Filed electronically with the Securities and Exchange Commission on
December 29, 2000
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. 83
and/or --
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 63
--
Scudder International Fund, Inc.
----------------------------------
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
-----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2565
--------------
Caroline Pearson
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/___/ Immediately upon filing pursuant to paragraph (b)
/___/ ______ days after filing pursuant to paragraph (a)(2)
/___/ On December 29, 2000 pursuant to paragraph (a)(3)
/___/ days after filing pursuant to paragraph (a)(1)
/___/ On (date) pursuant to paragraph (a)(2) of Rule 485
/_X_/ On December 29, 2000 pursuant to paragraph (b)
If appropriate, check the following box:
/___/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
Scudder International Fund
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 29, 2000
------------------------
CLASS I SHARES
-------------------------
The above Fund currently offers seven classes of shares to provide investors
with different purchasing options. These are Class AARP, Class S, Barrett
International Shares, Class A, Class B and Class C shares, which are described
in the Fund's prospectus, and Class I shares, which are described in the
prospectus as supplemented hereby. When placing purchase orders, investors must
specify whether the order is for Class AARP, Class S, Class A, Class B, Class C
or Class I shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Zurich
Scudder Investments, Inc. ("Zurich Scudder") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Zurich Scudder and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee-based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund; and (6) investment
companies managed by Zurich Scudder that invest primarily in other investment
companies.
Class I shares currently are available for purchase only from Kemper
Distributors, Inc. ("KDI"), principal underwriter for the Fund, and, in the case
of category 4 above, selected dealers authorized by KDI. Share certificates are
not available for Class I shares.
The following information supplements the indicated sections of the prospectus.
THE FUND'S TRACK RECORD
The table shows how these performance figures for the Fund's Class S shares
compare with a broad based market index (which, unlike the Fund, has no fees or
expenses). The performance of both the Fund and the index vary over time. Class
I shares do not have a full calendar year of performance, therefore their
performance data is not provided. Class S shares are invested in the same
portfolio. Class S shares' annual returns differ only to the extent that the
classes have different fees and expenses. All figures on this page assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.
<PAGE>
Average Annual Total Returns - Class S shares
<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------------------- --------------------------
For Periods ended December One Year Five Years Ten Years
31, 1999
---------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Class S shares 57.89% 21.06% 13.06%
---------------------------- -------------------------- -------------------------- --------------------------
Index 27.93% 13.10% 7.10%
---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
Index: MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted measure
of stock markets in Europe, Australia, the Far East and Canada.
HOW MUCH INVESTORS PAY
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Class I shares.
Shareholder fees: Fees paid directly from your investment.
Annual operating expenses: Expenses that are deducted from fund assets.
<TABLE>
<CAPTION>
--------------------------- -------------------- ----------------------- -------------------------
Investment management fee Distribution Other expenses* Total annual fund
(12b-1) fees operating expenses
--------------------------- -------------------- ----------------------- -------------------------
<S> <C> <C> <C>
0.68% None 0.15% 0.83%
--------------------------- -------------------- ----------------------- -------------------------
--------------------------- -------------------- ----------------------- -------------------------
</TABLE>
* Includes a fixed rate administrative fee of 0.15%
Expense Example
Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
Expenses, assuming you sold your shares at the end of each period:
-------------------- ------------------- ---------------- -------------------
1 Year 3 Years 5 Years 10 Years
-------------------- ------------------- ---------------- -------------------
$85 $265 $460 $1,025
-------------------- ------------------- ---------------- -------------------
-------------------- ------------------- ---------------- -------------------
FINANCIAL HIGHLIGHTS
No financial information is presented for Class I shares of Scudder
International Fund since no Class I shares were issued as of the fiscal year end
of the Fund.
<PAGE>
SPECIAL FEATURES
Shareholders of the Fund's Class I shares may exchange their shares for (i)
shares of Zurich Money Funds -- Zurich Money Market Fund if the shareholders of
Class I shares have purchased shares because they are participants in tax-exempt
retirement plans of Zurich Scudder and its affiliates and (ii) Class I shares of
any other "Scudder Mutual Fund" listed in the Statement of Additional
Information. Conversely, shareholders of Zurich Money Funds -- Zurich Money
Market Fund who have purchased shares because they are participants in
tax-exempt retirement plans of Zurich Scudder and its affiliates may exchange
their shares for Class I shares of "Kemper Mutual Funds" to the extent that they
are available through their plan. Exchanges will be made at the relative net
asset values of the shares. Exchanges are subject to the limitations set forth
in the prospectus. As a result of the relatively lower expenses for Class I
shares, the level of income dividends per share (as a percentage of net asset
value) and, therefore, the overall investment return, typically will be higher
for Class I shares than for Class AARP, Class S, Class A, Class B and Class C
shares.
<PAGE>
SCUDDER
INVESTMENTS(SM)
[LOGO]
-------------------------
EQUITY/GLOBAL
-------------------------
Class AARP and Class S Shares
Scudder
International Fund
Prospectus
December 29, 2000
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>
Contents
--------------------------------------------------------------------------------
How the Fund Works How to Invest in the Fund
4 The Fund's Investment Strategy 14 How to Buy, Sell and
Exchange Class AARP Shares
5 The Main Risks of Investing
in the Fund 16 How to Buy, Sell and
Exchange Class S Shares
6 The Fund's Performance History
18 Policies You Should Know
7 How Much Investors Pay About
8 Other Policies and Risks 22 Understanding Distributions
and Taxes
9 Who Manages and Oversees
the Fund
11 Financial Highlights
<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.
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 government agency, and you could
lose money by investing in them.
This prospectus offers two classes of the fund. Class AARP shares have been
created especially for AARP members. Class S shares are generally not available
to new investors. Unless otherwise noted, all information in this prospectus
applies to both classes.
You can find Scudder prospectuses on the Internet for Class AARP shares at
aarp.scudder.com and for Class S shares at www.scudder.com.
<PAGE>
--------------------------------------------------------------------------------
| Class AARP Class S
ticker symbol | AINTX SCINX
fund number | 168 068
Scudder International Fund
--------------------------------------------------------------------------------
The Fund's Investment Strategy
The fund seeks long-term growth of capital by investing at least 65% of its
total assets in foreign equities (equities issued by foreign-based companies and
listed on foreign exchanges). Although the fund can invest in companies of any
size and from any country, it invests mainly in common stocks of established
companies in countries with developed economies (other than the United States).
In choosing common stocks, the portfolio managers use a combination of three
analytical disciplines:
Bottom-up research. The managers look for individual companies that have
financial strength, good business prospects, competitive positioning and
earnings growth that is above-average for their market segment, among other
factors.
Top-down analysis. The managers consider the economic outlooks for various
countries and geographical regions, favoring countries that they believe have
sound economic conditions and open markets.
Analysis of global themes. The managers look for significant changes in the
business environment, seeking to identify industries that may benefit from these
changes.
The managers intend to divide the fund's holdings across industries and
geographical areas, although, depending on their outlook, they may increase or
reduce the fund's exposure to a given industry or area.
--------------------------------------------------------------------------------
OTHER INVESTMENTS The fund may 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, and may not use them at all.
4
<PAGE>
The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.
The Main Risks of Investing in the Fund
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.
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.
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.
Other factors that could affect performance include:
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
o the managers could be wrong in their analysis of industries, companies,
economic trends, geographical areas or other matters
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
This fund is designed for investors interested in a broadly diversified
international investment with the emphasis squarely on long-term growth of
capital.
5
<PAGE>
The Fund's Performance History
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.
The bar chart shows how the returns for the fund's Class S shares have varied
from year to year, which may give some idea of risk. The table shows average
annual total returns of the fund's Class S shares 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.
Scudder International Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class S
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1990 -8.92
1991 11.78
1992 -2.64
1993 36.50
1994 -2.99
1995 12.22
1996 14.55
1997 7.98
1998 18.62
1999 57.89
2000 Total Return as of September 30: -17.71%
Best Quarter: 30.46%, Q4 1999 Worst Quarter: -18.46%, Q3 1990
--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
Fund-- Class S* 57.89 21.06 13.06
--------------------------------------------------------------------------------
Index 27.93 13.10 7.10
--------------------------------------------------------------------------------
Index: MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia, the Far East and Canada.
* Performance for Class AARP shares is not provided because this class
does not have a full calendar year of performance.
6
<PAGE>
How Much Investors Pay
The fund has no sales charge or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder of either Class AARP or Class S
shares, you pay them indirectly.
--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.68%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses* 0.38%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.06%
--------------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.375%.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on August 14, 2000.
Based on the costs above, this example helps you compare this fund's expenses to
those of other mutual funds. This example assumes the expenses above remain the
same. It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the end of
each period. This is only an example; actual expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Class AARP/S shares $108 $337 $585 $1,294
--------------------------------------------------------------------------------
7
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund's Board could
change the fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, the fund could shift up to 100% of
its assets into investments such as U.S. or Canadian securities money
market securities. This could prevent losses, but would mean that the
fund was not pursuing its goal.
o The fund may trade securities actively. This could raise transaction
costs (thus lowering performance) and could mean higher taxable
distributions.
Euro conversion
Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is well underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.
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 Statement of Additional Information (the back cover tells you how
to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
8
<PAGE>
Who Manages and Oversees the Fund
The investment advisor
The fund's investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, NY. The advisor has more than 80 years of experience managing
mutual funds, and currently has more than $290 billion in assets under
management.
The advisor's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.
The advisor receives a management fee from the fund. For the 12 months through
the most recent fiscal year end, the actual amount the fund paid in management
fees was 0.76% of its average daily net assets.
The fund has entered into a new investment management agreement with the
advisor. The table below describes the new fee rates for the fund.
---------------------------------------------------------------------
Investment Management Fee effective August 14, 2000
---------------------------------------------------------------------
Average Daily Net Assets Fee Rate
---------------------------------------------------------------------
first $6 billion 0.675%
---------------------------------------------------------------------
next $1 billion 0.625%
---------------------------------------------------------------------
more than $7 billion 0.600%
---------------------------------------------------------------------
The advisor has agreed to pay a fee to AARP and/or its affiliates in return for
services relating to investments by AARP members in AARP Class shares of each
fund. This fee is calculated on a daily basis as a percentage of the combined
net assets of the AARP Classes of all funds managed by the advisor. The fee
rates, which decrease as the aggregate net assets of the AARP Classes become
larger, are as follows: 0.07% for the first $6 billion in net assets, 0.06% for
the next $10 billion and 0.05% thereafter.
9
<PAGE>
The portfolio managers
The following people handle the day-to-day management of the fund.
Irene T. Cheng Nicholas Bratt
Lead Portfolio Manager o Began investment career
o Began investment career in 1974
in 1985 o Joined the advisor in 1976
o Joined the advisor in 1993 o Joined the fund team in
o Joined the fund team in 1998 1976
Carol L. Franklin Marc J. Slendebroek
o Began investment career o Began investment career
in 1975 in 1989
o Joined the advisor in 1981 o Joined the advisor in 1994
o Joined the fund team in 1986 o Joined the fund team in
1999
10
<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 each 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).
Scudder International Fund -- Class AARP
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
2000(a)
-----------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $57.26
----------
-----------------------------------------------------------------------------------
Income (loss) from investment operations:
-----------------------------------------------------------------------------------
Net investment income (loss) (b) .01
-----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment transactions .47
----------
-----------------------------------------------------------------------------------
Total from investment operations .48 Less distributions from:
-----------------------------------------------------------------------------------
Net investment income --
-----------------------------------------------------------------------------------
Net asset value, end of period $57.74
----------
-----------------------------------------------------------------------------------
Total Return (%) .84**
-----------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-----------------------------------------------------------------------------------
Net assets, end of period ($ millions) 71
-----------------------------------------------------------------------------------
Ratio of expenses (%) 1.05*
-----------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .30*
-----------------------------------------------------------------------------------
Portfolio turnover rate (%) 83
-----------------------------------------------------------------------------------
</TABLE>
(a) For the period from August 14, 2000 (commencement of sale of Class
AARP) to August 31, 2000.
(b) Based on monthly average shares outstanding during the period.
* Annualized
** Not annualized
11
<PAGE>
Scudder International Fund-- Class S (a)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
2000(c) 1999(d) 1999(e) 1998(e) 1997(e) 1996(e)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $54.82 $50.07 $52.06 $48.07 $45.71 $39.72
----------------------------------------------------------------------------------
Income (loss) from investment operations:
----------------------------------------------------------------------------------
Net investment income
(loss) (b) .16 .20(g) .47(f) .43 .30 .38
----------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investment
transactions 9.38 7.20 3.10 9.16 4.53 7.19
--------------------------------------------------------
----------------------------------------------------------------------------------
Total from investment
operations 9.54 7.40 3.57 9.59 4.83 7.57
----------------------------------------------------------------------------------
Less distributions from:
----------------------------------------------------------------------------------
Net investment income (.13) -- -- (.25) (1.28) (.40)
----------------------------------------------------------------------------------
Net realized gains on
investment transactions (6.50) (2.65) (5.56) (5.35) (1.19) (1.18)
--------------------------------------------------------
----------------------------------------------------------------------------------
Total distributions (6.63) (2.65) (5.56) (5.60) (2.47) (1.58)
----------------------------------------------------------------------------------
Net asset value, end
of period $57.73 $54.82 $50.07 $52.06 $48.07 $45.71
--------------------------------------------------------
----------------------------------------------------------------------------------
Total Return (%) 17.09 15.19** 7.18 21.57 10.74 19.25
----------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
----------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 4,841 3,610 3,090 2,885 2,583 2,515
----------------------------------------------------------------------------------
Ratio of expenses (%) 1.12(h) 1.21* 1.17 1.18 1.15 1.14
----------------------------------------------------------------------------------
Ratio of net investment
income (loss) (%) .25 .93* .92 .83 .64 .86
----------------------------------------------------------------------------------
Portfolio turnover rate
(%) 83 82* 80 56 36 45
----------------------------------------------------------------------------------
</TABLE>
(a) On August 14, 2000, International shares of the Fund were redesignated
as Class S shares.
(b) Based on monthly average shares outstanding during the period.
(c) For the year ended August 31, 2000.
(d) For the five months ended August 31, 1999. On June 7, 1999, the Fund
changed its fiscal year end from March 31 to August 31.
(e) For the years ended March 31.
(f) Net investment income per share includes non-recurring dividend income
amounting to $.09 per share.
(g) Net investment income per share includes non-recurring dividend income
amounting to $.02 per share.
(h) The ratio of operating expenses excluding costs incurred in connection
with the reorganization was 1.12% (see Notes to Financial Statements).
* Annualized
** Not annualized
12
<PAGE>
How to Invest in the Fund
The following pages tell you how to invest in the fund 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 advisor -- your provider may
have its own policies or instructions, and you should follow those.
As noted earlier, there are two classes of shares of the fund available through
this prospectus. The instructions for buying and selling each class are slightly
different.
Instructions for buying and selling Class AARP shares, which have been created
especially for AARP members, are found on the next two pages. These are followed
by instructions for buying and selling Class S shares, which are generally not
available to new investors. Be sure to use the appropriate table when placing
any orders to buy, exchange or sell shares in your account.
13
<PAGE>
How to Buy, Sell and Exchange Class AARP Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The AARP Investment Program."
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
First investment Additional investments
------------------------------------------------------------------------------------------------------------------
<S> <C>
$1,000 or more for regular accounts $50 or more with an Automatic Investment Plan, Payroll
Deduction or Direct Deposit
$500 or more for IRAs
---------------------------------------------------------------------------------------------------------------------------
By mail
o For enrollment forms, call 1-800-253-2277 Send a personalized investment slip or short note that
includes:
o Fill out and sign an enrollment form
o fund and class name
o Send it to us at the appropriate address,
along with an investment check o account number
o check payable to "The AARP Investment Program"
---------------------------------------------------------------------------------------------------------------------------
By wire
o Call 1-800-253-2277 for instructions o Call 1-800-253-2277 for instructions
---------------------------------------------------------------------------------------------------------------------------
By phone
-- o Call 1-800-253-2277 for instructions
---------------------------------------------------------------------------------------------------------------------------
With an automatic investment plan
o Fill in the information required on your o To set up regular investments from a bank checking
enrollment form and include a voided check account, call 1-800-253-2277 (minimum $50)
---------------------------------------------------------------------------------------------------------------------------
Payroll Deduction or Direct Deposit
o Select either of these options on your o Once you specify a dollar amount (minimum $50),
enrollment form and submit it. You will investments are automatic.
receive further instructions by mail.
