE>
[GRAPHIC OMITTED] Scudder Kemper, the company with overall responsibility for
managing the fund, takes a team approach to asset
management.
Who Manages and Oversees the Fund
The investment adviser
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 $280 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 0.56% of its average daily net assets.
The portfolio managers
Below are the people who handle the fund's day-to-day
management.
Sheridan P. Reilly Lauren C. Lambert
Lead Portfolio Manager o Began investment career
o Began investment career in 1987
in 1983 o Joined the adviser in
o Joined the adviser in 1995 1994
o Joined the fund team o Joined the fund team in
in 1997 1999
7 | Scudder International Growth and Income Fund
<PAGE>
The directors
The Board of Directors for the fund is responsible for the
general oversight of the fund's business. A majority of the
board's members are not affiliated with Scudder Kemper. The
independent directors have primary responsibility for
assuring that the fund is managed in the best interests of
its shareholders.
Lynn S. Birdsong Kathryn L. Quirk
o Chairman of the Board and o Director; Managing
Director; Managing Director of Scudder
Director of Scudder Kemper Kemper Investments, Inc.
Investments, Inc. Joan E. Spero
Paul Bancroft III o Director; President,
o Director; Venture Doris Duke Charitable
Capitalist and Consultant Foundation
Sheryle J. Bolton Thomas J. Devine
o Director; Chief Executive o Honorary Director;
Officer, Scientific Consultant
Learning Corporation William H. Gleysteen, Jr.
William T. Burgin o Honorary Director;
o Director; General Partner, Consultant; Guest
Bessemer Venture Partners Scholar, Brookings
Keith R. Fox Institute
o Director; Private Equity Wilson Nolen
Investor o Honorary Director;
William H. Luers Consultant
o Director; Chairman and Robert G. Stone, Jr.
President, U.N. o Honorary Director;
Association of the U.S.A. Chairman Emeritus and
Director, Kirby
Corporation
8 | Scudder International Growth and Income Fund
<PAGE>
Financial Highlights
This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part 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).
<TABLE>
<CAPTION>
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Years ended February 28, 1999(a) 1998(a)(c)
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<S> <C> <C>
Net asset value, beginning of period $12.68 $12.00
------------------------
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Income from investment operations:
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Net investment income .14 .01
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Net realized and unrealized gain (loss) on investment
transactions (.79) .69
------------------------
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Total from investment operations (.65) .70
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Less distributions from:
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Net investment income (.10) (.02)
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Total distributions (.10) (.02)
------------------------
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Net asset value, end of period $11.93 $12.68
------------------------
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Total Return (%) (b) -5.20 5.80**
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Ratios and Supplemental Data
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Net assets, end of period ($ millions) 46 49
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Ratio of operating expenses, net to average daily net
assets (%) 1.75 1.75*
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Ratio of operating expenses before expense reductions, to 2.19 2.65*
average daily net assets (%)
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Ratio of net investment income to average daily net assets 1.10 .17*
(%)
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Portfolio turnover rate (%) 131.3 50.2*
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</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) For the period June 30, 1997 (commencement of operations) to February 28,
1998.
* Annualized
** Not annualized
9 | Financial Highlights
<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, all of this information applies to you.
If you're investing through a "third party provider" -- for
example, a workplace retirement plan, financial supermarket,
or financial adviser -- your provider may have its own
policies or instructions, and you should follow those.
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
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First investment Additional investments
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<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an
Automatic Investment Plan
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By mail 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
appropriate address, along o If you don't have an
with an investment check investment slip, simply
include a letter with your
name, account number, the
full name of the fund, and
your investment instructions
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By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
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In person o Visit one of our Scudder o Drop off your check and
(see below) Investor Centers, where a investment information at any
representative can help you Scudder Investor Center
fill out an application
- -----------------------------------------------------------------------------------
By phone -- o Call 1-800-SCUDDER for
instructions
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With an automatic -- o To set up regular investments
investment plan from a bank checking account,
call 1-800-SCUDDER
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Using QuickBuy -- o Call 1-800-SCUDDER
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[GRAPHIC OMITTED] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified: 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)
</TABLE>
11 | How to Buy Shares
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell 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 Some transactions, including
account ($1,000 for IRAs) most for over $100,000, can only
be ordered in writing; if you're in doubt,
$100 or more for exchanges see page 15
between existing accounts
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By phone or wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
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Using SAIL(TM) o Call 1-800-343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
- -----------------------------------------------------------------------------------
By mail, express, Write a letter that includes: Write a letter that includes:
or fax o the fund, class, and account o the fund, class, and account
(see previous number you're exchanging out number from which you want to
page) of sell shares
o the dollar amount or number o the dollar amount or number
of shares you want to exchange of shares you want to sell
o the name and class of the o your name(s), signature(s),
fund you want to exchange into and address, as they appear
on your account
o your name(s), signature(s),
and address, as they appear o a daytime telephone number
on your account
o a daytime telephone number
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With an automatic -- o To set up regular cash
withdrawal plan payments from a Scudder fund
account, call 1-800-SCUDDER
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Using QuickSell -- o Call 1-800-SCUDDER
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</TABLE>
12 | How to Exchange or Sell Shares
<PAGE>
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[GRAPHIC OMITTED] Questions? You can speak to a Scudder representative between
8 a.m. and 8 p.m. eastern time on any fund business day by
calling 1-800-SCUDDER.
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Policies You Should Know About
Along with the instructions on the previous pages, the
policies below may affect you as a shareholder. Some of this
information, such as the section on dividends and taxes,
applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check
the materials you got from them. As a general rule, you
should follow the information in those materials wherever it
contradicts the information given here. Please note that an
investment provider may charge its own fees.
Policies about transactions
The fund is open for business whenever the New York Stock
Exchange is open. The fund calculates its share price every
business day, as of the close of regular trading on the
Exchange (typically 4 p.m. eastern time, but sometimes
earlier, as in the case of scheduled half-day trading or
unscheduled suspensions of trading).
You can place an order to buy or sell shares at any time.