---------------------------------------------------------------------------------------------------------------------------
Using QuickBuy
-- o Call 1-800-253-2277
---------------------------------------------------------------------------------------------------------------------------
On the Internet
o Go to "services and forms-- How to Open an o Call 1-800-253-2277 to ensure you have electronic
Account" at aarp.scudder.com services
o Print out a prospectus and an enrollment o Register at aarp.scudder.com
form
o Follow the instructions for buying shares with
o Complete and return the enrollment form money from your bank account
with your check
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
Regular mail: The AARP Investment Program,
First investment: PO Box 219735, Kansas City, Mo 64121-9735
Additional investments: Po Box 219743, Kansas City, Mo 64121-9743
Express, registered or certified mail:
The AARP Investment Program, 811 Main Street, Kansas City, Mo 64105-2005
Fax number: 1-800-821-6234 (for exchanging and selling only)
14
<PAGE>
Exchanging or Selling 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>
$1,000 or more to open a new account ($500 or Some transactions, including most for over $100,000,
more for IRAs) can only be ordered in writing; if you're in
doubt, see page 20
-------------------------------------------------------------------------------------------------------------------------
By phone
o Call 1-800-253-2277 for instructions o Call 1-800-253-2277 for instructions
-------------------------------------------------------------------------------------------------------------------------
Using Easy-Access Line
o Call 1-800-631-4636 and follow the o Call 1-800-631-4636 and follow the instructions
instructions
-------------------------------------------------------------------------------------------------------------------------
By mail or fax (see previous page)
Your instructions should include: Your instructions should include:
o your account number o your account number
o names of the funds, class and number of o names of the funds, class and number of shares or
shares or dollar amount you want to exchange dollar amount you want to redeem
-------------------------------------------------------------------------------------------------------------------------
With an automatic withdrawal plan
-- o To set up regular cash payments from an account,
call 1-800-253-2277
-------------------------------------------------------------------------------------------------------------------------
Using QuickSell
-- o Call 1-800-253-2277
-------------------------------------------------------------------------------------------------------------------------
On the Internet
o Register at aarp.scudder.com --
o Go to "services and forms"
o Follow the instructions for making on-line
exchanges
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
To reach us: o Web site aarp.scudder.com
o Program representatives 1-800-253-2277, M-F, 8 a.m. - 8 p.m.
EST
o Confidential fax line 1-800-821-6234, always open
o TDD line 1-800-634-9454, M-F, 9 a.m. - 5 p.m. EST
Class AARP o AARP Lump Sum Service For planning and setting up a lump
Services sum distribution.
o AARP Legacy Service For organizing financial documents and
planning the orderly transfer of assets to heirs
o AARP Goal Setting and Asset Allocation Service For allocating
assets and measuring investment progress
o For more information, please call 1-800-253-2277.
15
<PAGE>
How to Buy, Sell and Exchange Class S Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
First investment Additional investments
------------------------------------------------------------------------------------------------------------------------
<S> <C>
$2,500 or more for regular accounts $100 or more for regular accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic Investment Plan
------------------------------------------------------------------------------------------------------------------------
By mail or express (see below)
o Fill out and sign an application Send a Scudder investment slip or short note that
includes:
o Send it to us at the appropriate address,
along with an investment check o fund and class name
o account number
o check payable to "The Scudder Funds"
------------------------------------------------------------------------------------------------------------------------
By wire
o Call 1-800-SCUDDER for instructions o Call 1-800-SCUDDER for instructions
------------------------------------------------------------------------------------------------------------------------
By phone
-- o Call 1-800-SCUDDER for instructions
------------------------------------------------------------------------------------------------------------------------
With an automatic investment plan
o Fill in the information on your o To set up regular investments from a bank
application and include a voided check checking account, call 1-800-SCUDDER
------------------------------------------------------------------------------------------------------------------------
Using QuickBuy
-- o Call 1-800-SCUDDER
------------------------------------------------------------------------------------------------------------------------
On the Internet
o Go to "funds and prices" at www.scudder.com o Call 1-800-SCUDDER to ensure you have electronic
services
o Print out a prospectus and a new account
application o Register at www.scudder.com
o Complete and return the application with o Follow the instructions for buying shares with
your check money from your bank account
------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
Regular mail:
First investment: The Scudder Funds, PO Box 219669, Kansas City, MO 64121-9669
Additional investments: The Scudder Funds, PO Box 219664, Kansas
City, MO 64121-9664
Express, registered or certified mail:
The Scudder Funds, 811 Main Street, Kansas City, MO 64105-2005
Fax number: 1-800-821-6234 (for exchanging and selling only)
16
<PAGE>
Exchanging or Selling 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>
$2,500 or more to open a new account ($1,000 or Some transactions, including most for over $100,000,
more for IRAs) can only be ordered in writing; if you're in doubt,
see page 20
$100 or more for exchanges between existing
accounts
----------------------------------------------------------------------------------------------------------------------------
By phone or wire
o Call 1-800-SCUDDER for instructions o Call 1-800-SCUDDER for instructions
----------------------------------------------------------------------------------------------------------------------------
Using SAIL(TM)
o Call 1-800-343-2890 and follow the o Call 1-800-343-2890 and follow the instructions
instructions
----------------------------------------------------------------------------------------------------------------------------
By mail, express or fax
(see previous page)
Your instructions should include: Your instructions should include:
o the fund, class, and account number you're o the fund, class and account number from which you
exchanging out of want to sell shares
o the dollar amount or number of shares you o the dollar amount or number of shares you want to
want to exchange sell
o the name and class of the fund you want to o your name(s), signature(s) and address, as they
exchange into appear on your account
o your name(s), signature(s), and address, as o a daytime telephone number
they appear on your account
o a daytime telephone number
----------------------------------------------------------------------------------------------------------------------------
With an automatic withdrawal plan
-- o To set up regular cash payments from a Scudder
account, call 1-800-SCUDDER
----------------------------------------------------------------------------------------------------------------------------
Using QuickSell
-- o Call 1-800-SCUDDER
----------------------------------------------------------------------------------------------------------------------------
On the Internet
o Register at www.scudder.com --
o Follow the instructions for making on-line
exchanges
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
In either case, keep in mind that the information in this prospectus applies
only to the fund's Class AARP and Class S shares. The fund does have other share
classes, which are described in separate prospectuses and which have different
fees, requirements, and services.
In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call
1-800-253-2277 (Class AARP) or 1-800-SCUDDER (Class S).
Policies about transactions
The fund is open for business each day 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 must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
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 1-800-253-2277 (Class AARP) or
1-800-SCUDDER (Class S).
18
<PAGE>
Automated phone information is available 24 hours a day. You can use your
automated phone services to get information on Scudder funds generally and on
accounts held directly at Scudder. If you signed up for telephone services, you
can also use this service to make exchanges and sell shares.
For Class AARP shares
----------------------------------------------------------------------
Call Easy-Access Line, the AARP Program Automated Information Line,
at 1-800-631-4636
----------------------------------------------------------------------
For Class S shares
----------------------------------------------------------------------
Call SAIL(TM), the Scudder Automated Information Line, at
1-800-343-2890
----------------------------------------------------------------------
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 1-800-253-2277
(Class AARP) or 1-800-SCUDDER (Class S).
Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personalized security codes or other information, we are not
responsible for any losses that may occur. For transactions conducted over the
Internet, we recommend the use of a secure Internet browser. In addition, you
should verify the accuracy of your confirmation statements immediately after you
receive them.
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 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.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
The Scudder Web site can be a valuable resource for shareholders with Internet
access. To get up-to-date information, review balances or even place orders for
exchanges, go to aarp.scudder.com (Class AARP) or www.scudder.com (Class
S).
19
<PAGE>
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,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are also two circumstances when it could be longer:
when you are selling shares you bought recently by check and that check hasn't
cleared yet (maximum delay: 15 days) or when unusual circumstances prompt the
SEC to allow further delays.
How the fund calculates share price
For each share class, the price at which you buy shares is the net asset value
per share, or NAV. To calculate NAV, each share class of 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. In such a
case, the fund's value for a security is likely to be different from quoted
market prices.
20
<PAGE>
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 you have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o for Class AARP and Class S shareholders, close your account and send
you the proceeds if your balance falls below $1,000; for Class S
shareholders, charge you $10 a year if your account balance falls below
$2,500; in either case, we will give you 60 days notice so you can
either increase your balance or close your account (these policies
don't apply to retirement accounts, to investors with $100,000 or more
in Scudder fund shares or in any case where a fall in share price
created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving
you marketable securities (which typically will involve brokerage costs
for you to liquidate) rather than cash; in most cases, the fund won't
make a redemption in kind unless your requests over a 90-day period
total more than $250,000 or 1% of the value of the fund's net assets,
whichever is less
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
21
<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 annually
in November or December, and if necessary may do so at other times as well.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). 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.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
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.
22
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
----------------------------------------------------------------------
o short-term capital gains from selling fund shares
----------------------------------------------------------------------
o taxable income dividends you receive from 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.
Your 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.
23
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of a 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. For more copies, call 1-800-253-2277 (Class AARP) or
1-800-SCUDDER (Class S).
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, please contact Scudder or
the SEC (see below). If you're a shareholder and have questions, please contact
Scudder. Materials you get from Scudder are free; those from the SEC involve a
copying fee. If you like, you can look over these materials at the SEC's Public
Reference Room in Washington, DC or request them electronically at
[email protected].
AARP Investment
Program from Scudder Scudder Funds SEC
---------------------------------------------------------------------
PO Box 219735 PO Box 219669 450 Fifth Street, N.W.
Kansas City, MO Kansas City, MO Washington, D.C.
64121-9735 64121-9669 20549-6009
---------------------------------------------------------------------
1-800-253-2277 1-800-SCUDDER 1-202-942-8090
---------------------------------------------------------------------
aarp.scudder.com www.scudder.com www.sec.gov
---------------------------------------------------------------------
SEC File Number 811-642
<PAGE>
Barrett International
Shares Fund #401
Prospectus
December 29, 2000
This prospectus applies to the Barrett International Shares of the Scudder
International Fund.
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>
Contents
--------------------------------------------------------------------------------
How the Fund Works
4 The Fund's Investment Strategy
5 The Main Risks of Investing in
the Fund
6 The Fund's Performance History
7 How Much Investors Pay
8 Other Policies and Risks
9 Who Manages and Oversees
the Fund
10 Financial Highlights
How to Invest in the Fund
12 How to Buy and Sell Shares
13 Policies You Should Know About
17 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.
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.
Zurich Scudder Investments, Inc. serves as investment advisor to the Scudder
International Fund. Barrett Associates, Inc. sponsors the Barrett International
Shares, a class of the Scudder International Fund, which are described herein.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.
<PAGE>
--------------------------------------------------------------------------------
ticker symbol SIBIX
fund number 401
Barrett International Shares
--------------------------------------------------------------------------------
The Fund's Investment Strategy
The fund seeks long-term growth of capital by investing at least 65% of
its total assets in foreign equities (equities issued by foreign-based
companies and listed on foreign exchanges). Although the fund can
invest in companies of any size and from any country, it invests mainly
in common stocks of established companies in countries with developed
economies (other than the United States).
In choosing common stocks, the portfolio managers use a combination of
three analytical disciplines:
Bottom-up research. The managers look for individual companies that
have financial strength, good business prospects, competitive
positioning and earnings growth that is above-average for their market
segment, among other factors.
Top-down analysis. The managers consider the economic outlooks for
various countries and geographical regions, favoring countries that
they believe have sound economic conditions and open markets.
Analysis of global themes. The managers look for significant changes in
the business environment, seeking to identify industries that may
benefit from these changes.
The managers intend to divide the fund's holdings across industries and
geographical areas, although, depending on their outlook, they may
increase or reduce the fund's exposure to a given industry or area.
--------------------------------------------------------------------------------
OTHER INVESTMENTS The fund may 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, and may not use them at all.
4
<PAGE>
The fund will normally sell a stock when the managers believe its price
is unlikely to go much higher, its fundamentals have deteriorated,
other investments offer better opportunities or in the course of
adjusting its emphasis on a given country.
The Main Risks of Investing in the Fund
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.
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.
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.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of industries,
companies, economic trends, geographical areas or other matters
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
This fund is designed for investors interested in a broadly diversified
international investment with the emphasis squarely on long-term growth of
capital
--------------------------------------------------------------------------------
5
<PAGE>
The Fund's Performance History
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.
The bar chart shows the total return for the first complete calendar year of
Barrett International Shares. The table shows average annual total returns of
Barrett International Shares and a broad-based market index (which, unlike the
fund, does not have any fees or expenses).
The performance of both the Barrett International Shares and the index varies
over time. All figures on this page assume reinvestment of dividends and
distributions.
If you would like up-to-date information on the performance of Barrett
International Shares since inception, call 1-800-854-8525.
Barrett International Shares
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31
--------------------------------------------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE ILLUSTRATING THE FUND TOTAL
RETURN (%)
1999 58.24
2000 Total Return as of September 30: -17.71%
Best Quarter: 30.60%, Q4 1999 Worst Quarter: 2.85%, Q1 1999
--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
1 Year Since Inception*
--------------------------------------------------------------------------------
Barrett International Shares 58.24 32.78
--------------------------------------------------------------------------------
Index 27.93 17.43**
--------------------------------------------------------------------------------
MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted measure of
stock markets in Europe, Australia, the Far East and Canada.
* Inception date for Barrett International Shares is 4/3/1998.
** Index comparison begins 3/31/1998.
6
<PAGE>
How Much Investors Pay
The Barrett International Shares has no sales charges or other shareholder fees.
The fund does have annual operating expenses, and as a shareholder of Barrett
International Shares you pay them indirectly. This table shows fees for the
fund's Barrett International Shares.
--------------------------------------------------------------------------------
Fee Table
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.68%
--------------------------------------------------------------------------------
Distribution (12b-1) Fee None
--------------------------------------------------------------------------------
Other Expenses* 0.38%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.06%
--------------------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.375%.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on August 14, 2000.
Based on the costs above, this example helps you compare the expenses of the
fund's Barrett International Shares to those of other mutual funds. This example
assumes the expenses above remain the same. It also assumes that you invested
$10,000, earned 5% annual returns, reinvested all dividends and distributions
and sold your shares at the end of each period. This is only an example; actual
expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$108 $337 $585 $1,294
--------------------------------------------------------------------------------
7
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points
of the fund's strategy and risks, there are a few other issues to
know about:
o Although major changes tend to be infrequent, the fund's Board
could change the fund's investment goal without seeking
shareholder approval.
o As a temporary defensive measure, the fund could shift up to
100% of its assets into investments such as U.S. or Canadian
securities. This could help prevent losses, but would mean that
the fund was not pursuing its goal.
o The fund may trade securities actively. This could raise
transaction costs (thus lowering performance) and could mean
higher taxable distributions.
Euro conversion
Funds that invest in foreign securities could be affected by
accounting differences, changes in tax treatment or other issues
related to the conversion of certain European currencies into the
euro, which is well underway. The investment advisor is working to
address euro-related issues as they occur and has been notified
that other key service providers are taking similar steps. Still,
there's some risk that this problem could materially affect a
fund's operation (including its ability to calculate net asset
value and to handle purchases and redemptions), its investments or
securities markets in general.
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).
Keep in mind that there is no assurance that any mutual fund will
achieve its goal.
8
<PAGE>
Who Manages and Oversees the Fund
The investment advisor
The fund's investment advisor is Zurich Scudder Investments, Inc., 345
Park Avenue, New York, NY. The advisor has more than 80 years of
experience managing mutual funds, and currently has more than $290
billion in assets under management. The Barrett International Shares
are offered exclusively by Barrett Associates, Inc., 565 Fifth Avenue,
New York, NY 10017.
The advisor's asset management teams include investment professionals,
economists, research analysts, traders, and other investment
specialists, located in offices across the United States and around the
world.
The advisor receives a management fee from the fund. For the 12 months
through the most recent fiscal year end, the actual amount the fund
paid in management fees was 0.76% of its average daily net assets.
The fund has entered into a new investment management agreement with
the advisor. The table below describes the new fee rates for the fund.
-------------------------------------------------------------------
Investment Management Fee effective August 14, 2000
-------------------------------------------------------------------
Average Daily Net Assets Fee Rate
-------------------------------------------------------------------
first $6 billion 0.675%
-------------------------------------------------------------------
next $1 billion 0.625%
-------------------------------------------------------------------
more than $7 billion 0.600%
-------------------------------------------------------------------
The portfolio managers
The following people handle the day-to-day management of the fund.
Irene T. Cheng Nicholas Bratt
Lead Portfolio Manager o Began investment career
o Began investment career in in 1974
1985 o Joined the advisor in 1976
o Joined the advisor in 1993 o Joined the fund team in 1976
o Joined the fund team in 1998 Marc J. Slendebroek
Carol L. Franklin o Began investment career in
o Began investment career in 1989
1975 o Joined the advisor in 1994
o Joined the advisor in 1981 o Joined the fund team in 1999
o Joined the fund team in 1986
9
<PAGE>
Financial Highlights
This table is designed to help you understand the financial performance of the
Barrett International Shares since inception. 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).
Barrett International Shares
--------------------------------------------------------------------------------
2000(b) 1999(c) 1999(d)
--------------------------------------------------------------------------------
Net asset value, beginning of period $54.94 $50.14 $52.40
----------------------------
--------------------------------------------------------------------------------
Income (loss) from investment operations:
--------------------------------------------------------------------------------
Net investment income (loss) (a) .25 .25(f) .52(e)
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investment transactions 9.45 7.20 2.78
----------------------------
--------------------------------------------------------------------------------
Total from investment operations 9.70 7.45 3.30
--------------------------------------------------------------------------------
Less distributions from:
--------------------------------------------------------------------------------
Net investment income (.19) -- --
--------------------------------------------------------------------------------
Net realized gains on investment transactions (6.50) (2.65) (5.56)
----------------------------
--------------------------------------------------------------------------------
Total distributions (6.69) (2.65) (5.56)
--------------------------------------------------------------------------------
Net asset value, end of period $57.95 $54.94 $50.14
----------------------------
--------------------------------------------------------------------------------
Total Return (%) 17.31 15.27** 6.60**
--------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
--------------------------------------------------------------------------------
Net assets, end of period ($ millions) 26 25 23
--------------------------------------------------------------------------------
Ratio of expenses(%) .96(g) 1.03* 1.08*
--------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) .39 1.11* 1.02*
--------------------------------------------------------------------------------
Portfolio turnover rate (%) 83 82* 80
--------------------------------------------------------------------------------
(a) Based on monthly average shares outstanding during
the period.
(b) For the year ended August 31, 2000.
(c) For the five months ended August 31, 1999. On June 7, 1999, the Fund changed
its fiscal year end from March 31 to August 31.
(d)For the period April 3, 1998 (commencement of sale of Barrett International
Shares) to March 31, 1999.
(e) Net investment income per share includes non-recurring dividend income
amounting to $.09 per share.
(f) Net investment income per share includes non-recurring dividend income
amounting to $.02 per share.
(g) The ratio of operating expenses excluding costs incurred in connection with
the reorganization was 0.96% (see Notes to Financial Statements).
* Annualized
** Not annualized
10
<PAGE>
How to Invest in the Fund
The following pages tell you how to invest with us and what to expect as a
shareholder.
<PAGE>
How to Buy and Sell Shares
Barrett Associates sponsors the Barrett International Shares, and
will arrange for purchases and sales on your behalf. Please contact
your Barrett representative by telephone at 212-983-5080 or in
person at 565 Fifth Avenue, New York, NY 10017. Additional
information appears below:
Initial investments in Barrett International Shares require a
minimum of $25,000. Additional investments can be made in
increments of $1,000 or more. These minimums may be waived for
Directors and Officers of Scudder International Fund, Inc. and
existing shareholders as of April 3, 1998, the date of the creation
of the Barrett International Shares.
Purchases and sales may also be made by wire and by mail. Contact
your Barrett representative for further information.
12
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the policies below
may affect you as a shareholder. Some of this information, such as the
section on dividends and taxes, applies to all investors, including
those investing through investment providers. If you are investing
through an investment provider, check the materials you got from them.
As a general rule, you should follow the information in those materials
wherever it contradicts the information given here. Please note that an
investment provider may charge its own fees.
In either case, keep in mind that the information in this prospectus
applies only to the fund's Barrett International Shares. The fund does
have other share classes, which are described in separate prospectuses
and which have different fees, requirements, and services.
Policies about transactions
The fund is open for business each day the New York Stock Exchange is
open. The fund calculates the share price for its Barrett International
Shares every business day, as of the close of regular trading on the
Exchange (typically 4 p.m. Eastern time, but sometimes earlier, as in
the case of scheduled half-day trading or unscheduled suspensions of
trading).
You can place an order to buy or sell shares at any time. Once
you instruct Barrett Associates to place an order for you with
Scudder Service Corporation, and it is determined to be a
"good order," it will be processed at the next share price
calculated.
Because orders placed through Barrett Associates must be
forwarded to Scudder Service Corporation before they can be
processed, you'll need to allow extra time. A representative
of Barrett Associates should be able to tell you when your
order will be processed.
When Barrett Associates, on your behalf, asks 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.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
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 1-800-854-8525.
--------------------------------------------------------------------------------
13
<PAGE>
The Expedited Redemption Service is designed for investors who want
the proceeds from shares they sell to be automatically wired to a
bank account. If the proceeds are less than $1,000, we will mail a
check to Barrett Associates, on your behalf, rather than wiring the
funds to your bank account.
To use the Expedited Redemption Service, you'll need to set it up
in advance. Also, please note that if you opened your account by
wire, you can't use the Expedited Redemption Service until we have
received your written application.
When you want to sell more than $100,000 worth of shares, you'll
usually need to place your order in writing and include a signature
guarantee. The only exception is if you want money wired to a bank
account that is already on file with us; in that case, you don't
need a signature guarantee.
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.
14
<PAGE>
How the fund calculates share price
The share price for the fund's Barrett International Shares is the net
asset value per share, or NAV. To calculate NAV, the fund uses the
following equation, taking figures for this share class only:
TOTAL ASSETS - TOTAL LIABILITIES
------------------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a
market price isn't available, or when we have reason to believe it
doesn't represent market realities, we may use fair value methods
approved by the fund's Board. 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.
15
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you
have been notified by the IRS that you are subject to backup
withholding, or if you fail to provide us with a correct
taxpayer ID number or certification that you are exempt from
backup withholding
o close your account and send you the proceeds if your balance
falls below $25,000 and, after 30 days' notice, you haven't
either increased your balance or closed your account; this
policy doesn't apply in cases where a fall in share price
created the low balance, and it may be waived in certain cases
or for certain investors
o reject a new account application if you don't provide a correct
Social Security or other tax ID number; if the account has
already been opened, we may give you 30 days' notice to provide
the correct number
o pay you for shares you sell by "redeeming in kind," that is, by
giving you marketable securities (which typically will involve
brokerage costs for you to liquidate) rather than cash; in most
cases, the fund won't make a redemption in kind unless your
requests over a 90-day period total more than $250,000 or 1% of
the fund's net assets, whichever is less
o change, add, or withdraw various services, fees, and account
policies
16
<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 annually in November or December, and if necessary may
do so at other times as well.
You can choose how to receive your dividends and distributions. You
can have them all automatically reinvested in fund shares or all
sent to you by check. Tell us your preference on your application.
If you don't indicate a preference, your dividends and
distributions will all be reinvested.
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.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
Because each shareholder's tax situation is unique, it's always a good idea to
ask your tax professional or Barrett Associates representative about the tax
consequences of your investments, including any state and local tax consequences
--------------------------------------------------------------------------------
17
<PAGE>
The tax status of the fund earnings you receive, and your own fund
transactions, generally depends on their type:
Generally taxed at ordinary income rates
-------------------------------------------------------------------
o short-term capital gains from selling fund shares
-------------------------------------------------------------------
o taxable 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 detailed tax information every January to
Barrett Associates, who will forward it to you. 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.
18
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's
management team about recent market conditions and the effects of
the fund's strategies on its performance. They also have detailed
performance figures, a list of everything the fund owns, and the
fund's financial statements. These reports are mailed by Barrett
Associates automatically to fund shareholders (one copy per
household).
Statement of Additional Information (SAI) -- This tells you more
about the fund's features and policies, including additional risk
information. The SAI is incorporated by reference into this
document (meaning that it's legally part of this prospectus).
If you'd like to ask for copies of these documents please contact
Barrett Associates, Scudder or the SEC. If you're a shareholder and
have questions, please contact Barrett Associates or Scudder.
Materials you get from Barrett Associates and 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 or request them electronically at
[email protected].
Barrett Associates, Inc. SEC
565 Fifth Avenue 450 Fifth Street, N.W.
New York, NY 10017 Washington, D.C. 20549-6009
212-983-5080 1-202-942-8090
www.sec.gov
Scudder Funds
PO Box 219669
Kansas City, MO 64121-9669
1-800-854-8525
SEC File Number 811-642
<PAGE>
SCUDDER
INVESTMENTS (SM)
[LOGO]
December 29, 2000
Prospectus
Scudder International Fund
Advisor Classes A, B and C
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>
Contents
--------------------------------------------------------------------------------
How the Fund Works How to Invest in the Fund
4 The Fund's Investment Strategy 12 Choosing a Share Class
5 The Main Risks of Investing 17 How to Buy Shares
in the Fund
18 How to Exchange or Sell
6 The Fund's Performance History Shares
7 How Much Investors Pay 19 Policies You Should Know
About
8 Other Policies and Risks
26 Understanding Distributions
9 Who Manages and Oversees and Taxes
the Fund
<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.
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 government agency, and you
could lose money by investing in them.
<PAGE>
--------------------------------------------------------------------------------
| Class A Class B Class C
fund number | 468 668 768
Scudder International Fund
--------------------------------------------------------------------------------
The Fund's Investment Strategy
The fund seeks long-term growth of capital by investing at least 65% of its
total assets in foreign equities (equities issued by foreign-based companies and
listed on foreign exchanges). Although the fund can invest in companies of any
size and from any country, it invests mainly in common stocks of established
companies in countries with developed economies (other than the United States).
In choosing common stocks, the portfolio managers use a combination of three
analytical disciplines:
Bottom-up research. The managers look for individual companies that have
financial strength, good business prospects, competitive positioning and
earnings growth that is above-average for their market segment, among other
factors.
Top-down analysis. The managers consider the economic outlooks for various
countries and geographical regions, favoring countries that they believe have
sound economic conditions and open markets.
Analysis of global themes. The managers look for significant changes in the
business environment, seeking to identify industries that may benefit from these
changes.
The managers intend to divide the fund's holdings across industries and
geographical areas, although, depending on their outlook, they may increase or
reduce the fund's exposure to a given industry or area.
--------------------------------------------------------------------------------
OTHER INVESTMENTS The fund may 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, and may not use them at all.
4
<PAGE>
The fund will normally sell a stock when the managers believe its price is
unlikely to go much higher, its fundamentals have deteriorated, other
investments offer better opportunities or in the course of adjusting its
emphasis on a given country.
The Main Risks of Investing in the Fund
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.
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.
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.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of industries, companies,
economic trends, geographical areas or other matters
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
This fund is designed for investors who want a broadly diversified international
investment with the emphasis squarely on long-term growth of capital.
5
<PAGE>
The Fund's Performance History
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. The bar chart shows how
fund performance has varied from year to year, which may give some idea of risk.
The table shows how fund performance compares with 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.
The inception date for Class A (formerly Class R) was August 2, 1999. In the bar
chart, the performance figures for Class A shares for the period prior to its
inception are based on the historical performance of the fund's original share
class (Class S), adjusted to reflect the higher gross total annual operating
expenses of Class A. The bar chart does not reflect sales loads; if it did,
returns would be lower.
In the table, the performance figures for each share class for the periods prior
to their inception (August 2, 1999 for Class A and December 29, 2000 for Classes
B and C) are based on the historical performance of Class S, adjusted to reflect
both the higher gross total annual operating expenses of Class A, B or C and the
current applicable sales charge of that class. Class S shares are offered in a
different prospectus. In addition, the performance figures for Class A since its
inception have been adjusted to reflect the current applicable sales charge of
Class A.
Scudder International Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class A
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1990 -9.17
1991 11.47
1992 -2.90
1993 36.13
1994 -3.26
1995 11.91
1996 14.24
1997 7.68
1998 18.30
1999 57.33
2000 Total Return as of September 30: -17.85%
Best Quarter: 30.20%, Q4 1999 Worst Quarter: -18.51%, Q3 1990
--------------------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
Class A 48.28 19.28 12.07
--------------------------------------------------------------------------------
Class B 51.51 19.52 11.85
--------------------------------------------------------------------------------
Class C 56.24 19.79 11.88
--------------------------------------------------------------------------------
Index 27.93 13.10 7.10
--------------------------------------------------------------------------------
Index: MSCI EAFE plus Canada Index, an unmanaged capitalization-weighted
measure of stock markets in Europe, Australia, the Far East and Canada.
6
<PAGE>
How Much Investors Pay
This table describes the fees and expenses that you may pay if you buy and hold
fund shares.
--------------------------------------------------------------------------------
Fee Table Class A Class B Class C
--------------------------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed
on Purchases (% of offering price) 5.75% None None
--------------------------------------------------------------------------------
Maximum Contingent Deferred Sales
Charge (Load) (% of redemption
proceeds) None* 4.00% 1.00%
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee 0.68% 0.68% 0.68%
--------------------------------------------------------------------------------
Distribution/Service (12b-1) Fee* 0.25% 1.00% 1.00%
--------------------------------------------------------------------------------
Other Expenses** 0.40% 0.45% 0.43%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.33%*** 2.13% 2.11%
--------------------------------------------------------------------------------
* The redemption of shares purchased at net asset value under the Large
Order NAV Purchase Privilege (see "Policies You Should Know About --
Policies about transactions") may be subject to a contingent deferred
sales charge of 1.00% if redeemed within one year of purchase and 0.50%
if redeemed during the second year following purchase.
** Includes a fixed rate administrative fee of 0.400%, 0.450% and 0.425%
for Class A, Class B and Class C shares, respectively.
*** Zurich Scudder has agreed to cap operating expenses at 1.30% until
4/1/2001.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These new fees
became effective on August 14, 2000.
Based on the costs above, this example helps you compare the expenses of each
share class to those of other mutual funds. This example assumes the expenses
above remain the same. It also assumes that you invested $10,000, earned 5%
annual returns, and reinvested all dividends and distributions. This is only an
example; actual expenses will be different.
--------------------------------------------------------------------------------
Example 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
Expenses, assuming you sold your shares at the end of each period
--------------------------------------------------------------------------------
Class A shares $703 $972 $1,262 $2,084
--------------------------------------------------------------------------------
Class B shares 616 967 1,344 2,071
--------------------------------------------------------------------------------
Class C shares 314 661 1,134 2,441
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $703 $972 $1,262 $2,084
--------------------------------------------------------------------------------
Class B shares 216 667 1,144 2,071
--------------------------------------------------------------------------------
Class C shares 214 661 1,134 2,441
--------------------------------------------------------------------------------
7
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund's Board could
change the fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, the fund could shift up to 100% of
its assets into investments such as U.S. or Canadian securities. This
could prevent losses, but would mean that the fund would not be
pursuing its goal.
o The fund may trade securities actively. This could raise transaction
costs (thus lowering performance) and could mean higher taxable
distributions.
Euro conversion
Funds that invest in foreign securities could be affected by accounting
differences, changes in tax treatment or other issues related to the conversion
of certain European currencies into the euro, which is well underway. The
investment advisor is working to address euro-related issues as they occur and
has been notified that other key service providers are taking similar steps.
Still, there's some risk that this problem could materially affect a fund's
operation (including its ability to calculate net asset value and to handle
purchases and redemptions), its investments or securities markets in general.
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 Statement of Additional Information (the back cover tells you how
to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
8
<PAGE>
Who Manages and Oversees the Fund
The investment advisor
The fund's investment advisor is Zurich Scudder Investments, Inc., 345 Park
Avenue, New York, NY. The advisor has more than 80 years of experience managing
mutual funds, and currently has more than $290 billion in assets under
management.
The advisor's asset management teams include investment professionals,
economists, research analysts, traders and other investment specialists, located
in offices across the United States and around the world.
The advisor receives a management fee from the fund. For the 12 months through
the most recent fiscal year end, the actual amount the fund paid in management
fees was 0.76% of its average daily net assets.
The fund has entered into a new investment management agreement with the
advisor. The table below describes the new fee rates for the fund.
---------------------------------------------------------------------
Investment Management Fee effective August 14, 2000
---------------------------------------------------------------------
Average Daily Net Assets Fee Rate
---------------------------------------------------------------------
first $6 billion 0.675%
---------------------------------------------------------------------
next $1 billion 0.625%
---------------------------------------------------------------------
more than $7 billion 0.600%
---------------------------------------------------------------------
9
<PAGE>
The portfolio managers
The following people handle the day-to-day management of the fund.
Irene T. Cheng Nicholas Bratt
Lead Portfolio Manager o Began investment career in 1974
o Began investment career in 1985 o Joined the advisor in 1976
o Joined the advisor in 1993 o Joined the fund team in 1976
o Joined the fund team in 1998
Marc J. Slendebroek
Carol L. Franklin o Began investment career in 1989
o Began investment career in 1975 o Joined the advisor in 1994
o Joined the advisor in 1981 o Joined the fund team in 1999
o Joined the fund team in 1986
10
<PAGE>
How to Invest in the Fund
The following pages tell you about many of the services, choices and benefits
of being a shareholder. You'll also find information on how to check the
status of your account using the method that's most convenient for you.
You can find out more about the topics covered here by speaking with your
financial representative or a representative of your workplace retirement plan
or other investment provider.
<PAGE>
Choosing a Share Class
Offered in this prospectus are three share classes for the fund. The fund offers
other classes of shares separately. Each class has its own fees and expenses,
offering you a choice of cost structures. Class A, Class B and Class C shares
are intended for investors seeking the advice and assistance of a financial
representative, who may receive compensation for those services through sales
commissions, service fees and/or distribution fees.
Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you. You may
want to ask your financial representative to help you with this decision.
We describe each share class in detail on the following pages. But first, you
may want to look at the table below, which gives you a brief comparison of the
main features of each class.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Classes and features Points to help you compare
-----------------------------------------------------------------------------------------------------------------------------
Class A
<S> <C>
o Sales charges of up to 5.75%, charged when you buy o Some investors may be able to reduce or eliminate their
shares sales charges; see next page
o In most cases, no charges when you sell shares o Total annual operating expenses are lower than those for
Class B or Class C
o 0.25% service fee
-----------------------------------------------------------------------------------------------------------------------------
Class B
o No charges when you buy shares o The deferred sales charge rate falls to zero after six
years
o Deferred sales charge declining from 4.00%, charged
when you sell shares you bought within the last six o Shares automatically convert to Class A after six years,
years which means lower annual expenses going forward
o 1.00% distribution/service fee
-----------------------------------------------------------------------------------------------------------------------------
Class C
o No charges when you buy shares o The deferred sales charge rate is lower, but your shares
never convert to Class A, so annual expenses remain
o Deferred sales charge of 1.00%, charged when you sell higher
shares you bought within the last year
o 1.00% distribution/service fee
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Class A shares
Class A shares do have a 12b-1 plan, under which a service fee of 0.25% is
deducted from fund assets each year. Class A shares have a sales charge that
varies with the amount you invest:
Sales charge as a Sales charge as % of
Your investment % of offering price your net investment
---------------------------------------------------------------------
Up to $50,000 5.75% 6.10%
---------------------------------------------------------------------
$50,000-$99,999 4.50 4.71
---------------------------------------------------------------------
$100,000-$249,999 3.50 3.63
---------------------------------------------------------------------
$250,000-$499,999 2.60 2.67
---------------------------------------------------------------------
$500,000-$999,999 2.00 2.04
---------------------------------------------------------------------
$1 million or more See below and next page
---------------------------------------------------------------------
The offering price includes the sales charge.