Once your order is received by Scudder Service Corporation,
and they have determined that it is a "good order," it will
be processed at the next share price calculated.
Because orders placed through investment providers 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.
13 | Policies You Should Know About
<PAGE>
SAIL(TM), the Scudder Automated Information Line, is
available 24 hours a day by calling 1-800-343-2890. You can
use SAIL to get information on Scudder funds generally and
on accounts held directly at Scudder. You can also use it to
make exchanges and sell shares.
QuickBuy and QuickSell let you set up a link between a
Scudder account and a bank account. Once this link is in
place, you can move money between the two with a phone call.
You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a
new account, see the account application; to add it to an
existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask
you for certain information, or take other steps designed to
prevent fraudulent orders. It's important to understand that
as long as we take reasonable steps to ensure that an order
appears genuine, we are not responsible for any losses that
may occur.
When you ask us to send or receive a wire, please note that
while we don't charge a fee to receive wires, we will deduct
a $5 fee from all wires sent from us to your bank. Your bank
may charge its own fees for handling wires. The 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 or other reasons.
14 | Policies You Should Know About
<PAGE>
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[GRAPHIC OMITTED] 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.
- --------------------------------------------------------------------------------
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.
15 | Policies You Should Know About
<PAGE>
How the fund calculates share price
The fund's share price is its net asset value per share, or
NAV. To calculate NAV, the fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However,
when a market price isn't available, or when we have reason
to believe it doesn't represent market realities, we may use
fair value methods approved by the fund's Board of
Directors. In such a case, the fund's value for a security
is likely to be different from quoted market prices.
Because the 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.
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 we 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
16 | Policies You Should Know About
<PAGE>
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[GRAPHIC OMITTED] If you ever have difficulty placing an order by phone or
fax, you can always send us your order in writing.
- --------------------------------------------------------------------------------
o reject new account applications without correct Social
Security or tax identification numbers; or in either
case, if an account is established, give you 30 days'
notice during which time you may provide to us your
correct certified Social Security or tax identification
number or we may close your account
o charge you $10 a year if your account balance falls
below $2,500, and close your account and send you the
proceeds if your balance falls below $1,000; in either
case, we will give you 60 days' notice so you can
either increase your balance or close your account
(these policies don't apply to retirement accounts, to
investors with $100,000 or more in Scudder fund shares,
or in any case where a fall in share price created the
low balance)
o reject a new account application if you don't provide a
correct Social Security or other tax ID number; if the
account has already been opened, we may give you 30
days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind,"
that is, by giving you marketable securities (which
typically will involve brokerage costs for you to
liquidate) rather than cash; 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)
17 | Policies You Should Know About
<PAGE>
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its
shareholders virtually all of its net earnings. A fund can
earn money in two ways: by receiving interest, dividends or
other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's
earnings are separate from any gains or losses stemming from
your own purchase of shares.) A fund may not always pay a
distribution for a given period.
The fund intends to pay dividends and distributions to its
shareholders in June and 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.
18 | Understanding Distributions and Taxes
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] 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.
19 | Understanding Distributions and Taxes
<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. Shareholders get these reports automatically. To
reduce costs, we mail one copy per household. For more
copies, call 1-800-SCUDDER.
Statement of Additional Information (SAI) -- This tells you
more about 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 copying 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, D.C. 20549-6009
1-800-SCUDDER 1-800-SEC-0330
www.scudder.com www.sec.gov
<PAGE>
SCUDDER INTERNATIONAL GROWTH AND INCOME FUND
A series of Scudder International Fund, Inc.
A Mutual Fund Which Seeks to Provide
Long-Term Growth of Capital and Current Income Primarily
From Foreign Equity Securities
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
July 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectus of Scudder International Growth and
Income Fund dated July 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 Growth and
Income Fund dated February 28, 1999 is incorporated by reference and is hereby
deemed to be a part of this Statement of Additional Information.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investments..................................................................................................1
Master/feeder structure......................................................................................3
Specialized Investment Techniques............................................................................7
Investment Restrictions.....................................................................................17
PURCHASES............................................................................................................19
Additional Information About Opening An Account.............................................................19
Minimum Balances............................................................................................19
Additional Information About Making Subsequent
Investments............................................................................................20
Additional Information About Making Subsequent
Investments by QuickBuy................................................................................20
Checks......................................................................................................20
Wire Transfer of Federal Funds..............................................................................21
Share Price.................................................................................................21
Share Certificates..........................................................................................21
Other Information...........................................................................................21
EXCHANGES AND REDEMPTIONS............................................................................................22
Exchanges...................................................................................................22
Redemption By Telephone.....................................................................................23
Redemption by QuickSell.....................................................................................23
Redemption by Mail or Fax...................................................................................24
Redemption-in-Kind..........................................................................................24
Other Information...........................................................................................24
FEATURES AND SERVICES OFFERED BY THE FUND............................................................................25
The No-Load Concept.........................................................................................25
Internet access.............................................................................................26
Dividends and Capital Gains Distribution Options............................................................27
Scudder Investor Centers....................................................................................27
Reports to Shareholders.....................................................................................27
Transaction Summaries.......................................................................................28
THE SCUDDER FAMILY OF FUNDS..........................................................................................28
SPECIAL PLAN ACCOUNTS................................................................................................33
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.........................................................34
Scudder IRA: Individual Retirement Account.................................................................34
Scudder Roth IRA: Individual Retirement Account............................................................35
Scudder 403(b) Plan.........................................................................................35
Automatic Withdrawal Plan...................................................................................35
Group or Salary Deduction Plan..............................................................................36
Automatic Investment Plan...................................................................................36
Uniform Transfers/Gifts to Minors Act.......................................................................36
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................36
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
PERFORMANCE INFORMATION..............................................................................................37
Average Annual Total Return.................................................................................37
Cumulative Total Return.....................................................................................38
Total Return................................................................................................38
Comparison of Fund Performance..............................................................................38
Taking a Global Approach....................................................................................42
FUND ORGANIZATION....................................................................................................43
INVESTMENT ADVISER...................................................................................................44
Personal Investments by Employees of the Adviser............................................................47
DIRECTORS AND OFFICERS...............................................................................................47
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
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder International Growth and Income Fund (the "Fund"), is a
diversified series of Scudder International Fund, Inc. (the "Corporation"), an
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.