You may be able to lower your Class A sales charges if:
o you plan to invest at least $50,000 over the next 24 months ("letter of
intent")
o the amount of shares you already own (including shares in certain other
funds) plus the amount you're investing now is at least $50,000
("cumulative discount")
o you are investing a total of $50,000 or more in several funds at once
("combined purchases")
The point of these three features is to let you count investments made at other
times for purposes of calculating your present sales charge. Any time you can
use the privileges to "move" your investment into a lower sales charge category
in the table above, it's generally beneficial for you to do so. You can take
advantage of these methods by filling in the appropriate sections of your
application or by speaking with your financial representative.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class A shares may make sense for long-term investors, especially those who are
eligible for reduced or eliminated sales charges.
13
<PAGE>
You may be able to buy Class A shares without sales charges when you are:
o reinvesting dividends or distributions
o investing through certain workplace retirement plans
o participating in an investment advisory program under which you pay a
fee to an investment advisor or other firm for portfolio management
services
There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. The fund may waive the sales charges for investors in
other situations as well. Your financial representative or Kemper Service
Company can answer your questions and help you determine if you are eligible.
If you're investing $1 million or more, either as a lump sum or through one of
the sales charge reduction features described on the previous page, you may be
eligible to buy Class A shares without sales charges. However, you may be
charged a contingent deferred sales charge (CDSC) of 1.00% on any shares you
sell within the first year of owning them, and a similar charge of 0.50% on
shares you sell within the second year of owning them. This CDSC is waived under
certain circumstances (see "Policies You Should Know About"). Your financial
representative or Kemper Service Company can answer your questions and help you
determine if you're eligible.
14
<PAGE>
Class B shares
With Class B shares, you pay no up-front sales charges to the fund. Class B
shares do have a 12b-1 plan, under which a distribution fee of 0.75% and a
service fee of 0.25% are deducted from fund assets each year. This means the
annual expenses for Class B shares are somewhat higher (and their performance
correspondingly lower) compared to Class A shares. After six years, Class B
shares automatically convert to Class A, which has the net effect of lowering
the annual expenses from the seventh year on. However, unlike Class A shares,
your entire investment goes to work immediately.
Class B shares have a CDSC. This charge declines over the years you own shares,
and disappears completely after six years of ownership. But for any shares you
sell within those six years, you may be charged as follows:
Year after you bought shares CDSC on shares you sell
---------------------------------------------------------------------
First year 4.00%
---------------------------------------------------------------------
Second or third year 3.00
---------------------------------------------------------------------
Fourth or fifth year 2.00
---------------------------------------------------------------------
Sixth year 1.00
---------------------------------------------------------------------
Seventh year and later None (automatic conversion
to Class A)
---------------------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper Service Company can answer your
questions and help you determine if you're eligible.
While Class B shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class B shares can be a logical choice for long-term investors who would prefer
to see all of their investment go to work right away, and can accept somewhat
higher annual expenses.
15
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges. However,
Class C shares do have a 12b-1 plan under which a distribution fee of 0.75% and
a service fee of 0.25% are deducted from fund assets each year. Because of these
fees, the annual expenses for Class C shares are similar to those of Class B
shares, but higher than those for Class A shares (and the performance of Class C
shares is correspondingly lower than that of Class A). However, unlike Class A
shares, your entire investment goes to work immediately.
Unlike Class B shares, Class C shares do NOT automatically convert to Class A
after six years, so they continue to have higher annual expenses.
Class C shares have a CDSC, but only on shares you sell within one year of
buying them:
Year after you bought shares CDSC on shares you sell
---------------------------------------------------------------------
First year 1.00%
---------------------------------------------------------------------
Second year and later None
---------------------------------------------------------------------
This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial representative or Kemper Service Company can answer your
questions and help you determine if you're eligible.
While Class C shares don't have any front-end sales charges, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
Class C shares may appeal to investors who plan to sell some or all shares
within six years of buying them, or who aren't certain of their investment time
horizon.
16
<PAGE>
How to Buy Shares
Once you've chosen a share class, use these instructions to make investments.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
First investment Additional investments
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
$1,000 or more for regular accounts $100 or more for regular accounts
$250 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic Investment Plan
-----------------------------------------------------------------------------------------------------------------------------
Through a financial representative
o Contact your representative using the method o Contact your representative using the method that's
that's most convenient for you most convenient for you
-----------------------------------------------------------------------------------------------------------------------------
By mail or express mail (see below)
o Fill out and sign an application o Send a check made out to "Kemper Funds" and an
investment slip to us at the appropriate address below
o Send it to us at the appropriate address,
along with an investment check o If you don't have an investment slip, simply include a
letter with your name, account number, the full name of
the fund and the share class and your investment
instructions
-----------------------------------------------------------------------------------------------------------------------------
By wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
-----------------------------------------------------------------------------------------------------------------------------
By phone
-- o Call (800) 621-1048 for instructions
-----------------------------------------------------------------------------------------------------------------------------
With an automatic investment plan
-- o To set up regular investments from a bank checking
account, call (800) 621-1048 (minimum $50)
-----------------------------------------------------------------------------------------------------------------------------
On the Internet
-- o Go to www.kemper.com and register
o Follow the instructions for buying shares with money
from your bank account
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
Regular mail:
Kemper Funds, PO Box 219153, Kansas City, MO 64121-9153
Express, registered or certified mail:
Kemper Service Company, 811 Main Street, Kansas City, MO 64105-2005
Fax number: (800) 818-7526 (for exchanging and selling only)
17
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell shares in your account.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Exchanging into another fund Selling shares
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
$1,000 or more to open a new account Some transactions, including most for over $50,000, can
($250 for IRAs) only be ordered in writing with a signature guarantee; if
you're in doubt, see page 21
$100 or more for exchanges between existing accounts
-----------------------------------------------------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the method that's o Contact your representative by the method that's most
most convenient for you convenient for you
-----------------------------------------------------------------------------------------------------------------------------
By phone or wire
o Call (800) 621-1048 for instructions o Call (800) 621-1048 for instructions
-----------------------------------------------------------------------------------------------------------------------------
By mail, express mail or fax (see previous page)
Write a letter that includes: Write a letter that includes:
o the fund, class and account number you're exchanging o the fund, class and account number from which you want
out of to sell shares
o the dollar amount or number of shares you want to o the dollar amount or number of shares you want to sell
exchange
o your name(s), signature(s) and address, as they appear
o the name and class of the fund you want to exchange on your account
into
o a daytime telephone number
o your name(s), signature(s) and address, as they
appear on your account
o a daytime telephone number
-----------------------------------------------------------------------------------------------------------------------------
With a systematic exchange plan
o To set up regular exchanges from a fund account, --
call (800) 621-1048
-----------------------------------------------------------------------------------------------------------------------------
With a systematic withdrawal plan
-- o To set up regular cash payments from a fund account,
call (800) 621-1048
-----------------------------------------------------------------------------------------------------------------------------
On the Internet
o Go to www.kemper.com and register --
o Follow the instructions for making on-line exchanges
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you
received from them. As a general rule, you should follow the information in
those materials wherever it contradicts the information given here. Please note
that an investment provider may charge its own fees.
In either case, keep in mind that the information in this prospectus applies
only to the fund's Class A, Class B and Class C shares. The fund does have other
share classes, which are described in a separate prospectus and which have
different fees, requirements and services.
In order to reduce the amount of mail you receive and to help reduce fund
expenses, we generally send a single copy of any shareholder report and
prospectus to each household. If you do not want the mailing of these documents
to be combined with those for other members of your household, please call (800)
621-1048.
19
<PAGE>
Policies about transactions
The fund is open for business each day 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 Kemper Service Company, and they have determined that it is a "good
order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Kemper
Service Company before they can be processed, you'll need to allow extra time. A
representative of your investment provider should be able to tell you when your
order will be processed.
KemperACCESS, the Kemper Automated Information Line, is available 24 hours a day
by calling (800) 972-3060. You can use Kemper ACCESS to get information on
Scudder or Kemper funds generally and on accounts held directly at Kemper. You
can also use it to make exchanges and sell shares.
EXPRESS-Transfer lets you set up a link between a Scudder or Kemper 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. Transactions take two to three days to be completed, and
there is a $100 minimum. To set up EXPRESS-Transfer on a new account, see the
account application; to add it to an existing account, call (800) 621-1048.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
The Kemper Web site can be a valuable resource for shareholders with Internet
access. Go to www.kemper.com to get up-to-date information, review balances or
even place orders for exchanges.
20
<PAGE>
Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personalized security codes or other information, we are not
responsible for any losses that may occur. For transactions conducted over the
Internet, we recommend the use of a secure Internet browser. In addition, you
should verify the accuracy of your confirmation statements immediately after you
receive them.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are completed within 24 hours. The fund can only send or
accept wires of $100 or more.
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 or limit purchase orders,
for these or other reasons.
When you want to sell more than $50,000 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,
banks, savings institutions and credit unions. Note that you can't get a
signature guarantee from a notary public.
21
<PAGE>
When you sell shares that have a CDSC, we calculate the CDSC as a percentage of
what you paid for the shares or what you are selling them for -- whichever
results in the lowest charge to you. In processing orders to sell shares, we
turn to the shares with the lowest CDSC first. Exchanges from one fund into
another don't affect CDSCs: for each investment you make, the date you first
bought shares is the date we use to calculate a CDSC on that particular
investment.
There are certain cases in which you may be exempt from a CDSC. These include:
o the death or disability of an account owner (including a joint owner)
o withdrawals made through a systematic withdrawal plan
o withdrawals related to certain retirement or benefit plans
o redemptions for certain loan advances, hardship provisions or returns
of excess contributions from retirement plans
o for Class A shares purchased through the Large Order NAV Purchase
Privilege, redemption of shares whose dealer of record at the time of
the investment notifies Kemper Distributors that the dealer waives the
applicable commission
In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial representative or
Kemper Service Company can answer your questions and help you determine if you
are eligible.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
If you ever have difficulty placing an order by phone or fax, you can always
send us your order in writing.
22
<PAGE>
If you sell shares in a Scudder fund offering multiple classes or a Kemper fund
and then decide to invest with Scudder or Kemper again within six months, you
can take advantage of the "reinstatement feature." With this feature, you can
put your money back into the same class of a Scudder or Kemper fund at its
current NAV and for purposes of sales charges it will be treated as if it had
never left Scudder or Kemper. You'll be reimbursed (in the form of fund shares)
for any CDSC you paid when you sold. Future CDSC calculations will be based on
your original investment date, rather than your reinstatement date. There is
also an option that lets investors who sold Class B shares buy Class A shares
with no sales charge, although they won't be reimbursed for any CDSC they paid.
You can only use the reinstatement feature once for any given group of shares.
To take advantage of this feature, contact Kemper Service Company or your
financial representative.
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: 10 days) or when unusual circumstances prompt the
SEC to allow further delays. Certain expedited redemption processes may also be
delayed when you are selling recently purchased shares.
23
<PAGE>
How the fund calculates share price
The price at which you buy shares is as follows:
Class A shares -- net asset value per share, or NAV, adjusted to allow for any
applicable sales charges (see "Choosing a Share Class")
Class B and Class C shares-- net asset value per share, or NAV
To calculate NAV, each share class of the fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
-------------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For each share class, the price at which you sell shares is also the NAV,
although for Class B and Class C investors a contingent deferred sales charge
may be taken out of the proceeds (see "Choosing a Share Class").
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. 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.
24
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if 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
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$1,000 for the entire quarter; this policy doesn't apply to most
retirement accounts or if you have an automatic investment plan
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; the fund generally won't make a
redemption in kind unless your requests over a 90-day period total more
than $250,000 or 1% of the value of the fund's net assets, whichever is
less
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
25
<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 annually
in November or December, and if necessary may do so at other times as well.
You can choose how to receive your dividends and distributions. You can have
them all automatically reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't indicate a preference,
your dividends and distributions will all be reinvested. For retirement plans,
reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for you
(except in an IRA or other tax-advantaged account). 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.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
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.
26
<PAGE>
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
----------------------------------------------------------------------
o short-term capital gains from selling fund shares
----------------------------------------------------------------------
o taxable income dividends you receive from 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.
Your 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.
27
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effects of a 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 the reports
automatically. For more copies, call (800) 621-1048.
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, please
contact Kemper or the SEC (see below). If you're a shareholder and have
questions, please contact Kemper. Materials you get from Kemper are free; those
from the SEC involve a copying fee. If you like, you can look over these
materials at the SEC's Public Reference Room in Washington, DC or request them
electronically at [email protected].
SEC Scudder Funds c/o
450 Fifth Street, N.W. Kemper Distributors, Inc.
Washington, DC 20549-0102 222 South Riverside Plaza
www.sec.gov Chicago, IL 60606-5808
Tel (202) 942-8090 www.kemper.com
Tel (800) 621-1048
--------------------------------------------------------------------------------
SEC File Number
Scudder International Fund 811-642
Principal Underwriter
Kemper Distributors, Inc.
222 South Riverside Plaza Chicago, IL 60606-5808
www.kemper.com E-mail [email protected]
Tel (800) 621-1048
<PAGE>
SCUDDER GLOBAL FUND
A series of Global/International Fund, Inc.
SCUDDER INTERNATIONAL FUND
A series of Scudder International Fund, Inc.
Class AARP and Class S Shares
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
December 29, 2000
--------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus and should
be read in conjunction with the prospectuses for Scudder Global Fund and Scudder
International Fund dated December 29, 2000, 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 each Fund dated August 31, 2000 are
incorporated by reference and hereby deemed to be part of this Statement of
Additional Information. The Annual Reports may be obtained without charge by
calling 1-800-SCUDDER.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Scudder Global Fund..........................................................................................1
Scudder International Fund...................................................................................3
Foreign Investment Risk......................................................................................5
Master/feeder structure......................................................................................5
Interfund Lending Program....................................................................................6
Special Considerations.......................................................................................6
Specialized Investment Techniques............................................................................9
Investment Restrictions.....................................................................................23
PURCHASES............................................................................................................24
Additional Information About Opening An Account.............................................................24
Minimum balances............................................................................................25
Additional Information About Making Subsequent
Investments............................................................................................26
Share Price.................................................................................................27
Share Certificates..........................................................................................27
Other Information...........................................................................................28
EXCHANGES AND REDEMPTIONS............................................................................................28
Exchanges...................................................................................................28
Redemption By Telephone.....................................................................................29
Redemption by QuickSell.....................................................................................30
Redemption-in-Kind..........................................................................................30
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................31
Dividends and Capital Gains Distribution Options............................................................32
SPECIAL PLAN ACCOUNTS................................................................................................34
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................37
PERFORMANCE INFORMATION..............................................................................................38
Average Annual Total Return.................................................................................38
Cumulative Total Return.....................................................................................38
Total Return................................................................................................39
Comparison of Fund Performance..............................................................................39
ORGANIZATION OF THE FUNDS............................................................................................40
INVESTMENT ADVISOR...................................................................................................42
AMA InvestmentLinkSM Program................................................................................46
Code of Ethics..............................................................................................46
DIRECTORS AND OFFICERS OF SCUDDER INTERNATIONAL FUND, INC............................................................46
DIRECTORS AND OFFICERS OF GLOBAL/INTERNATIONAL FUND, INC.............................................................46
REMUNERATION.........................................................................................................49
Compensation of Officers and Directors......................................................................50
i
<PAGE>
DISTRIBUTOR..........................................................................................................51
Administrative Fee..........................................................................................51
TAXES................................................................................................................52
PORTFOLIO TRANSACTIONS...............................................................................................56
Brokerage Commissions.......................................................................................56
Portfolio Turnover..........................................................................................57
NET ASSET VALUE......................................................................................................57
ADDITIONAL INFORMATION...............................................................................................58
Experts.....................................................................................................58
Other Information...........................................................................................58
FINANCIAL STATEMENTS.................................................................................................60
APPENDIX.............................................................................................................61
</TABLE>
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVE AND POLICIES
Scudder Global Fund and Scudder International Fund (each a "Fund," collectively
the "Funds") are each an open-end management investment company which
continuously offers and redeems shares at net asset value. Each Fund is a
company of the type commonly known as a mutual fund. Scudder Global Fund is a
diversified series of Global/International Fund, Inc. Scudder International Fund
is a diversified series of Scudder International Fund, Inc. (each a
"Corporation," collectively the "Corporations"). Scudder Global Fund offers five
classes of shares, Class AARP, Class S, Class A, Class B and Class C shares.
Scudder International Fund offers seven classes of shares: Class AARP, Class S,
Barrett International Shares, Class A, Class B, Class C, and Class I shares.
Each class has its own important features and policies. Only Class AARP and
Class S of each Fund are offered herein. Shares of Class AARP are especially
designed for members of AARP.
Except as otherwise indicated, each Fund's objectives and policies are not
fundamental and may be changed without a shareholder vote. There can be no
assurance that the Funds will achieve their objective. If there is a change in a
Fund's investment objective, shareholders should consider whether that Fund
remains an appropriate investment in light of their then current financial
position and needs.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which the Funds may engage (such as short
selling, hedging, etc.) or a financial instrument in which the Funds may
purchase (such as options, forward foreign currency contracts, etc.) are meant
to describe the spectrum of investments that Zurich Scudder Investments, Inc.
(the "Advisor"), in its discretion, might, but is not required to, use in
managing a Fund's portfolio assets. The Advisor may, in its discretion, at any
time employ such practice, technique or instrument for one or more funds but not
for all funds advised by it. Furthermore, it is possible that certain types of
financial instruments or investment techniques described herein may not be
available, permissible, economically feasible or effective for their intended
purposes in all markets. Certain practices, techniques, or instruments may not
be principal activities of a Fund but, to the extent employed, could from time
to time have a material impact on that Fund's performance.
General Investment Objective and Policies
Scudder Global Fund and Scudder International Fund each seek long-term growth of
capital from foreign equity securities by each employing a distinct investment
style.
Scudder Global Fund
The Fund seeks long-term growth while actively seeking to reduce downside risk
as compared with other global growth funds. The Fund will not invest in
securities issued by tobacco-producing companies. Although the Fund can invest
in companies of any size, it generally focuses on established companies whose
stocks are listed on a recognized exchange. While most of the Fund's equities
are common stocks, some may be other types of equities, such as convertible
stocks, preferred stocks and depository receipts. The Fund may also buy
investment grade debt securities when it believes they may perform at least as
well as equities.
The management of the Fund believes that there is substantial opportunity for
long-term capital growth from a professionally managed portfolio of securities
selected from the U.S. and foreign equity markets. Through this global
investment framework, management seeks to take advantage of the investment
opportunities created by the global economy. The world has become highly
integrated in economic, industrial and financial terms. Companies increasingly
operate globally as they purchase raw materials, produce and sell their
products, and raise capital. As a result, international trends such as movements
in currency and trading relationships are becoming more important to many
industries than purely domestic influences. To understand a company's business,
it is frequently more important to understand how it is linked to the world
economy than whether or not it is, for example, a U.S., French or Swiss company.
Just as a company takes a global perspective in deciding where to operate, so
too may an investor benefit from looking globally in deciding which industries
are growing, which producers are efficient and which companies' shares are
undervalued. The Fund affords the investor access to potential opportunities
wherever they arise, without being constrained by the location of a company's
headquarters or the trading market for its shares.
1
<PAGE>
The Fund invests in companies that the Advisor believes will benefit from global
economic trends, promising technologies or products and specific country
opportunities resulting from changing geopolitical, currency, or economic
considerations. It is expected that investments will be spread broadly around
the world. The Fund will be invested usually in securities of issuers located in
at least three countries, one of which may be the U.S. The Fund may be invested
100% in non-U.S. issues, and for temporary defensive purposes may be invested
100% in U.S. issues, although under normal circumstances it is expected that
both foreign and U.S. investments will be represented in the Fund's portfolio.
It is expected that investments will include companies of varying sizes as
measured by assets, sales, or capitalization. The Fund generally invests in
equity securities of established companies listed on U.S. or foreign securities
exchanges, but also may invest in securities traded over-the-counter. It also
may invest in debt securities convertible into common stock, and convertible and
non-convertible preferred stock, and fixed-income securities of governments,
governmental agencies, supranational agencies and companies when the Advisor
believes the potential for appreciation will equal or exceed that available from
investments in equity securities. In addition, for temporary defensive purposes,
the Fund may vary from its investment policies during periods when the Advisor
determines that it is advisable to do so because of conditions in the securities
markets or other economic or political conditions. During such periods, the Fund
may hold without limit cash and cash equivalents. It is impossible to accurately
predict for how long such alternative strategies may be utilized. The Fund may
not invest more than 5% of its total assets in debt securities that are rated
Baa or below by Moody's Investors Service, Inc. ("Moody's") or BBB or below by
Standard and Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("S&P"), or deemed by the Advisor to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). More information about these
investment techniques is provided under "Investments and Investment Techniques."
Investments. Scudder Global Fund seeks long-term growth while actively seeking
to reduce downside risk as compared with other global growth funds. The managers
use analytical tools to monitor actively the risk profile of the portfolio as
compared to comparable funds and appropriate benchmarks and peer groups. The
managers use several strategies in seeking to reduce downside risk, including:
(i) diversifying broadly among companies, industries, countries and regions;
(ii) focusing on high-quality companies with reasonable valuations; and (iii)
generally focusing on countries with developed economies. The portfolio
managers' attempts to manage downside risk may also reduce performance in a
strong market. In addition, the Fund will also not invest in securities issued
by tobacco-producing companies.
The Fund is intended to provide individual and institutional investors with an
opportunity to invest a portion of their assets in a globally oriented
portfolio, and is designed for long-term investors who can accept global
investment risk. The Advisor believes that allocation of assets on a global
basis decreases the degree to which events in any one country, including the
U.S., will affect an investor's entire investment holdings. In the period since
World War II, many leading foreign economies have grown more rapidly than the
U.S. economy, thus providing investment opportunities; although there can be no
assurance that this will be true in the future. As with any long-term
investment, the value of the Fund's shares when sold may be higher or lower than
when purchased.
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 standards, practices and requirements, with respect
to accounting, auditing and financial reporting, as are 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. Fixed commissions on some foreign securities
exchanges and bid to asked spreads in foreign bond markets are generally higher
than negotiated commissions on U.S. exchanges and bid to asked spreads in the
U.S. bond market, although the Fund will endeavor to achieve the most favorable
net results on their portfolio transactions. Further, the Fund may encounter
difficulties or be unable to pursue legal
2
<PAGE>
remedies and obtain judgments in foreign courts. There is generally less
governmental supervision and regulation of business and industry practices,
securities exchanges, brokers and listed companies than in the U.S. It may be
more difficult for the Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters 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. Investments in foreign securities may also
entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. The management of the Fund seeks to mitigate the risks
associated with the foregoing considerations through continuous professional
management.
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. Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
Investments in foreign securities usually will involve currencies of foreign
countries. Because of the considerations discussed above, 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. Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. It will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to resell that currency to the dealer. The Fund will conduct their
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 strategic transactions involving currencies (see "Strategic
Transactions and Derivatives").
Because the Fund may be invested in both U.S. and foreign securities markets,
changes in the Fund's share price may have a low correlation with movements in
the U.S. markets. The Fund's share price will reflect the movements of both the
different stock and bond markets in which it is invested and of the currencies
in which the investments are denominated; the strength or weakness of the U.S.
dollar against foreign currencies may account for part of the Fund's investment
performance. Foreign securities such as those purchased by the Fund may be
subject to foreign governmental 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"). U.S. and foreign securities markets do not always move
in step with each other, and the total returns from different markets may vary
significantly. The Fund invests in many securities markets around the world in
an attempt to take advantage of opportunities wherever they may arise.
Because of the Fund's investment considerations discussed above and the
investment policies, investment in shares of a Fund is not intended to provide a
complete investment program for an investor.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net asset
value of the Fund's shares will increase or decrease with changes in the market
price of the Fund's investments, and there is no assurance that the Fund's
objectives will be achieved.
Scudder International Fund
The Fund seeks long-term growth of capital primarily from foreign equity
securities. These securities are selected primarily to permit the Fund to
participate in non-U.S. companies and economies that are believed to have
prospects for growth.
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The Fund generally invests in equity securities of established companies, listed
on foreign exchanges (although the Fund may also invest in securities traded
over the counter), which the Advisor believes have favorable characteristics.
The Fund's equity investments include common stock, convertible and
non-convertible preferred stock, sponsored and unsponsored depository receipts,
and warrants.
When the Advisor believes that it is appropriate to do so in order to achieve
the Fund's investment objective of long-term capital growth, the Fund may invest
up to 20% of its total assets in debt securities. Such debt securities include
debt securities of governments, governmental agencies, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (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 value of fixed-income investments will fluctuate with changes in
interest rates and bond market conditions, tending to rise as interest rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-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 by the Advisor to be of
equivalent quality. The Fund may also invest up to 5% of its total assets in
debt securities which are rated below investment-grade (see "Risk factors").
The Fund intends to diversify investments among several countries and normally
to have investments in securities of at least three different countries other
than the U.S. The Fund will invest primarily in securities of issuers in the 21
developed foreign countries included in the Morgan Stanley Capital International
("MSCI") World ex-US Index, but may invest in "emerging markets." The Fund
considers "emerging markets" to include any country that is defined as an
emerging or developing economy by any of the International Bank of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.
The major portion of the Fund's assets consists of equity securities of
established companies listed on recognized exchanges; the Advisor expects this
condition to continue, although the Fund may invest in other securities. In
selecting securities for the Fund's portfolio, the Advisor applies a
disciplined, multi-part investment approach for selecting stocks for the Fund.
In analyzing companies for investment, the Advisor ordinarily looks for one or
more of the following characteristics: strong competitive positioning,
above-average earnings growth per share, high return on invested capital,
healthy balance sheets and overall financial strength, strength of management
and general operating characteristics which will enable the companies to compete
successfully in the marketplace. The Advisor will further seek to have broad
country representation, favoring those countries that it believes have sound
economic conditions and open markets. The Advisor will also look for
opportunities on a macro-economic level, seeking to identify major changes in
the business environment and companies that are poised to benefit from these
changes. Investment decisions are made without regard to arbitrary criteria as
to minimum asset size, debt-equity ratios or dividend history of portfolio
companies. The Advisor will typically sell an investment when certain criteria
are met, including but not limited to: the price of the security reaches the
Advisor's assessment of its fair value; the underlying investment theme is
judged by the Advisor to have matured; or if the original reason for investing
in the security no longer applies or is no longer valid.
In applying the disciplined, multi-part investment approach for selecting stocks
for the Fund, the Advisor first analyzes the pool of foreign dividend-paying
securities, primarily from the world's more mature markets, and targeting stocks
that have high relative yields compared to the average for their markets. In the
Advisor'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 Advisor
believes that these potentially favorable risk and return characteristics exist
because the higher dividends offered by these stocks act as a "cushion" when
markets are volatile and because the stocks with higher yields tend to have more
attractive valuations (e.g., lower price-to-earning ratios and lower
price-to-book ratios). The second stage of portfolio construction involves a
fundamental analysis of each company's financial strength, profitability,
projected earnings, competitive positioning, and ability of management. During
this step, the Advisor's research team identifies what it believes are the most
promising stocks for the Fund's portfolio. The third stage of the investment
process involves diversifying the portfolio among different industry sectors.
The key element of this stage is evaluating how the stocks in different sectors
react to economic factors such as interest rates, inflation, Gross Domestic
Product, and consumer spending, and then attaining a proper balance of stocks in
these sectors based on the Advisor's economic forecast. The fourth and final
stage of this ongoing process is diversifying the portfolio among different
countries. The Advisor will seek to have broad country representation, favoring
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those countries that it believes have sound economic conditions and open
markets. The Fund's strategy is to manage risk and create opportunity at each of
the four stages in its investment process, starting with the focus on stocks
with high relative yields.
The Fund may hold up to 20% of its net assets in U.S. and foreign fixed income
securities for temporary defensive purposes when the Advisor believes that
market conditions so warrant. The Fund may invest up to 20% of its net assets
under normal conditions, and without limit for temporary defensive purposes, in
cash or cash equivalents including domestic and foreign money market
instruments, short-term government and corporate obligations and repurchase
agreements, when the Advisor deems such a position advisable in light of
economic or market conditions. It is impossible to predict how long alternative
strategies may be utilized. In addition, the Fund may engage in reverse
repurchase agreements, illiquid securities and strategic transactions, which may
include derivatives.
Foreign securities such as those purchased by the Fund may be subject to foreign
governmental 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 securities such as
restricted debt or equity securities (i.e., securities which may require
registration under the Securities Act of 1933, as amended, (the "1933 Act"), or
an exemption therefrom, in order to be sold in the ordinary course of business)
in a private placement. (See "Illiquid Securities".)
The Fund invests in companies, wherever organized, which do business primarily
outside the United States.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net asset
value of the Fund's shares will increase or decrease with changes in the market
price of the Fund's investments, and there is no assurance that the Fund's
objectives will be achieved.
Foreign Investment Risk
While the Funds offer the potential for substantial appreciation over time, they
also involve above-average investment risk in comparison to a mutual fund
investing in a broad range of U.S. equity securities. Each Fund is designed as a
long-term investment and not for short-term trading purposes. None of the Funds,
nor the Funds together, should be considered a complete investment program,
although each could serve as a core international holding for an individual's
portfolio. Each Fund's net asset value, or price, can fluctuate significantly
with changes in stock market levels, political developments, movements in
currencies, global investment flows and other factors.
Master/feeder structure
The Board of Directors has the discretion to retain the current distribution
arrangement for the Funds while investing in a master fund in a master/feeder
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.
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Interfund Lending Program
The Corporations' Board of Directors has approved the filing of an application
for exemptive relief with the Securities and Exchange Commission (the "SEC")
which would permit the Funds to participate in an interfund lending program
among certain investment companies advised by the Advisor. If the Funds receive
the requested relief, the interfund lending program would allow the
participating funds to borrow money from and loan money to each other for
temporary or emergency purposes. The program would be subject to a number of
conditions designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable interest rate than a rate approximating the
lowest interest rate at which bank loans would be available to any of the
participating funds under a loan agreement; and (2) no fund may lend money
through the program unless it receives a more favorable return than that
available from an investment in repurchase agreements and, to the extent
applicable, money market cash sweep arrangements. In addition, a fund would
participate in the program only if and to the extent that such participation is
consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings would extend overnight,
but could have a maximum duration of seven days. Loans could be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Funds are actually engaged in borrowing
through the interfund lending program, the Funds, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging) except that the Funds may engage in reverse repurchase
agreements and dollar rolls for any purpose.
Special Considerations
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less governmental supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
cash is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in U.S. securities.
Such transactions also involve additional costs for the purchase or sale of
foreign currency.
Foreign investment in certain emerging market debt obligations is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain emerging markets debt obligations and
increase the costs and expenses of the Fund. 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. A 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. Political changes in emerging market countries may
affect the willingness of an emerging market country's governmental issuer to
make or provide for timely
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payments of its obligations. The country's economic status, and reflected in,
among other things, its inflation rate, the amount of its external debt and its
gross domestic product, also affects its ability to honor its obligations. 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 that 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 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 governmental 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 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, that 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 that
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 that Fund or to
entities in which that Fund has invested. The Advisor 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.
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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, governmental 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 their exports in
currencies other than dollars or non-emerging market currencies, their 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, each 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. International 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 the issuer of the
underlying securities sponsored them. 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, Depository Receipts in registered form are designed for
use in the United States securities markets and Depository Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of each Fund's investment policies, the Fund's investments in ADRs,
GDRs and other types of Depository Receipts will be deemed to be investments in
the underlying securities. Depository 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
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general, there is a large, liquid market in the United States for most ADRs.
However, certain Depository Receipts may not be listed on an exchange and
therefore may be illiquid securities.
Warrants. International Fund may invest in warrants up to 5% of the value of
their 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 to be speculative
investments. Warrants pay no dividends and confer no rights other than a
purchase option. Thus, if a warrant held by the Fund were not exercised by the
date of its expiration, the Fund would lose the entire purchase price of the
warrant.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Funds may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various currencies. In
particular, the Funds' foreign investments are generally denominated in foreign
currencies. The strength or weakness of the U.S. dollar against these currencies
is responsible for part of the Fund's investment performance. If the dollar
falls in value relative to the Japanese yen, for example, the dollar value of a
Japanese stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall.
In addition, many foreign currencies have experienced significant devaluation
relative to the dollar. Although the Fund values its assets daily in terms of
U.S. dollars, it does not intend to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. It will do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer. A Fund
will conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into options or forward or futures contracts to purchase or
sell foreign currencies.
Trust Preferred Securities. A Fund may invest in Trust Preferred Securities,
which are hybrid instruments issued by a special purpose trust (the "Special
Trust"), the entire equity interest of which is owned by a single issuer. The
proceeds of the issuance to a Fund of Trust Preferred Securities are typically
used to purchase a junior subordinated debenture, and distributions from the
Special Trust are funded by the payments of principal and interest on the
subordinated debenture.
If payments on the underlying junior subordinated debentures held by the Special
Trust are deferred by the debenture issuer, the debentures would be treated as
original issue discount ("OID") obligations for the remainder of their term. As
a result, holders of Trust Preferred Securities, such as a Fund, would be
required to accrue daily for Federal income tax purposes their share of the
stated interest and the de minimis OID on the debentures (regardless of whether
a Fund receives any cash distributions from the Special Trust), and the value of
Trust Preferred Securities would likely be negatively affected. Interest
payments on the underlying junior subordinated debentures typically may only be
deferred if dividends are suspended on both common and preferred stock of the
issuer. The underlying junior subordinated debentures generally rank slightly
higher in terms of payment priority than both common and preferred securities of
the issuer, but rank below other subordinated debentures and debt securities.
Trust Preferred Securities may be subject to mandatory prepayment under certain
circumstances. The market values of Trust Preferred Securities may be more
volatile than those of conventional debt securities. Trust Preferred Securities
may be issued in reliance on Rule 144A under the 1933 Act, and, unless and until
registered, are restricted securities; there can be no assurance as to the
liquidity of Trust Preferred Securities and the ability of holders of Trust
Preferred Securities, such as a Fund, to sell their holdings.
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Investment-Grade Bonds. When the Advisor believes that it is appropriate to do
so in order to achieve International Fund's objective of long-term capital
growth, the Fund may invest up to 20% of its total assets in debt securities
including bonds of foreign governments, supranational organizations and private
issuers, including bonds denominated in the Euro. Portfolio debt investments
will be selected on the basis of, among other things, yield, credit quality, and
the fundamental outlooks for currency, economic 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
Advisor. Moody's considers bonds it rates Baa to have speculative elements as
well as investment-grade characteristics. To the extent that the Fund invests in
higher-grade securities, the Fund will not be able to avail itself of
opportunities for higher income which may be available at lower grades. Global
Fund may not invest more than 5% of its total assets in debt securities that are
rated Baa or below by Moody's or BBB or below by S&P, or deemed by the Advisor
to be of comparable quality.