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. If there is a change in the
Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs.
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 objectives are to seek long-term growth of
capital and current income primarily from foreign equity securities. The Fund
invests generally in common stocks of established companies listed on foreign
exchanges, which offer prospects for growth of earnings while paying relatively
high current dividends.
To the extent consistent with the Fund's objectives of long-term growth
of capital and current income, as described in the preceding paragraph, it is
the policy of the Fund to provide shareholders with participation in the growth
of economies of a number of countries, other than the U.S. The Fund may purchase
securities of companies, wherever organized, which, in the judgment of the
Adviser have their principal activities and interests outside of the U.S.
Investments
The Fund will normally invest at least 80% of its net assets in equity
securities of established non-U.S. companies. The Fund may invest in securities
of companies incorporated in the U.S. and having their principal activities and
interests outside of the U.S.
At least 80% of the Fund's net assets will be invested in the equity
securities of established non-U.S. companies listed on recognized foreign
exchanges, but may also be invested in securities traded over-the-counter. 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 the potential for appreciation and income will equal
or exceed that available from investment in equity securities, up to 20% of the
net assets of the Fund may be invested in debt securities convertible into
common stock and fixed-income securities of governments, governmental agencies,
supranational organizations and private issuers, including bonds denominated in
the European Currency Unit (the "Euro"). These securities will predominantly be
"investment grade" securities which are those rated Aaa, Aa, A or
<PAGE>
Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by
Standard and Poor's Corporation ("S&P"), or if unrated, judged by the Adviser to
be of equivalent quality. The Fund may also invest up to 5% of its total assets
in debt securities which are rated below investment grade. In determining the
location of the principal activities and interests of a company, the Adviser
takes into account such factors as the location of the company's assets,
personnel, sales and earnings.
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 investment approach to selecting
stocks for the Fund. Initially, the Adviser will analyze a pool of approximately
1,200 foreign dividend-paying securities, primarily from the world's more mature
markets, and target those stocks that have relative yields of 25% or higher
compared to the stock's three-year average or the median for the stock's
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 stocks with higher yields
tend to have more attractive valuations (e.g., lower price-to-earning ratios and
lower price-to-book ratios).
Once the Adviser has eliminated stocks which do not meet its yield
criteria, the Adviser will then further narrow the pool of potential stocks by
conducting a fundamental analysis of each company. This involves looking at
various factors such as the company's financial strength, profitability,
projected earnings, competitive positioning, and ability of management. The
Adviser will then assemble the Fund's portfolio from among the remaining
qualifying, attractive stocks, while diversifying the portfolio among industry
sectors. The key element of industry diversification is evaluating how stocks in
different sectors react to economic factors such as interest rates, inflation,
Gross Domestic Product, and consumer spending, and then selecting a proper
balance of stocks in those sectors based on the Adviser's economic forecasts.
The Adviser also seeks to diversify the portfolio among different countries. The
Adviser will seek to establish broad country diversification by favoring those
countries that it believes have sound economic conditions and open markets. Of
course, if the Adviser's economic forecasts warrant such action, the Adviser may
increase or reduce the Fund's exposure to a particular industry or country. The
Adviser's strategy seeks to manage risk and create opportunity throughout the
investment process by initially focusing with the focus on stocks with high
relative yields, and then making its investment decisions based on fundamental
analysis of particular companies and a desire to diversify the portfolio.
The Adviser applies an equally disciplined approach for selling stocks
of the Fund. The Adviser again initially focuses on yields, and will normally
sell a stock when its dividends are 25% lower than the stock's three-year
average or the median for its market. The Adviser may also sell a stock when it
reaches a target price, or when the Adviser determines that other investments
may offer greater return potential.
2
<PAGE>
The Fund may invest in any type of security including, but not limited
to shares of stock, preferred or common; bonds and other evidences of
indebtedness; and other securities of issuers wherever organized, and not
excluding evidences of indebtedness of governments and their political
subdivisions. The Fund, in view of its investment objectives, intends under
normal conditions to maintain a portfolio consisting primarily of a diversified
list of equity securities.
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
market conditions so warrant. The Fund may invest up to 20% of its net assets
under normal circumstances, 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 for how long alternate
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 illiquid 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.
Master/feeder structure
The Board of Directors of the Fund ("the Board" or "the 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
3
<PAGE>
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 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 certificated 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
4
<PAGE>
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 at 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 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-
5
<PAGE>
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 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 greater 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
Depository Receipts may be more volatile than if they were sponsored by the
issuer of the underlying securities. Depository Receipts may not necessarily 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 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.
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.
6
<PAGE>
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 in most foreign countries than in the U.S. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Payment for
securities without delivery may be required in certain foreign markets. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
Many of the currencies of foreign countries have experienced a steady
devaluation relative to western currencies. Any future devaluation may have a
detrimental impact on any investments made by a Fund in such countries. The
currencies of some foreign countries are not freely convertible into other
currencies and are not internationally traded. A 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 each 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 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
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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.
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.
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 upon time and price. The
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.
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Convertible Securities. The Fund may invest in convertible securities, i.e.,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest are either
fixed-income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in the common stock of the same issuer.
As fixed-income securities, convertible securities are investments
which provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes ("LYONs"(TM)). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the purchase price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
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 and current
income, the Fund may invest up to 20% of its net assets in debt securities
including bonds of foreign governments, supranational organizations and private
issuers, including bonds denominated in the Euro. 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. The lower that a bond is rated, the
greater their risks render them similar to equity securities. To the extent that
the Fund invests in high-grade securities, the Fund will not be able to avail
itself of opportunities for higher income which may be available at lower
grades.
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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 net assets in securities
rated BB or lower by Moody's or Ba by S&P, and may invest in securities which
are rated D by S&P. Securities rated D may be in default with respect to payment
of principal or interest. See the Appendix to this Statement of Additional
Information for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.
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 interests 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
information concerning tax issues related to high yield/high risk securities,
see "TAXES".)
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, 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. This
investment practice, therefore, could have the effect of increasing the level of
illiquidity of a Fund. It is each Fund's policy that illiquid securities
(including repurchase agreements of more than seven days duration, certain
restricted securities, and other securities which are not readily marketable)
may not constitute, at the time of purchase, more than 15% of the value of the
Funds' net assets. The Corporation's Board of Directors has approved guidelines
for use by the Adviser in determining whether a security is illiquid. Only
Emerging Markets Growth Fund has adopted 144A procedures.
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Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. 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 a 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, a
Fund may be required to bear all or part of the registration expenses. A Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Adviser will monitor such restricted securities subject to the supervision of
the Board of Directors. Among the factors the Adviser may consider in reaching
liquidity decisions relating to Rule 144A securities are: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
the transfer).
Lending of Portfolio Securities. The Fund may seek to increase its net income by
lending portfolio securities. Such loans may be made to registered
broker/dealers or other financial institutions and are required to be secured
continuously by collateral in cash or liquid assets maintained on a current
basis at an amount at least equal to the market value and accrued interest of
the securities loaned. The Fund has the right to call a loan and obtain the
securities loaned on five days notice or, in connection with securities trading
on foreign markets, within such longer period of time which coincides with the
normal settlement period for purchases and sales of such securities in such
foreign markets. During the existence of a loan, 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.
The risks in lending securities, as with other extensions of secured credit,
consist of a possible delay in recovery or even a loss of rights in the
collateral should the borrower of the securities fail financially. Loans will
only be made to firms deemed by the Adviser to be of good standing, and will not
be made unless, in the judgement of the Adviser, the consideration to be earned
from such loans would justify their risks. 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, or enhancing potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as 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
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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. 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 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, 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
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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 of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from 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 other 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 10% of its assets in illiquid securities.
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 contracts 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
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<PAGE>
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices and currencies.
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 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 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 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
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<PAGE>
with Counterparties which have received (or the guarantors of the obligations of
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.
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.
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.
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<PAGE>
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 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 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.
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
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<PAGE>
assets at least equal to the current amount of the obligation must be segregated
with the custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by a Fund will require that
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 assets -sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a Fund on an index will require that Fund to
own portfolio securities which correlate with the index or to segregate liquid
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by a Fund requires that Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid assets denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by a Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when a
Fund sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by a Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when a Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, a Fund will segregate, until the
option expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by a Fund other than those
above generally settle with physical delivery, and a Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, each Fund must
deposit initial margin and, possibly, daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, short-term 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, 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 policies set forth below are fundamental policies of the Fund and
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.
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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 a Funds' 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 Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(3) purchase physical commodities or contracts relating to
physical commodities;
(4) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(5) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(6) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities; and
(7) make loans 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
non-fundamental 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 non-fundamental policy, the Fund does not currently
intend to:
(a) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(b) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(c) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(d) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(e) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the
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<PAGE>
Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the
Fund's total assets; provided that in the case of an option
that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit;
(f) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(g) lend portfolio securities in an amount greater than 5% of its
total assets.
The foregoing nonfundamental policies are in addition to policies
otherwise stated in the Prospectus or in this Statement of Additional
Information.
PURCHASES
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. 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, 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 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.
Each 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
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<PAGE>
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.
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 Corporation shall have the authority, as agent
of the shareholder, to redeem shares in the account in order to reimburse the
Fund or the principal underwriter for the loss incurred. Net losses on such
transactions which are not recovered from the purchaser will be absorbed by the
principal underwriter. Any net profit on the liquidation of unpaid shares will
accrue to the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange, Inc. (the "Exchange"), normally 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. QuickBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
QuickBuy and redeem them within seven days of the purchase, the Fund may hold
the redemption proceeds for a period of up to seven 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 a 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.
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Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of 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 include Columbus Day (the 2nd Monday in
October) and Veterans' Day (November 11). Investors are not able to purchase
shares by wiring federal funds on such holidays because the Custodian is not
open to receive such federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
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 receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") in Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Corporation's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
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.
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<PAGE>
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.
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 the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Corporation and the Transfer Agent each reserves the right to
suspend or terminate the privilege of the Automatic Exchange Program at any
time.
There is no charge to the shareholder for any exchange described above.
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
22
<PAGE>
the Transfer Agent each reserves the right to suspend or terminate the privilege
of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds or classes 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 that 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.
23
<PAGE>
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 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 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,
24
<PAGE>
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 Fund's 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 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
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.
25
<PAGE>
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 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 No-Load Fund with
No-Load(TM) Load Fund with 0.75% 0.25% 12b-1
YEARS Fund 8.50% Load Fund 12b-1 Fee Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <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.
Scudder 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.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
26
<PAGE>
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
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 must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders also may change their dividend option either
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request.
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 in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the 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.
Reports to Shareholders
The Corporation issues shareholders audited semiannual and annual
financial statements audited by independent accountants, including a list of
investments held and statements of assets and
27
<PAGE>
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.
28
<PAGE>
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.
29
<PAGE>
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide high income while
managing its portfolio in a way that is consistent with maintaining a
high degree of stability of shareholders' capital. It does this by
investing mainly in bonds with short remaining maturities.
Scudder GNMA Fund seeks to provide high income. It does this by
investing mainly in "Ginnie Maes": mortgage-backed securities that are
issued or guaranteed by the Government National Mortgage
Association (GNMA).
Scudder Income Fund seeks to provide high income while managing its
portfolio in a way that is consistent with the prudent investment of
shareholders' capital. It does this by using a flexible investment
program that emphasizes high-grade bonds.
Scudder Corporate Bond Fund seeks to provide high income. It does this
by investing mainly in corporate bonds.
Scudder High Yield Bond Fund seeks to provide high income and,
secondarily, capital appreciation. It does this by investing mainly in
lower rated, higher yielding corporate bonds, often called junk bonds.