High Yield/High Risk Bonds. A 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 and are considered
speculative. The lower the ratings of such debt securities, the greater their
risks render them like equity securities. The International Fund will invest no
more than 5% of its total assets in securities rated BB or lower by Moody's or
Ba by S&P, and may invest in securities which are rated D by S&P. Securities
rated D may be in default with respect to payment of principal or interest. See
the Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.
High yield, high-risk securities are especially subject to adverse changes in
general economic conditions, to changes in the financial condition of their
issuers and to price fluctuations in response to changes in interest rates. An
economic downturn could disrupt the high yield market, impair the ability of
issuers to repay principal and interest and increase an issuer's risk of
default. Also, an increase in interest rates would have a greater adverse impact
on the value of such obligations than on higher quality debt securities. During
an economic downturn or period of rising interest rates, highly leveraged issues
may experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations. Prices and yields of
high yield securities will fluctuate over time and, during periods of economic
uncertainty, volatility of high yield securities may adversely affect a Fund's
net asset value. In addition, investments in high yield zero coupon or
pay-in-kind bonds, rather than income-bearing high yield securities, may be more
speculative and may be subject to greater fluctuations in value due to changes
in interest rates.
The trading market for high yield securities may be thin to the extent that
there is no established retail secondary market or because of a decline in the
value of such securities. A thin trading market may limit the ability of a Fund
to accurately value high yield securities in its portfolio and to dispose of
those securities. Adverse publicity and investor perceptions may decrease the
values and liquidity of high yield securities. These securities may also involve
special registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the Advisor not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Advisor's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Advisor will determine
whether it is in the best interests of a Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation which would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
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On average, for the semiannual period ended February 29, 2000, International
Fund's holdings in debt securities rated below investment grade by one or more
nationally recognized rating services, or judged by the Advisor to be of
equivalent quality to the established categories of such rating services
comprised less than 5% of the Fund's total assets. For more information
regarding tax issues related to high yield securities, see "TAXES."
Illiquid Securities and Restricted Securities. A Fund may purchase securities
that are subject to legal or contractual restrictions on resale ("restricted
securities"). Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; or (iii) in limited quantities after they have
been held for a specified period of time and other conditions are met pursuant
to an exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the Securities Act of 1933, as
amended. 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.
Restricted securities are often illiquid, but they may also be liquid. For
example, restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid.
The Corporation's Board of Directors has approved guidelines for use by the
Advisor in determining whether a security is illiquid. Among the factors the
Investment Manager 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).
Issuers of restricted securities may not be subject to the disclosure and other
investor protection requirement that would be applicable if their securities
were publicly traded. Where a registration statement is required for the resale
of restricted securities, a Fund may be required to bear all or part of the
registration expenses. A Fund may be deemed to be an "underwriter" for purposes
of the 1933 Act when selling restricted securities to the public and, in such
event, a Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
A Fund may also purchase securities that are not subject to legal or contractual
restrictions on resale, but that are deemed illiquid. Such securities may be
illiquid, for example, because there is a limited trading market for them.
A Fund may be unable to sell a restricted or illiquid security. In addition, it
may be more difficult to determine a market value for restricted or illiquid
securities, Moreover, if adverse market conditions were to develop during the
period between a Fund's decision to sell a restricted or illiquid security and
the point at which a Fund is permitted or able to sell such security, a Fund
might obtain a price less favorable than the price that prevailed when it
decided to sell.
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This investment practice, therefore, could have the effect of increasing the
level of illiquidity of a Fund.
Repurchase Agreements. The Fund may invest in repurchase agreements pursuant to
its investment guidelines. In a repurchase agreement, the Fund acquires
ownership of a security and simultaneously commits to resell that security to
the seller, typically a bank or broker/dealer. Some repurchase commitment
transactions may not provide the Fund with collateral marked-to-market during
the term of the commitment.
A repurchase agreement provides a means for a Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., a Fund) acquires a security ("Obligation") and the seller agrees, at the
time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and the value of such securities kept at least equal to the repurchase price on
a daily basis. The repurchase price may be higher than the purchase price, the
difference being income to a Fund, or the purchase and repurchase prices may be
the same, with interest at a stated rate due to the Fund together with the
repurchase price upon repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
held by the Custodian or in the Federal Reserve Book Entry system.
It is not clear whether a court would consider the Obligation purchased by a
Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of the commencement
of bankruptcy or insolvency proceedings with respect to the seller of the
Obligation before repurchase of the Obligation under a repurchase agreement, a
Fund may encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in price of the Obligation. If
the court characterizes the transaction as a loan and a Fund has not perfected a
security interest in the Obligation, a Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Fund would be at risk of losing some or all
of the principal and income involved in the transaction. As with any unsecured
debt instrument purchased for a Fund, the Advisor seeks to reduce the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the Obligation, in which case a Fund may incur a loss if the
proceeds to the Fund of the sale to a third party are less than the repurchase
price. However, if the market value (including interest)of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), a Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to enforce the seller's contractual
obligation to deliver additional securities.
Reverse Repurchase Agreements. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase such securities at an agreed upon time and
price. Each Fund maintains a segregated account in connection with outstanding
reverse repurchase agreements. Each Fund will enter into reverse repurchase
agreements only when the Advisor 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. Such transactions may increase fluctuations
in the market value of a Fund's assets and its yield.
Investment Company Securities. Each Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. A Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, a Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indices or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their
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trading at a discount or premium to their NAVs). Index-based investments may not
replicate exactly the performance of their specified index because of
transaction costs and because of the temporary unavailability of certain
component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indices. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to correspond generally to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in a Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
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 (subject to certain
limitations imposed by the 1940 Act) to attempt to protect against possible
changes in the market value of securities held in or to be purchased for a
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect a 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 a
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 though no more than 5%
of a Fund's assets will be committed to Strategic Transactions entered into for
non-hedging purposes. Any or all of these investment techniques may be used at
any time and in any combination, and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including
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market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Advisor's ability to predict
pertinent market movements, which cannot be assured. The Funds will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions will not be used to alter
fundamental investment purposes and characteristics of the Funds, and the Funds
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 Funds.
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 Advisor'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 Funds 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 a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, a 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
Funds the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a 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 Funds
are authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
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A Fund's ability to close out its position as a purchaser or seller of an OCC or
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. Among the possible reasons for the absence of a liquid option
market on an exchange are: (i) insufficient trading interest in certain options;
(ii) restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities including reaching daily price
limits; (iv) interruption of the normal operations of the OCC or an exchange;
(v) inadequacy of the facilities of an exchange or OCC to handle current trading
volume; or (vi) a decision by one or more exchanges to discontinue the trading
of options (or a particular class or series of options), in which event the
relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable
in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Funds will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Funds to require the Counterparty
to sell the option back to the Funds at a formula price within seven days. The
Funds expect generally to enter into OTC options that have cash settlement
provisions, although they are 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 Funds or fails to make a cash settlement
payment due in accordance with the terms of that option, the Funds will lose any
premium they paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor 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 Funds will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Advisor. The staff of the
SEC currently takes the position that OTC options purchased by the Funds, and
portfolio securities "covering" the amount of a 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 a Fund's limitation on investing no
more than 15% of its net assets in illiquid securities.
If the Funds sell a call option, the premium that they receive may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in their portfolio or will
increase a Fund's income. The sale of put options can also provide income.
The Funds may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments 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 Funds must be
"covered" (i.e., the Funds must own the securities or futures contract subject
to the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though the Funds will receive the option
premium to help protect them against loss, a call sold by the Funds exposes the
Funds 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 Funds to hold a security or instrument which they might
otherwise have sold.
The Funds may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not they hold the above
securities in their portfolios), and on
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securities indices, currencies and futures contracts other than futures on
individual corporate debt and individual equity securities. The Funds will not
sell put options if, as a result, more than 50% of a Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Funds may be required to buy the
underlying security at a disadvantageous price above the market price.
General Characteristics of Futures. The Funds 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, 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 Funds, as seller, to deliver
to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). Options on
futures contracts are similar to options on securities except that an option on
a futures contract gives the purchaser the right in return for the premium paid
to assume a position in a futures contract and obligates the seller to deliver
such position.
A Fund's use of 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
and return enhancement management purposes. Typically, maintaining a futures
contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Funds.
If the Funds exercise an option on a futures contract they will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as they would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
A Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of a 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 Funds also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Funds
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may enter into currency transactions with Counterparties which have received (or
the guarantors of the obligations which have received) a credit rating of A-1 or
P-1 by S&P or Moody's, respectively, or that have an equivalent rating from a
NRSRO or (except for OTC currency options) are determined to be of equivalent
credit quality by the Advisor.
The Funds' 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 except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of the
Funds, which will generally arise in connection with the purchase or sale of
their portfolio securities or the receipt of income therefrom. Position hedging
is entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
A Fund generally will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
The Funds 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 Funds have or in which the Funds
expect to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Funds may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of a Fund's securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Funds holds securities denominated in schillings and the Advisor believes
that the value of schillings will decline against the U.S. dollar, the Advisor
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
Funds 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 Funds are engaging in proxy hedging. If the
Funds enter into a currency hedging transaction, the Funds 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 a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Funds 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 Advisor, it is in the best interests of the Funds 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 Advisor's judgment that the combined strategies will
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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
Funds may enter are interest rate, currency, index and other swaps and the
purchase or sale of related caps, floors and collars. The Funds expect 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 Funds anticipate purchasing at a later
date. The Funds will not sell interest rate caps or floors where they do not own
securities or other instruments providing the income stream the Funds may be
obligated to pay. Interest rate swaps involve the exchange by the Funds 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 Funds 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 Funds receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as the Funds will
segregate assets (or enter into offsetting positions) to cover their obligations
under swaps, the Advisor and the Funds believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to their borrowing restrictions. The Funds will not enter
into any swap, cap, floor or collar transaction unless, at the time of entering
into such transaction, the unsecured long-term debt of the Counterparty,
combined with any credit enhancements, is rated at least A by S&P or Moody's or
has an equivalent rating from a NRSRO or is determined to be of equivalent
credit quality by the Advisor. If there is a default by the Counterparty, the
Funds may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Funds 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 Funds might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that a 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 Funds 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 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
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necessary to segregate them. For example, a call option written by the Funds
will require the Funds 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 the Funds on an index
will require the Funds to own portfolio securities which correlate with the
index or to segregate cash or liquid assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by the
Funds requires the Funds to segregate cash or liquid assets equal to the
exercise price.
Except when the Funds enter 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 Funds to buy or sell currency will
generally require the Funds to hold an amount of that currency or liquid assets
denominated in that currency equal to the Funds' obligations or to segregate
cash or liquid assets equal to the amount of a Fund's obligation.
OTC options entered into by the Funds, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of 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 the Funds, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Funds other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash or liquid assets sufficient to meet their obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of their 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. A Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, if a Fund held a futures or forward contract instead
of segregating cash or liquid assets, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Each Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company. (See "TAXES.")
Zero Coupon Securities. Global Fund may invest in zero coupon securities which
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 issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero
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coupon convertible securities generally are expected to be less volatile than
the underlying common stocks, as they usually are issued with maturities of 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.
Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the Securities and Exchange Commission (the "SEC") no longer
considers such privately stripped obligations to be U.S. Government securities,
as defined in the 1940 Act; therefore, the Fund intends to adhere to this staff
position and will not treat such privately stripped obligations to be U.S.
Government securities for the purpose of determining if the Global Fund is
"diversified" under the 1940 Act.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or corpus is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Convertible Securities. Global Fund may invest in convertible securities, that
is, bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stock. Investments in convertible securities can provide
an opportunity for capital appreciation and/or income through interest and
dividend payments by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest are either fixed income or
zero coupon debt securities which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate distributions or
scheduled changes in the exchange ratio. Convertible debt securities and
convertible preferred stocks, until converted, have general characteristics
similar to both debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible securities tends
to decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities typically changes as the
market value of the underlying common stocks changes, and, therefore, also tends
to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the prices of the convertible securities tend to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
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As debt securities, convertible securities are investments which provide for a
stream of income (or in the case of zero coupon securities, accretion of income)
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities. Convertible securities may be issued as fixed income
obligations that pay current income or as zero coupon notes and bonds, including
Liquid Yield Option Notes ("LYONs"(TM)).
Dollar Roll Transactions. Dollar roll transactions consist of the sale by a Fund
to a bank or broker/dealers (the "counterparty") of GNMA certificates or other
mortgage-backed securities together with a commitment to purchase from the
counterparty similar, but not identical, securities at a future date, at the
same price. The counterparty receives all principal and interest payments,
including prepayments, made on the security while it is the holder. A Fund
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of several
months with a different purchase and repurchase price fixed and a cash
settlement made at each renewal without a physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment agreement
pursuant to which the Fund agrees to buy a security on a later date.
A fund will segregate cash, U.S. Government securities or other liquid assets in
an amount sufficient to meet their purchase obligations under the transactions.
The Fund will also maintain asset coverage of at least 300% for all outstanding
firm commitments, dollar rolls and other borrowings.
Dollar rolls may be treated for purposes of the 1940 Act as borrowings of a Fund
because they involve the sale of a security coupled with an agreement to
repurchase. A dollar roll involves costs to a Fund. For example, while a Fund
receives a fee as consideration for agreeing to repurchase the security, a Fund
forgoes the right to receive all principal and interest payments while the
counterparty holds the security. These payments to the counterparty may exceed
the fee received by a Fund, thereby effectively charging a Fund interest on its
borrowing. Further, although a Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the actual
amount of prepayment could increase or decrease the cost of a Fund's borrowing.
The entry into dollar rolls involves potential risks of loss that are different
from those related to the securities underlying the transactions. For example,
if the counterparty becomes insolvent, a Fund's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before a Fund is able to purchase them. Similarly, a Fund may
be required to purchase securities in connection with a dollar roll at a higher
price than may otherwise be available on the open market. Since, as noted above,
the counterparty is required to deliver a similar, but not identical, security
to a Fund, the security that a Fund is required to buy under the dollar roll may
be worth less than an identical security. Finally, there can be no assurance
that a Fund's use of the cash that it receives from a dollar roll will provide a
return that exceeds borrowing costs.
Lending of Portfolio Securities. Each Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. A Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, a Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Advisor to be in good standing.
The value of the securities loaned will not exceed 5% of the value of a Fund's
total assets at the time any loan is made.
Borrowing. Each Fund may not borrow money, except as permitted under Federal
law. Each Fund will borrow only when the Advisor believes that borrowing will
benefit a Fund after taking into account considerations such as the costs of the
borrowing. Each Fund does not expect to borrow for investment purposes, to
increase return
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or leverage the portfolio. Borrowing by a Fund will involve special risk
considerations. Although the principal of a Fund's borrowings will be fixed, a
Fund's assets may change in value during the time that a borrowing is
outstanding, thus increasing exposure to capital risk.
When-Issued and Forward Delivery Securities. Each Fund may from time to time
purchase equity and debt securities on a "when-issued" or "forward delivery"
basis. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
for the when-issued or forward delivery securities takes place at a later date.
During the period between purchase and settlement, no payment is made by a Fund
to the issuer and no interest accrues to a Fund. To the extent that assets of a
Fund are held in cash pending the settlement of a purchase of securities, a Fund
would earn no income; however, it is each Fund's intention to be fully invested
to the extent practicable and subject to the policies stated above. While
when-issued or forward delivery securities may be sold prior to the settlement
date, each Fund intends to purchase such securities with the purpose of actually
acquiring them unless a sale appears desirable for investment reasons. At the
time a Fund makes the commitment to purchase a security on a when-issued or
forward delivery basis, it will record the transaction and reflect the value of
the security in determining its net asset value. At the time of the settlement,
the market value of the when-issued or forward delivery securities may be more
or less than the purchase price. Each Fund does not believe that its net asset
value or income will be adversely affected by its purchase of securities on a
when-issued or forward delivery basis.
Real Estate Investment Trusts ("REITs"). Scudder Global Fund may invest in
REITs. REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. Investment in REITs may subject the Fund to risks
associated with the direct ownership of real estate, such as decreases in real
estate values, overbuilding, increased competition and other risks related to
local or general economic conditions, increases in operating costs and property
taxes, changes in zoning laws, casualty or condemnation losses, possible
environmental liabilities, regulatory limitations on rent and fluctuations in
rental income. Equity REITs generally experience these risks directly through
fee or leasehold interests, whereas mortgage REITs generally experience these
risks indirectly through mortgage interests, unless the mortgage REIT forecloses
on the underlying real estate. Changes in interest rates may also affect the
value of the Fund's investment in REITs. For instance, during periods of
declining interest rates, certain mortgage REITs may hold mortgages that the
mortgagors elect to prepay, which prepayment may diminish the yield on
securities issued by those REITs.
Certain REITs have relatively small market capitalizations, which may tend to
increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended, and to maintain exemption from the registration requirements of the
1940 Act. By investing in REITs indirectly through the Fund, a shareholder will
bear not only his or her proportionate share of the expenses of the Fund's, but
also, indirectly, similar expenses of the REITs. In addition, REITs depend
generally on their ability to generate cash flow to make distributions to
shareholders.
Investment of Uninvested Cash Balances. Each Fund may have cash balances that
have not been invested in portfolio securities ("Uninvested Cash"). Uninvested
Cash may result from a variety of sources, including dividends or interest
received from portfolio securities, unsettled securities transactions, reserves
held for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions and
dividend payments, and new cash received from investors. Uninvested Cash may be
invested directly in money market instruments or other short-term debt
obligations. Pursuant to an Exemptive Order issued by the SEC, each Fund may use
Uninvested Cash to purchase shares of affiliated funds including money market
funds, short-term bond funds and Scudder Cash Management Investment Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment advisor that operate as cash management investment vehicles and
that are excluded from the definition of investment company pursuant to section
3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (collectively, the
"Central Funds") in excess of the limitations of Section 12(d)(1) of the
Investment Company Act. Investment by each Fund in shares of the Central Funds
will be in accordance with each Fund's investment policies and restrictions as
set forth in its registration statement.
Certain of the Central Funds comply with rule 2a-7 under the Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
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less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance each Fund's ability to
manage Uninvested Cash.
Each Fund will invest Uninvested Cash in Central Funds only to the extent that
each Fund's aggregate investment in the Central Funds does not exceed 25% of its
total assets in shares of the Central Funds. Purchase and sales of shares of
Central Funds are made at net asset value.
Investment Restrictions
The fundamental policies of the Funds set forth below may not be changed without
the approval of a majority of a Fund's outstanding shares. As used in this
Statement of Additional Information, a "majority of a 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
a Fund are present or represented by proxy; or (2) more than 50% of the
outstanding voting securities of a Fund. Each Fund has elected to be classified
as a diversified series of an open-end investment company.
If a percentage restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Other Investment Policies" above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or the total cost of a Fund's assets will not be
considered a violation of the restriction.
In addition, as a matter of fundamental policy, each 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. 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;
4. engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
5. purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
6. purchase physical commodities or contracts relating to
physical commodities; or
7. make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
With respect to fundamental policy number six above, the Funds have no current
intention to hold and sell real estate acquired as a result of a Fund's
ownership.
The Directors of the Corporation have voluntarily adopted certain
non-fundamental policies and restrictions which are observed in the conduct of a
Fund's affairs. These represent intentions of the Directors based upon current
circumstances. They differ from fundamental investment policies in that they may
be changed or amended by action of the Directors without requiring prior notice
to or approval of the shareholders.
As a matter of nonfundamental policy, the Funds do not currently intend to:
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1. borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
2. enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
3. purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
4. purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
5. enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
6. purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
7. lend portfolio securities in an amount greater than 5% of its
total assets.
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
All new investors in Class AARP of the Funds are required to provide an
AARP membership number on their account application.
In addition, Class S shares of the Funds will generally not be
available to new investors.
The following investors may continue to purchase Class S shares of
Scudder Funds:
1. Existing shareholders of Class S shares of any Scudder Fund as
of December 29, 2000, and household members residing at the
same address.
2. Investors may purchase Class S shares of any Scudder Fund
through any broker-dealer or service agent account until June
30, 2001. After June 30, 2001, only investors who owned Class
S shares as of June 30, 2001 and household members residing at
the same address may open new accounts in Class S of any
Scudder Fund.
3. Any retirement, employee stock, bonus pension or
profit-sharing plans.
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4. Any participant who owns Class S shares of any Scudder Fund
through an employee sponsored retirement, employee stock,
bonus, pension or profit sharing plan as of December 29, 2000
may, at a later date, open a new individual account in Class S
of any Scudder Fund.
5. Any participant who owns Class S shares of any Scudder Fund
through a retirement, employee stock, bonus, pension or profit
sharing plan may complete a direct rollover to an IRA account
that will hold Class S shares. This applies for individuals
who begin their retirement plan investments with a Scudder
Fund at any time, including after December 29, 2000.
6. Officers, Fund Trustees and Directors, and full-time employees
and their family members, of Zurich Financial Services and its
affiliates.
7. Class S shares are available to any accounts managed by Zurich
Scudder Investments, Inc., any advisory products offered by
Zurich Scudder Investments, Inc. or Scudder Investor Services,
Inc., and to the Portfolios of Scudder Pathway Series.
8. Registered investment advisors ("RIAs") may continue to
purchase Class S shares of Scudder Funds for all clients until
June 30, 2001. After June 30, 2001, RIAs may purchase Class S
shares for any client that has an existing position in Class S
shares of any Scudder Funds as of June 30, 2001.
9. Broker-dealers and RIAs who have clients participating in
comprehensive fee programs may continue to purchase Class S
shares of Scudder Funds until June 30, 2001. After June 30,
2001, broker dealers and RIAs may purchase Class S shares in
comprehensive fee programs for any client that has an existing
position in Class S shares of a Scudder Fund as of June 30,
2001.
10. Scudder Investors Services, Inc. may, at its discretion,
require appropriate documentation that shows an investor is
eligible to purchase Class S shares.
Clients having a regular investment counsel account with the Advisor or its
affiliates and members of their immediate families, officers and employees of
the Advisor or of any affiliated organization and members of 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
for Class S and $1,000 for Class AARP through Scudder Investor Services, Inc. by
letter, fax, 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 Advisor or its affiliates and members of
their immediate families, officers and employees of the Advisor or of any
affiliated organization and their immediate families, members of the NASD, and
banks may open an account by wire. Investors interested in investing in Class S
must call 1-800-225-5163 to get an account number. During the call the investor
will be asked to indicate the Fund name, class name, amount to be wired ($2,500
minimum for Class S and $1,000 for Class AARP), 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, class name, account name and the
new account number. Finally, the investor must send a completed and signed
application to the Fund promptly. Investors interested in investing in Class
AARP should call 1-800-253-2277 for further instructions.
The minimum initial purchase amount is less than $2,500 for Class S under
certain special plan accounts and is $1,000 for Class AARP.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500 for Class S
and $1,000 for Class AARP. For fiduciary accounts such as IRAs, and custodial
accounts such as Uniform Gift to Minor Act, and Uniform Trust to Minor Act
accounts, the minimum balance is $1,000 for Class S and $500 for Class AARP.
Each Fund's Board of Directors may change these amounts. A shareholder may open
an account with at least $1,000 ($500 for
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fiduciary/custodial accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for Class AARP and fiduciary/custodial accounts) is
established. Scudder group retirement plans and certain other accounts have
similar or lower minimum share balance requirements.
The Funds reserve the right, following 60 days' written
notice to applicable shareholders, to:
o for Class S, assess an annual $10 per Fund charge (with the
Fee to be paid to the Fund) for any
non-fiduciary/non-custodial account without an automatic
investment plan (AIP) in place and a balance of less than
$2,500; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. Shareholders with a combined household account balance
in any of the Scudder Funds of $100,000 or more, as well as group retirement and
certain other accounts will not be subject to a fee or automatic redemption.
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 a 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
a Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, a Fund shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse a 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 a
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 a 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, a 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
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QuickBuy to their account may do so by completing a QuickBuy Enrollment Form.
After sending in an enrollment form shareholders should allow 15 days for this
service to be available.
Each Fund employs procedures, including recording telephone calls, testing a
caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine and to discourage fraud. To the extent that the Funds do
not follow such procedures, they may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Funds will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be
genuine.
Investors interested in making subsequent investments in Class AARP of a Fund
should call 1-800-253-2277 for further information.
Checks
A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on or payable
through, a U.S. bank.
If shares of a Fund are purchased by a check which proves to be uncollectible,
the Corporation reserves the right to cancel the purchase immediately, and the
purchaser will be responsible for any loss incurred by a 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 a 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 a
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 Funds pay a fee for receipt by the Custodian of "wired
funds," but the right to charge investors for this service is reserved.
Boston banks are presently closed on certain holidays although the Exchange may
be open. These holidays are Columbus Day (the 2nd Monday in October) and
Veterans' Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of a Fund.
Share Price
Purchases will be filled without sales charge at the net asset value per share
next computed after receipt of the application in good order. Net asset value
normally will be computed for each class as of the close of regular trading on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will be executed at the next
business day's net asset value. If the order has been placed by a member of the
NASD, other than the Distributor, it is the responsibility of that member
broker, rather than a Fund, to forward the purchase order to Scudder Service
Corporation (the "Transfer Agent") in Kansas City by the close of regular
trading on the Exchange.
Share Certificates
Due to the desire of each Fund's management to afford ease of redemption,
certificates will not be issued to indicate ownership in a Fund. Share
certificates now in a shareholder's possession may be sent to a Fund's Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
All issued and outstanding shares of what were formerly AARP Funds that were
subsequently reorganized into existing Scudder Funds were simultaneously
cancelled on the books of the AARP Funds. Share certificates
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<PAGE>
representing interests in shares of the relevant AARP Fund will represent a
number of shares of Class AARP of the relevant Scudder Fund into which the AARP
Fund was reorganized. Class AARP shares of each fund will not issue certificates
representing shares in connection with the reorganization.
Other Information
Each Fund has authorized certain members of the NASD other than the Distributor
to accept purchase and redemption orders for its shares. Those brokers may also
designate other parties to accept purchase and redemption orders on a Fund's
behalf. Orders for purchase or redemption will be deemed to have been received
by a Fund when such brokers or their authorized designees accept the orders.
Subject to the terms of the contract between a Fund and the broker, ordinarily
orders will be priced at a class' net asset value next computed after acceptance
by such brokers or their authorized designees. Further, if purchases or
redemptions of a Fund's shares are arranged and settlement is made at an
investor's election through any other authorized NASD member, that member may,
at its discretion, charge a fee for that service. The Board of Directors and the
Distributor, also a Fund's principal underwriter, each has the right to limit
the amount of purchases by, and to refuse to sell to, any person. The Board of
Directors and the Distributor may suspend or terminate the offering of shares of
a 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 Funds reserve the right, following 30 days' notice, to redeem all
shares in accounts without a correct certified Social Security or tax
identification number. A shareholder may avoid involuntary redemption by
providing the 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 for Class S and
$1,000 for Class AARP. 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 for Class S.
If the account receiving the exchange proceeds is to be different in any
respect, the exchange request must be in writing and must contain an original
signature guarantee.
Exchange orders received before the close of regular trading on the Exchange on
any business day ordinarily will be executed at respective net asset values
determined on that day. Exchange orders received after the close of regular
trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges automatically
executed on a predetermined schedule from one Scudder fund to an existing
account in another Scudder fund, at current net asset value, through Scudder's
Automatic Exchange Program. Exchanges must be for a minimum of $50. Shareholders
may add this free feature over the telephone or in writing. Automatic Exchanges
will continue until the shareholder requests by telephone or in writing to have
the feature removed, or until the originating account is depleted. The
Corporation and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
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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 Funds employ
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine and
to discourage fraud. To the extent that a Fund does not follow such procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions. A Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine. The Funds
and the Transfer Agent each reserves the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder Funds into which investors may make an exchange are listed under
"THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange, shareholders
should obtain from Scudder Investor Services, Inc. a prospectus of the Scudder
fund into which the exchange is being contemplated. The exchange privilege may
not be available for certain Scudder Funds or classes of Scudder Funds. For more
information, please call 1-800-225-5163 (Class S) and 1-800-253-2277 (Class
AARP).
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 Funds employ procedures, including recording telephone calls, testing a
caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine and to discourage fraud. To the extent that a Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
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Redemption requests by telephone (technically a repurchase agreement between the
Fund and the shareholder) of shares purchased by check will not be accepted
until the purchase check has cleared which may take up to seven business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and have elected to participate in the
QuickSell program, may sell shares of a Fund by telephone. Redemptions must be
for at least $250. Proceeds in the amount of your redemption will be transferred
to your bank checking account in two or three business days following your call.
For requests received by the close of regular trading on the Exchange, normally
4 p.m. eastern time, shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. QuickSell requests
received after the close of regular trading on the Exchange 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 Funds employ procedures, including recording telephone calls, testing a
caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine and to discourage fraud. To the extent that a Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed.
In order to ensure proper authorization before redeeming shares, the Transfer
Agent may request additional documents such as, but not restricted to, stock
powers, trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waivers of tax (required in some states
when settling estates).
It is suggested that shareholders holding shares registered in other than
individual names contact the Transfer Agent prior to any redemptions to ensure
that all necessary documents accompany the request. When shares are held in the
name of a corporation, trust, fiduciary agent, attorney or partnership, the
Transfer Agent requires, in addition to the stock power, certified evidence of
authority to sign. These procedures are for the protection of shareholders and
should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven (7) business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven (7) days of payment for shares tendered for repurchase or redemption
may result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for regular
accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Corporation reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by a Fund
and valued as they are for purposes of computing a 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 a 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.
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Other Information
Clients, officers or employees of the Advisor 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 a Fund through Scudder
Investor Services, Inc. at Two International Place, Boston, Massachusetts
02110-4103 by letter, fax, TWX, or telephone. A two-part confirmation will be
mailed out promptly after receipt of the repurchase request. A written request
in good order with a proper original signature guarantee, as described in the
Shares' prospectus, should be sent with a copy of the invoice to Scudder Funds,
c/o Scudder Confirmed Processing, Two International Place, Boston, Massachusetts
02110-4103. Failure to deliver shares or required documents (see above) by the
settlement date may result in cancellation of the trade and the shareholder will
be responsible for any loss incurred by a 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 a 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.
Shareholders who wish to redeem shares from Special Plan Accounts should contact
the employer, trustee or custodian of the Plan for the requirements.
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. A 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.")
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 a Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for a 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 FUNDS
Internet access
World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com.
The address for Class AARP shares is aarp.scudder.com. These sites offer
guidance on global investing and developing strategies to help meet financial
goals and provide access to the Scudder investor relations department via
e-mail. The sites also enable users to access or view fund prospectuses and
profiles with links between summary information in Fund Summaries and details in
the Prospectus. Users can fill out new account forms on-line, order free
software, and request literature on funds.
Account Access -- The Advisor is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
The Advisor'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.
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An Account Activity option reveals a financial history of transactions for an
account, with trade dates, type and amount of transaction, share price and
number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest any
dividends from net investment income or distributions from realized capital
gains in additional Shares of a Fund. A change of instructions for the method of
payment may be given to the Transfer Agent in writing at least five days prior
to a dividend record date. Shareholders may change their dividend option by
calling 1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP 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 class shares of a Fund.
Investors may also have dividends and distributions automatically deposited to
their predesignated bank account through Scudder's Direct Distributions Program.
Shareholders who elect to participate in the Direct Distributions Program, and
whose predesignated checking account of record is with a member bank of
Automated Clearing House Network (ACH) can have income and capital gain
distributions automatically deposited to their personal bank account usually
within three business days after a Fund pays its distribution. A Direct
Distributions request form can be obtained by calling 1-800-225-5163 for Class S
and 1-800-253-2277 for Class AARP. 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.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available to
shareholders. The summaries may be obtained by calling 1-800-SCUDDER for Class S
and 1-800-253-2277 for Class AARP.
Reports to Shareholders
The Corporation issues to its shareholders an unaudited semiannual report for
Global Fund, an audited semiannual report for International Fund and annual
financial statements audited by independent accountants, including a list of
investments held and statements of assets and liabilities, operations, changes
in net assets and financial highlights. Each distribution will be accompanied by
a brief explanation of the source of the distribution.
THE SCUDDER FAMILY OF FUNDS
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
TAX FREE
Scudder Medium Term Tax Free Fund
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Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund**
Scudder California Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Moderate Portfolio
Scudder Pathway Series: Growth Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Stock Fund
Scudder Small Company Value Fund
Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International Fund***
Scudder Global Discovery Fund**
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Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Health Care Fund
Scudder Technology Innovation Fund
-------------------------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only Class S shares are part of the Scudder Family of Funds.
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. The latest seven-day yields for the
money-market funds can be found every Monday and Thursday in the "Money-Market
Funds" section of The Wall Street Journal. This information also may be obtained
by calling the Scudder Automated Information Line (SAIL) at 1-800-343-2890.
Certain Scudder funds or classes thereof may not be available for purchase or
exchange. For more information, please call 1-800-225-5163.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the applicable
charges, minimum investment requirements and disclosures made pursuant to
Internal Revenue Service (the "IRS") requirements, may be obtained by contacting
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103 or by calling toll free, 1-800-225-2470. The discussions of the plans
below describe only certain aspects of the federal income tax treatment of the
plan. The state tax treatment may be different and may vary from state to state.
It is advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax advisor
with respect to the suitability requirements and tax aspects thereof.
Shares of a Fund may also be a permitted investment under profit sharing and
pension plans and IRA's other than those offered by a 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 a 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
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approved form. Under certain circumstances, the IRS will assume that a plan,
adopted in this form, after special notice to any employees, meets the
requirements of Section 401(a) of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals
Shares of a 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 a 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 following paragraph applies to Class S shareholders only:
Scudder 403(b) Plan
Shares of a 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 a
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Corporation or its agent on written notice, and will be
terminated when all Shares of a Fund under the Plan have been liquidated or upon
receipt by the Corporation of notice of death of the shareholder.
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An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP.
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 in Class S shares 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 for Class S shares.
Shareholders may arrange to make periodic investments in Class AARP of each Fund
through automatic deductions from checking accounts. The minimum pre-authorized
investment amount is $50. New shareholders who open a Gift to Minors Account
pursuant to the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to
Minors Act (UTMA) and who sign up for the Automatic Investment Plan will be able
to open a Fund account for less than $500 if they agree to increase their
investment to $500 within a 10 month period. Investors may also invest in any
Class AARP for $500 if they establish a plan with a minimum automatic investment
of at least $100 per month. This feature is only available to Gifts to Minors
Account investors. The Automatic Investment Plan may be discontinued at any time
without prior notice to a shareholder if any debit from their bank is not paid,
or by written notice to the shareholder at least thirty days prior to the next
scheduled payment to the Automatic Investment Plan.
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.
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Scudder Roth IRA: Individual Retirement Account
Shares of a 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.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Funds intend to follow the practice of distributing all of their investment
company taxable income, which includes any excess of net realized short-term
capital gains over net realized long-term capital losses. A 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, a Fund may retain
all or part of such gain for reinvestment after paying the related federal
income taxes for which the shareholders may then be asked to claim a credit
against their federal income tax liability. (See "TAXES.")