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.
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<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
investment 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 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 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.
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<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.
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.
- -----------------------------
*** Only the International Shares are part of the Scudder Family of Funds.
** Only the Scudder Shares are part of the Scudder Family of Funds.
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<PAGE>
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 plans. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
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.
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<PAGE>
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.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- -----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ---------------------------------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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.)
<TABLE>
<CAPTION>
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%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
34
<PAGE>
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, certain medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s). 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
35
<PAGE>
shareholder, the Corporation or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Corporation of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Corporation and its agents reserve the right to establish a
maintenance charge in the future depending on the services required by the
investor.
The Corporation reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Corporation reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
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.
36
<PAGE>
(See "TAXES.") If the Fund does not distribute the amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, the Fund may be subject to that excise tax. In certain circumstances, the
Fund may determine that it is in the interest of shareholders to distribute less
than the required amount. (See "TAXES.")
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends paid deduction on its federal tax return.
The Fund intends to distribute dividends from its net investment income
semiannually in June and December. The Fund intends to distribute net realized
capital gains after utilization of capital loss carryforwards, if any, in
November or December to prevent application of a federal excise tax. An
additional distribution may be made, if necessary.
Both types of distributions will be made in shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures are calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for periods of one year and the life of the Fund, all ended on the last
day of a recent calendar quarter. Average Annual Total Return quotations reflect
changes in the price of the Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average Annual Total Return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods
according to the following formula (Average Annual Total Return is then
expressed as a percentage):
T = (ERV/P)1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = Ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Average Annual Total Return for the period ended February 28, 1999
One Year Life of the Fund (1)*
--------
-5.20% 0.18 %
37
<PAGE>
* For the period beginning June 30, 1997 (commencement of operations).
(1) The Adviser maintained Fund expenses for the period June 30, 1997
(commencement of operations) through February 28, 1999. The Average Annual
Total Return for the period ended February 28, 1999 would have been lower
if the Adviser had not maintained expenses.
Cumulative Total Return
Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = Ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative Total Return for the periods ended February 28, 1999
One Year Life of the Fund (1)*
-------
-5.20% 0.30 %
* For the period beginning June 30, 1997 (commencement of operations).
(1) The Adviser maintained Fund expenses for the period June 30, 1997
(commencement of operations) through February 28, 1999. The Cumulative
Total Return for the period ended February 28, 1999 would have been lower
if the Adviser had not maintained 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.
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.
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the Nasdaq OTC Composite Index, the Nasdaq
Industrials Index, the Russell 2000 Index, the Wilshire Real Estate Securities
Index and statistics published by the Small Business Administration.
38
<PAGE>
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 Fund, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. 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
39
<PAGE>
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.
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.
40
<PAGE>
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.
SmartMoney, 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.
41
<PAGE>
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.
42
<PAGE>
FUND ORGANIZATION
The Corporation was organized as Scudder Fund of Canada Ltd. in Canada
in 1953 by the investment management firm of Scudder, Stevens & Clark, Inc. On
March 16, 1964, the name of the Corporation was changed to Scudder International
Investments Ltd. On July 31, 1975, the corporate domicile of the Corporation was
changed to the U.S. through the transfer of its net assets to a newly formed
Maryland corporation, Scudder International Fund, Inc., in exchange for shares
of the Corporation which then were distributed to the shareholders of the
Corporation.
The authorized capital stock of the Corporation consists of 1 billion
shares of a par value of $.01 each, which capital stock has been divided into
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 Scudder International Fund
which consists of 300 million shares. Scudder International Fund is further
divided into three classes of shares, the International Shares, the Barrett
International Shares and the Class R Shares. The Directors have the authority to
issue additional series of shares and to designate the relative rights and
preferences as between the different series. All shares issued and outstanding
are fully paid and non-assessable, transferable, and redeemable at net asset
value at the option of the shareholder. Shares have no pre-emptive or conversion
rights.
The shares of the Corporation have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with such a share of
the general liabilities of the Corporation. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Directors, in their discretion, may authorize the division of
shares of the Corporation (or shares of a series) into different classes
permitting shares of different classes to be distributed by different methods.
Although shareholders of different classes of a series would have an interest in
the same portfolio of assets, shareholders of different classes may bear
different expenses in connection with different methods of distribution.
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
43
<PAGE>
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.
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 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 InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The
44
<PAGE>
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
August 6, 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.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in Scudder Kemper) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
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 approved a new investment management agreement
(the "Agreement") with Scudder Kemper, which is substantially identical to the
prior 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 their continuance is approved annually
by the vote of a majority of those Directors who are not parties to such
Agreements or interested persons of the Adviser or the Corporation, cast in
person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Corporation's Directors or of a majority of the
outstanding voting securities of the 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.
45
<PAGE>
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 what
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 Fund's operations as an open-end investment company including, but not
limited to, preparing reports and notices to the Directors and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the 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.
For these services, the pays the Adviser an annual fee equal to 1.00%
of the Fund's average daily net assets, payable monthly, provided the Fund will
make such interim payments as may be requested by the adviser not to exceed 75%
of the amount of the fee then accrued on the books of the Fund and unpaid. Until
June 30, 2000, the Adviser has agreed not to impose all or a portion of its
management fee in order to maintain the total annualized expenses of the Fund at
not more than 1.75% of average daily net assets of the Fund. For the period June
30, 1997 (commencement of operations) to February 28, 1998 the Adviser did not
impose a portion of its management fee which amounted to $255,434, and the
amount imposed amounted to $36,408, and for the fiscal year ended February 28,
1999 the Adviser did not impose a portion of its management fee which amounted
to $234,812, and the amount imposed amounted to $304,307, of which $19,345 is
unpaid at February 28, 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 Fund with
respect thereto.
The Agreement expressly provides that the Adviser shall not be required
to pay a pricing agent of the Fund for portfolio pricing services, if any.
46
<PAGE>
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 Fund may have dealings with
the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age, and 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.
47
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
Nicholas Bratt *#(50) President Managing Director of Scudder Kemper --
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
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 1999)
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
48
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
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, 39th Corporation (inland and offshore
Floor marine transportation and diesel
New York, NY 10174 repairs)
Elizabeth J. Allan # (45) Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Irene T. Cheng #(44) Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Joyce E. Cornell #(55) Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Edmund B. Games, Jr. +(61) 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.
Carol L. Franklin #(46) Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Thomas W. Joseph + (59) Vice President Senior Vice President of Scudder Director, Vice
Kemper Investments, Inc. President, Treasurer
and Assistant Clerk
Ann M. McCreary Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Sheridan Reilly #(47) Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
Shahram Tajbakhsh ##(42) Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
49
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
John R. Hebble +(40) Treasurer Senior Vice President of Scudder Assistant Treasurer
Kemper Investments, Inc.
Caroline Pearson +(37) Assistant Secretary Senior Vice President of Scudder Clerk
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
Richard W. Desmond # (62) Assistant Secretary Vice President of Scudder Kemper --
Investments, Inc.
</TABLE>
* Mr. Birdsong and Ms. Quirk are considered by the Corporation 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 Fund also serve in similar capacities
with respect to other Scudder Funds.
To the knowledge of the Corporation, as of May 31, 1999, all Directors
and officers as a group owned less than 1% of the Fund's outstanding shares.
To the best of the Fund's knowledge, as of May 31, 1999, no person
owned beneficially more than 5% of the Fund's outstanding shares.
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 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.
50
<PAGE>
Compensation of Officers and Directors
The Independent Directors receive the following compensation from the
Funds of International Fund, Inc.: an annual director's fee of $3,500; a fee of
$325 for attendance at each board, meeting, audit committee meeting or other
meeting held for the purposes of considering arrangements between the
Corporation on behalf of each 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, $45,200 $0.00 $149,050 $0
Director (23 funds)
William T. Burgin, $45,200 $2,550 $150,950 $8,925
Director (23 funds)
Thomas J. Devine, $45,200 $2,550 $162,450 $8,925
Honorary Director (24 funds)
Keith R. Fox, $46,700 $2,550 $156,800 $8,925
Director (23 funds)
William H. Gleysteen, $45,200 $2,550 $123,200*** $4,675
Jr., Honorary Director (17 funds)
William H. Luers, $40,700 $2,550 $157,050 $8,925
Director (26 funds)
Wilson Nolen, Honorary $45,200 $2,550 $189,075 $6,375
Director (24 funds)
Joan E. Spero, $10,008 $0 $29,736 $0
Director** (23 funds)
</TABLE>
(1) Meetings associated with the Adviser's alliance with B.A.T Industries
p.l.c.. See "Investment Adviser" for additional information.
51
<PAGE>
* 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 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.
Note: Although the Fund does not currently have a 12b-1 Plan, the Fund would
also pay those fees and expenses permitted to be paid or assumed by the
Fund pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent, the Distributor currently offers shares of 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.
52
<PAGE>
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.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such an event,
dividend distributions would be taxable to shareholders to the extent of the
Fund's earnings and profits, and would be eligible for the dividends received
deduction in the case of corporate shareholders.
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. At February
28, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $1,700,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until February 28,
2006 ($215,000) and February 28, 2007 ($1,485,000), the expiration dates. In
addition, from November 1, 1998 through February 28, 1999, the Fund incurred
approximately $70,000 of net realized losses from foreign currency transactions.
As permitted by tax regulations, the Fund intends to elect to defer these losses
and treat them as arising in the fiscal year ending February 28, 2000.
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
53
<PAGE>
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 (up to $2,000 per
individual for married couples if only one spouse has 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 $4,000 to IRAs for an individual and his or her nonearning
spouse) 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 dais 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.
54
<PAGE>
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 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.
55
<PAGE>
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.
Investments by the Fund in zero coupon securities will result in income
to the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income which the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. In addition, if the
Fund invests in certain high yield original issue discount obligations issued by
corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such event, dividends of investment company taxable income
received from the Fund by its corporate shareholders, to the extent attributable
to such portion of accrued original issue discount, may be eligible for this
deduction for dividends received by corporations if so designated by the Fund in
a written notice to shareholders.
The Fund will be required to report to the IRS all distributions of
investment company taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of investment company taxable income and capital gains
and proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
56
<PAGE>
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 portfolio 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 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.
57
<PAGE>
For the period June 30, 1997 (commencement of operations) to February
28, 1998, the Fund paid brokerage commissions of $196,923. For the fiscal year
ended February 28, 1999, the Fund paid brokerage commissions of $284,874. For
the fiscal year ended February 28, 1999, $282,952 (99.33%) 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 services
to the Fund or the Adviser. The amount of such transactions aggregated
$127,122,525 (96.29%) of all brokerage transactions). The balance of such
brokerage was not allocated to a 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. A higher rate
involves greater brokerage transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. The Fund's
annualized portfolio turnover rate for the period June 30, 1997 (commencement of
operations) to February 28, 1998 was 50.2%. The Fund's portfolio turnover rate
for the fiscal year ended February 28, 1999 was 131.3%. This increase in
portfolio turnover was due to a number of factors, including the selling of many
securities that reached the manger's sell price targets, the implementation of
hedging strategies, an increase in the Fund's presence in certain Asian
countries, and a reduction in exposure to certain industry sectors,
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, less all liabilities, by the
total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the 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, but traded in another
over-the-counter market, is its most recent sale price. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean, the
security is valued at the most recent bid quotation.
Debt securities, other than money market instruments, are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Short-term
securities purchases 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.
58
<PAGE>
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 Fund's 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 semi-annual and annual 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 Fund is 811165604.
The Fund has a fiscal year end of February 28.
The Fund employs Brown Brothers Harriman & Company, 40 Water Street,
Boston, Massachusetts 02109 as Custodian. Brown Brothers Harriman & Company has
entered into agreements with foreign subcustodians approved by the Directors of
the Corporation pursuant to Rule 17f-5 of the 1940 Act.
Costs of $39,500 incurred by the Fund in conjunction with its
organization were deferred and are being amortized over a five-year period
beginning at the commencement of operations of the Fund.
The law firm of Dechert Price & Rhoads acts as general counsel to the
Fund.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for the Fund. SSC also serves as shareholder service
agent and provides subaccounting and recordkeeping services for shareholder
accounts in certain retirement and employee benefit
59
<PAGE>
plans. The Fund pays SSC an annual fee for each account maintained for a
participant. For the period June 30, 1997 (commencement of operations) to
February 28, 1998, the amount charged to the Fund by SSC aggregated $196,689,
and for the fiscal year ended February 28, 1999, the amount charged to the fund
by SSC aggregated $216,638, of which $16,635 was unpaid at February 28, 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 generally
held in an omnibus account.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays SFAC an annual fee equal to 0.065% of
the first $150 million of average daily net assets, 0.040% of such assets in
excess of $150 million, 0.020% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the period June 30, 1997
(commencement of operations) to February 28, 1998, the amount charged to the
Fund by SFAC aggregated $36,039, and for the fiscal year ended February 28,
1999, the amount charged to the Fund by SFAC aggregated $55,490, of which $8,780
was unpaid at February28, 1999.
Scudder Trust Company ("STC"), Two International Place, Boston, MA
02110-4103, a subsidiary of the Adviser, provides recordkeeping and other
services for certain retirement and employee benefit plan accounts. The Fund
pays STC an annual fee per shareholder account. For the period June 30, 1997
(commencement of operations) to February 28, 1998, the amount charged to the
Fund by STC aggregated $452, and for the fiscal year ended February 28, 1999,
the amount charged to the Fund by STC aggregated $5,789, of which $686 was
unpaid at February 28, 1999.
The Fund'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
Scudder International Growth and Income Fund, together with the report of
Independent Accountants, Financial Highlights and notes to financial statements
are incorporated by reference and attached hereto in the Annual Report to the
Shareholders of the Fund dated February 28, 1999 , and are deemed to be a part
of this Statement of Additional Information.
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>
PART C.
OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
- -------- --------
<S> <C> <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.
(Incorporated by reference to Post-Effective
Amendment No. 70 to the Registration
Statement.)
(h)(17) Agency Agreement between Scudder
International Fund, Inc., and Kemper Service
Company, dated June 7, 1999.
(Incorporated by reference to Post-Effective
Amendment No. 70 to the Registration
Statement.)
(i) Opinion of Counsel is filed herewith.
(j) Consent of Independent Accountants is filed
herewith.
(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 Schedule is filed herewith.
(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
7
<PAGE>
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 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.
8
<PAGE>
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,
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
9
<PAGE>
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 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.*
10
<PAGE>
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***
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
* 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
</TABLE>
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)
Position and Offices Positions and
Name and Principal with Scudder Investor Offices with
Business Address Services, Inc. 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 None
Two International Place Assistant Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice None
Two International Place President
Boston, MA 02110
Richard W. Desmond Vice President Assistant
345 Park Avenue Secretary
New York, NY 10154
Paul J. Elmlinger Senior Vice President and None
345 Park Avenue Assistant 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, Vice President
Two International Place Treasurer
Boston, MA 02110 and Assistant Clerk
Caroline Pearson Clerk Senior Vice
Two International Place President &
Boston, MA 02110 Assistant
Secretary
12
<PAGE>
Position and Offices Positions and
Name and Principal with Scudder Investor Offices with
Business Address Services, Inc. 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
Two International Place and Assistant Treasurer Board and Director
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice Director, Vice
345 Park Avenue President, Chief Legal President &
New York, NY 10154 Officer and Assistant Clerk Assistant
Secretary
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 None
Two International Place Compliance Officer
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Compensation
Underwriting on Redemptions
Name of Principal Discounts and And Brokerage Other
Underwriter Commissions 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(b) 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 June 29, 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 June 29, 1999
/S/ SHERYLE J. BOLTON
- --------------------------------------
Sheryle J. Bolton* Director June 29, 1999
/S/ WILLIAM T. BURGIN
- --------------------------------------
William T. Burgin* Director June 29, 1999
/S/ KEITH R. FOX
- --------------------------------------
Keith R. Fox* Director June 29, 1999
/S/ WILLIAM H. LUERS
- --------------------------------------
William H. Luers* Director June 29, 1999
/S/ JOAN SPERO
- --------------------------------------
Joan Spero* Director June 29, 1999
/S/ DANIEL PIERCE
- --------------------------------------
Daniel Pierce* Chairman of the Board and Director June 29, 1999
<PAGE>
/S/ KATHRYN L. QUIRK
- --------------------------------------
Kathryn L. Quirk* Director, Vice President and June 29, 1999
Assistant Secretary
/S/ JOHN R. HEBBLE
- --------------------------------------
John R. Hebble Treasurer June 29, 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. 71
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 51
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER INTERNATIONAL FUND, INC.
<PAGE>
SCUDDER INTERNATIONAL FUND, INC.
EXHIBIT INDEX
Exhibit (i)
Exhibit (j)
Exhibit (n)
Exhibit (i)
June 25, 1999
Scudder International Fund, Inc.
345 Park Avenue
New York, New York 10154
Ladies and Gentlemen:
We have acted as special Maryland counsel to Scudder International
Fund, Inc. (the "Company"), a corporation organized under the laws of the State
of Maryland on June 23, 1975. The Company is authorized to issue 1,000,000,000
shares of capital stock, $0.01 par value per share (each a "Share" and
collectively, the "Shares"). The Shares have been classified into the following
eight series: the International Fund, consisting of 300,000,000 Shares; the
International Growth Fund, consisting of 100,000,000 Shares; the International
Value Fund, consisting of 100,000,000 Shares; the Pacific Opportunities Fund,
consisting of 100,000,000 Shares; the Latin America Fund, consisting of
100,000,000 Shares; the Greater Europe Growth Fund, consisting of 100,000,000
Shares, the Emerging Markets Growth Fund, consisting of 100,000,000 Shares and
the International Growth and Income Fund, consisting of 100,000,000 Shares.
We understand that you are about to file with the Securities and
Exchange Commission, on Form N-1A, Post Effective Amendment No. 71 to the
Company's Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act"), and Amendment No. 51 to the Company's Registration
Statement under the Investment Company Act of 1940, as amended (the "Investment
Company Act") (collectively, the "Registration Statement"), in connection with
the continuous offering on and after July 1, 1999 of the Shares of the
International Growth and Income Fund. We understand that our opinion is required
to be filed as an exhibit to the Registration Statement.
In rendering the opinions set forth below, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of the
following documents:
(i) the Registration Statement;
(ii) the Charter and Bylaws of the Company;
<PAGE>
Scudder International Fund, Inc.
June 25, 1999
Page 2
(iii) a certificate of the Company regarding certain matters in
connection with this opinion (the "Certificate");
(iv) a certificate of the Maryland State Department of Assessments and
Taxation dated June 24, 1999 to the effect that the Company is duly incorporated
and existing under the laws of the State of Maryland and is in good standing and
duly authorized to transact business in the State of Maryland (the "Good
Standing Certificate"); and
(v) such other documents and matters as we have deemed necessary and
appropriate to render this opinion, subject to the limitations, assumptions, and
qualifications contained herein.
As to any facts or questions of fact material to the opinions expressed
herein, we have relied exclusively upon the aforesaid documents and
certificates, and representations and declarations of the officers or other
representatives of the Company.
We have made no independent investigation whatsoever as to such factual matters.
In reaching the opinions set forth below, we have assumed, without
independent investigation or inquiry, that:
(a) all documents submitted to us as originals are authentic; all
documents submitted to us as certified or photostatic copies conform to the
original documents; all signatures on all documents submitted to us for
examination are genuine; and all documents and public records reviewed are
accurate and complete;
(b) all representations, warranties, certifications and statements with
respect to matters of fact and other factual information (i) made by public
officers or (ii) made by officers or representatives of the Company, including
certifications made in the Certificate, are accurate, true, correct and complete
in all material respects; and
(c) at no time prior to and including the date when all of the Shares
of the International Growth and Income Fund are issued will (i) the Company's
Charter, Bylaws or the existing corporate authorization to issue such Shares be
amended, repealed or revoked; (ii) the total number of the issued Shares exceed
1,000,000,000; or (iii) the total number of the issued Shares of the
International Growth and Income Fund exceed 100,000,000;
Based on our review of the foregoing and subject to the assumptions and
qualifications set forth herein, it is our opinion that, as of the date of this
letter:
1. The Company is a corporation duly organized, validly existing and,
based solely on the Good Standing Certificate, in good standing under the laws
of the State of Maryland.
2. The issuance and sale of the Shares of International Growth and
Income Fund
<PAGE>
Scudder International Fund, Inc.
June 25, 1999
Page 3
pursuant to the Registration Statement has been duly and validly
authorized by all necessary corporate action on the part of the Company.
3. The Shares of the International Growth and Income Fund, when issued
and sold by the Company for cash consideration pursuant to and in the manner
contemplated by the Registration Statement, will be legally and validly issued,
fully paid and non-assessable.
In addition to the qualifications set forth above, the opinions set
forth herein are also subject to the following qualifications:
We express no opinion as to compliance with the Securities Act, the
Investment Company Act or the securities laws of any state with respect to the
issuance of Shares of the Company. The opinions expressed herein concern only
the effect of the laws (excluding the principles of conflict of laws) of the
State of Maryland as currently in effect. We assume no obligation to supplement
this opinion if any applicable laws change after the date hereof, or if we
become aware of any facts that might change the opinions expressed herein after
the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act.
Sincerely yours,
/s/ Ober, Kaler, Grimes & Shriver,
a Professional Corporation
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information constituting the Post-Effective Amendment
No. 71 to the Registration Statement on Form N-1A (the "Registration Statement")
of Scudder International Fund, Inc., comprised of Scudder International Growth
and Income Fund, of our report dated April 8, 1999, on the financial statements
and financial highlights appearing in the February 28, 1999 Annual Report to the
Shareholders of Scudder International Growth and Income Fund, which is also
incorporated by reference into the Registration Statement. We further consent to
the references to our Firm under the headings "Financial Highlights," in the
Prospectus and "Experts" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
International Growth And Income Fund Annual Report for the fiscal year ended
2/28/99 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> Scudder International Growth and Income Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> FEB-28-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 41,598,353
<INVESTMENTS-AT-VALUE> 41,843,050
<RECEIVABLES> 11,850,453
<ASSETS-OTHER> 331,488
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54,024,991
<PAYABLE-FOR-SECURITIES> 7,875,497
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 265,752
<TOTAL-LIABILITIES> 8,141,249
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,194,338
<SHARES-COMMON-STOCK> 3,845,661
<SHARES-COMMON-PRIOR> 3,854,083
<ACCUMULATED-NII-CURRENT> (66,834)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,538,685)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 294,923
<NET-ASSETS> 45,883,742
<DIVIDEND-INCOME> 1,322,125
<INTEREST-INCOME> 216,020
<OTHER-INCOME> 0
<EXPENSES-NET> 943,704
<NET-INVESTMENT-INCOME> 594,441
<REALIZED-GAINS-CURRENT> 645,242
<APPREC-INCREASE-CURRENT> (4,691,964)
<NET-CHANGE-FROM-OPS> (3,452,281)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (427,107)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36,802,035
<NUMBER-OF-SHARES-REDEEMED> (36,316,961)
<SHARES-REINVESTED> 397,892
<NET-CHANGE-IN-ASSETS> (2,996,422)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,320,425)
<OVERDISTRIB-NII-PRIOR> (213,599)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 539,119
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,178,516
<AVERAGE-NET-ASSETS> 53,903,811
<PER-SHARE-NAV-BEGIN> 12.68
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> (0.79)
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.93
<EXPENSE-RATIO> 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