If a 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, a Fund may be
subject to that excise tax. (See "TAXES.") In certain circumstances, a Fund may
determine that it is in the interest of shareholders to distribute less than the
required amount.
Earnings and profits distributed to shareholders on redemptions of Fund shares
may be utilized by a Fund, to the extent permissible, as part of a Fund's
dividends paid deduction on its federal tax return.
Each Fund intends to distribute its investment company taxable income and any
net realized capital gains in November or December to avoid federal excise tax,
although an additional distribution may be made if necessary.
Both types of distributions will be made in Shares of a 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 each Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
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<PAGE>
PERFORMANCE INFORMATION
From time to time, quotations of the Shares' performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of return for
the periods of one year, five years and ten years, all ended on the last day of
a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Class S shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Class S 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 Returns for the period ended August 31, 2000
1 Year 5 Years 10 Years
Scudder Global Fund - Class S* 13.83% 14.37% 12.73%
Scudder International Fund - Class S* 17.09% 15.89% 11.61%
* Since Class AARP shares (in the case of each fund) are new classes of shares,
no performance information is available. However, Class AARP shares will have
substantially similar annual returns because the shares are invested in the
same portfolio of securities, and the annual returns would differ only to the
extent that expenses differ.
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Shares and assume
that all dividends and capital gains distributions during the period were
reinvested in Shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
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Cumulative Annual Total Returns for the period ended August 31, 2000
1 Year 5 Years 10 Years
Scudder Global Fund - Class S* 13.83% 95.72% 231.29%
Scudder International Fund - Class S* 17.09% 109.05% 199.85%
* Since Class AARP shares (in the case of each fund) are new classes of shares,
no performance information is available. However, Class AARP shares will have
substantially similar annual returns because the shares are invested in the
same portfolio of securities, and the annual returns would differ only to the
extent that expenses differ.
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.
From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of the Fund apart from capital appreciation will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Fund's and classes' performance data.
Quotations of a Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of that Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of that Fund's expenses.
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 their performance to current or prospective
shareholders, the Funds also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Historical information on the value of the dollar versus foreign currencies may
be used from time to time in advertisements concerning the Funds. Such
historical information is not indicative of future fluctuations in the value of
the U.S. dollar against these currencies. In addition, marketing materials may
cite country and economic statistics and historical stock market performance for
any of the countries in which a Fund invests.
From time to time, in advertising and marketing literature, a Fund's performance
may be compared to the performance of broad groups of mutual funds with similar
investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, Directors and
officers of a Fund, its 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 Advisor has under management in
various geographical areas may be quoted in advertising and marketing materials.
Marketing and other Fund literature may include a description of the potential
risks and rewards associated with an investment in a Fund. The description may
include a "risk/return spectrum" which compares the Funds to other Scudder funds
or broad categories of funds, such as money market, bond or equity funds, in
terms of potential risks and returns. Money market funds are designed to
maintain a constant $1.00 share price and have a fluctuating yield.
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Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risks/returns associated with an investment in bond or equity funds depend upon
many factors. For bond funds these factors include, but are not limited to, a
fund's overall investment objective, the average portfolio maturity, credit
quality of the securities held, and interest rate movements. For equity funds,
factors include a fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns associated with an investment in international bond or equity
funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return than growth funds. In
addition, international equity funds usually are considered more risky than
domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning a Fund,
including reprints of, or selections from, editorials or articles about a Fund.
ORGANIZATION OF THE FUNDS
Scudder International Fund, Inc. 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 Scudder International Fund,. Inc. consists of
2,247,923,888 billion shares of a par value of $.01 each, which capital stock
has been divided into five series: Scudder International Fund, the original
series; Scudder Latin America Fund and Scudder Pacific Opportunities Fund, both
organized in December 1992, Scudder Greater Europe Growth Fund, organized in
October 1994, and Scudder Emerging Markets Growth Fund, organized in May 1996.
Each series consists of 320 million shares except for International Fund which
consists of 620,595,597 million shares. Scudder International Fund is further
divided into seven classes of shares, Class AARP, Class S, Barrett International
Shares, Class A, Class B, Class C, and Class I shares. Scudder Latin America
Fund, Scudder Pacific Opportunities Fund, Scudder Greater Europe Growth Fund and
Scudder Emerging Markets Growth Fund are each further divided into five classes
of shares, Class AARP, Class S, Class A, Class B and Class C. 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, subject to such charges as may be applicable, at the option of
the shareholder. Shares have no pre-emptive or conversion rights. To the extent
that the Funds offer additional share classes, these classes will be offered in
a separate prospectus and have different fees, requirements and services.
Scudder Global Fund is a series of Global/International Fund, Inc., a Maryland
corporation organized on May 15, 1986. The name of this Corporation was changed,
effective May 29, 1998, from Scudder Global Fund, Inc. This Corporation
currently consists of four series: Scudder Global Fund, Scudder Global Bond
Fund, Global Discovery Fund and Scudder Emerging Markets Income Fund. Each Fund
is further
40
<PAGE>
divided into two classes of shares, Class AARP and Class S shares, except Global
Fund and Global Discovery Fund whose shares are divided into five classes of
shares, Class AARP, Class S, Class A, Class B and Class C shares.
The authorized capital stock of Global/International Fund, Inc. consists of
1,559,993,796 billion shares with $0.01 par value, 200 million shares of which
are allocated to Global Discovery Fund, 529,154,575 million shares of which are
allocated to Scudder Global Bond Fund, and 320 million shares of which are
allocated to each of, Scudder Emerging Markets Income Fund and Scudder Global
Fund. 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, subject to such charges as may
be applicable, at the option of the shareholder. Shares have no pre-emptive or
conversion rights. To the extent that the Funds offer additional share classes,
these classes will be offered in a separate prospectus and have different fees,
requirements and services.
Shares of each 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 each 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 charged
with the liabilities in respect to such series and with a share of the general
liabilities of each 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
each 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 either 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 each Corporation entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and by class on matters affecting an individual class. For example, a
change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Directors of each Corporation, in their discretion, may authorize the
additional division of 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.
41
<PAGE>
Pursuant to the approval of a majority of stockholders, each Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of a Fund would be achieved more efficiently
thereby.
Each Corporation's Board of Directors supervises the Fund's activities. Each
Corporation adopted a plan pursuant to Rule 18f-3 under the 1940 Act (the
"Plan") to permit the Corporation to establish a multiple class distribution
system for the Fund.
Under each Plan, each class of shares will represent interests in the
same portfolio of investments of the Series, and be identical in all respects to
each other class, except as set forth below. The only differences among the
various classes of shares of the Series will relate solely to: (a) different
distribution fee payments or service fee payments associated with any Rule 12b-1
Plan for a particular class of shares and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto) which will be borne
solely by shareholders of such class; (b) different service fees; (c) different
account minimums; (d) the bearing by each class of its Class Expenses, as
defined in Section 2(b) below; (e) the voting rights related to any Rule 12b-1
Plan affecting a specific class of shares; (f) separate exchange privileges; (g)
different conversion features and (h) different class names and designations.
Expenses currently designated as "Class Expenses" by the Corporation's Board of
Directors under each Plan include, for example, transfer agency fees
attributable to a specific class, and certain securities registration fees.
Each Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporations, to the fullest
extent permitted by Maryland General Corporation Law and the 1940 Act, shall not
be liable to the Corporations or its shareholders for damages. Maryland law
currently provides that Directors shall not be liable for actions taken by them
in good faith, in a manner reasonably believed to be in the best interests of
the Corporations 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 Corporations
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 of
each Corporation provide that each 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 Corporations consistent with applicable law.
INVESTMENT ADVISOR
Zurich Scudder Investments, Inc., an investment counsel firm, acts as investment
advisor to the Funds. This organization, the predecessor of which is Scudder,
Stevens & Clark, Inc., is one of the most experienced investment counsel firms
in the U. S. It was established as a partnership in 1919 and pioneered the
practice of providing investment counsel to individual clients on a fee basis.
In 1928 it introduced the first no-load mutual fund to the public. In 1953 the
Advisor introduced Scudder International Fund, Inc., the first mutual fund
available in the U.S. investing internationally in securities of issuers in
several foreign countries. The predecessor firm reorganized from a partnership
to a corporation on June 28, 1985. On December 31, 1997, Zurich Insurance
Company ("Zurich") acquired a majority interest in the Advisor, and Zurich
Kemper Investments, Inc., a Zurich subsidiary, became part of the Advisor. The
Advisor's name changed to Scudder Kemper Investments, Inc. On September 7, 1998,
the businesses of Zurich (including Zurich's 70% interest in Scudder Kemper) and
the financial services businesses of B.A.T Industries p.l.c. ("B.A.T") were
combined to form a new global insurance and financial services company known as
Zurich Financial Services Group. By way of a dual holding company structure,
former Zurich shareholders initially owned approximately 57% of Zurich Financial
Services Group, with the balance initially owned by former B.A.T shareholders.
On October 17, 2000, the dual holding company structure of Zurich Financial
Services Group, comprised of Allied Zurich p.l.c. in the United Kingdom and
Zurich Allied A.G. in Switzerland, was unified into a single Swiss holding
company, Zurich Financial Services. The Advisor manages the Fund's daily
investment and business affairs subject to the policies established by the
Corporation's Board of Directors. The Directors have overall responsibility for
the management of the Fund under Massachusetts law. The Advisor changed its name
from Scudder Kemper Investments, Inc. to Zurich Scudder 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
42
<PAGE>
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.
Pursuant to an investment management agreement with the Fund, the Advisor acts
as the Fund's investmentadvisor, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical
and administrative services and permits any of its officers or employees to
serve without compensation as trustees or officers of the Fund if elected to
such positions.
The principal source of the Advisor's income is professional fees received from
providing continuous investment advice. Today, it provides investment counsel
for many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations as well as
providing investment advice to over 280 open and closed-end mutual funds.
The Advisor maintains a large research department, which conducts continuous
studies of the factors that affect the position of various industries, companies
and individual securities. The Advisor 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
Advisor's clients. However, the Advisor regards this information and material as
an adjunct to its own research activities. The Advisor's international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which the Funds may invest, the conclusions and
investment decisions of the Advisor with respect to the Funds are based
primarily on the analyses of its own research department.
Certain investments may be appropriate for a fund and also for other clients
advised by the Advisor. Investment decisions for a fund and other clients are
made with a view to achieving their respective investment objectives and after
consideration of such factors as their current holdings, availability of cash
for investment and the size of their investments generally. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Advisor to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for a fund may be combined with
those of other clients of the Advisor in the interest of achieving the most
favorable net results to that fund.
In certain cases, the investments for a fund are managed by the same individuals
who manage one or more other mutual funds advised by the Advisor, that have
similar names, objectives and investment styles. You should be aware that the
Funds are likely to differ from these other mutual funds in size, cash flow
pattern and tax matters. Accordingly, the holdings and performance of the Funds
can be expected to vary from those of these other mutual funds.
Upon consummation of the transaction between Zurich and B.A.T, the Funds'
existing investment management agreement with Scudder Kemper were deemed to have
been assigned and, therefore, terminated. The Board approved new investment
management agreements with Scudder Kemper, which were substantially identical to
the prior investment management agreement, except for the date of execution and
termination. The agreements became effective September 7, 1998, upon the
termination of the then current investment management agreement and were
approved at a shareholder meeting held on December 15, 1998.
An Amended and Restated investment management agreement (the "Agreement") for
Scudder Global Fund became effective September 11, 2000, was most recently
approved by the Directors on October 10, 2000.An Amended and Restated Agreement
for Scudder International Fund was approved by the Directors on July 10, 2000
and at a shareholder meeting held on July 13, 2000 and became effective on
August 14, 2000. The Agreements will continue in effect until September 30, 2001
and from year to year thereafter only if its continuance is approved annually by
the vote of a majority of those Directors who are not parties to such Agreement
or interested persons of the Advisor or the Corporations, cast in person at a
meeting called for the purpose of voting on such approval, and either by a vote
of the Corporations' Directors or of a majority of the outstanding voting
securities of the respective Fund. The Agreements may be terminated at any time
without
43
<PAGE>
payment of penalty by either party on sixty days' written notice and
automatically terminate in the event of their assignment.
Under the Agreement, the Advisor regularly provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject to the Corporation's Declaration of Trust, By-Laws, the
1940 Act, 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
Advisor 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 Fund.
Under the Agreement, the Advisor 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 SEC
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 Advisor pays the compensation and expenses of all Directors, officers and
executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York; Boston, Massachusetts and Chicago,
Illinois) of the Fund affiliated with the Advisor and makes available, without
expense to the Corporation, the services of such Directors, officers and
employees of the Advisor as may duly be elected officers or Directors of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Fund's office space and facilities.
For these services, under the current Agreement between Global Fund and the
Advisor, effective September 11, 2000, the management fee payable under the
Agreement is equal to an annual rate of 1.00% on the first $500 million of
average daily net assets, 0.95% on such net assets in excess of $500 million,
0.90% on such net assets in excess of $1 billion, 0.85% on such net assets in
excess of $1.5 billion and 0.80% on such net assets in excess of $2 billion.
For these services, under the prior Agreement, effective September 7, 1998 until
September 11, 2000, Global Fund paid the Advisor a fee equal to 1.00% on the
first $500 million of average daily net assets, 0.95% on such net assets in
excess of $500 million, 0.90% on such net assets in excess of $1 billion and
0.85% on such net assets in excess of $1.5 billion. The fee is payable monthly,
provided the Fund will make such interim payments as may be requested by the
Advisor not to exceed 75% of the amount of the fee then accrued on the books of
the Fund and unpaid.
Accordingly, under these agreements the investment advisory fees for the fiscal
years ended June 30, 1999, 1998 and 1997, were $14,936,557, $15,502,974 and
$13,450,790, respectively. For the two months ended August 31, 1999, the
investment advisory fee pursuant to the Agreement amounted to $2,547,570. For
the fiscal year ended August 31, 2000, the investment advisory fees were
$14,778,270, which was equivalent to an annual effective rate of 0.95% of the
Fund's average daily net assets.
For these services, under the current Agreement between International Fund and
the Advisor, effective August 14, 2000, the management fee payable under the
Agreement is equal to an annual rate of 0.675% on the first $6 billion of
average daily net assets, 0.625% on the next $1 billion of such net assets, and
0.600% of such net assets in excess of $7 billion, computed and accrued daily
and payable monthly.
Under the prior Agreement between International Fund and the Advisor, effective
September 7, 1998 until August 14, 2000, the management fee payable under the
Agreement was equal to an annual rate of approximately
44
<PAGE>
0.90% of the first $500,000,000 of average daily net assets, 0.85% of the next
$500,000,000 of such net assets, 0.80% of the next $1,000,000,000 of such net
assets, 0.75% of the next $1,000,000,000 of such net assets, and 0.70% of such
net assets in excess of $3,000,000,000, computed and accrued daily and payable
monthly.
Accordingly, for the year ended August 31, 2000, the investment advisory fees
amounted to $36,335,757, which was equivalent to an annual effective rate of
0.76% of the Fund's average daily net assets. For the five months ended August
31, 1999, the net investment advisory fees were $11,269,103. The net investment
advisory fees for the fiscal years ended March 31, 1999 and 1998 were
$23,819,941 and $22,491,681, respectively.
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 Advisor; the cost of
printing and distributing reports and notices to stockholders; and the fees and
disbursements of custodians. The Fund may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. The Fund is also responsible for its expenses of shareholders'
meetings, the cost of responding to shareholders' inquiries, and its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Directors of the
Corporation with respect thereto.
The Agreement expressly provides that the Advisor shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Advisor 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 Advisor
concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Advisor are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Advisor 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 Advisor in
the performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreement.
Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor'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 Advisor may serve as advisor to other funds with investment objectives and
policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.
None of the officers or Directors of the Corporation may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.
The term Scudder Investments is the designation given to the services provided
by Zurich Scudder Investments, Inc. and its affiliates to the Scudder Family of
Funds.
Scudder Kemper has agreed to pay a fee to AARP and/or its affiliates in return
for services relating to investments by AARP members in AARP Class shares of
each fund. This fee is calculated on a daily basis as a percentage of the
combined net assets of AARP Classes of all funds managed by Scudder Kemper. The
fee rates, which decrease as the
45
<PAGE>
aggregate net assets of the AARP Classes become larger, are as follows: 0.07%
for the first $6 billion in net assets, 0.06% for the next $10 billion and 0.05%
thereafter.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Advisor and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Advisor 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 Advisor with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Advisor
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment advisor
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM Program will be a customer of the Advisor (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.
Code of Ethics
The Funds, the Advisor and principal underwriter have each adopted codes of
ethics under rule 17j-1 of the Investment Company Act. Board members, officers
of the Funds and employees of the Advisor and principal underwriter are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Funds, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The Advisor's Code
of Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Funds. Among other things, the Advisor's Code of Ethics
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
quarterly 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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
DIRECTORS AND OFFICERS OF SCUDDER INTERNATIONAL FUND, INC.
AND GLOBAL/INTERNATIONAL FUND, INC.
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Henry P. Becton, Jr. (56) Director President, WGBH Educational Foundation None
WGBH
125 Western Avenue
Allston, MA 02134
Linda C. Coughlin (48)+* President and Director Managing Director of Zurich Scudder Director and Senior
Investments, Inc. Vice President
Dawn-Marie Driscoll (53) Director Executive Fellow, Center for Business None
4909 SW 9th Place Ethics, Bentley College; President,
Cape Coral, FL 33914 Driscoll Associates (consulting firm)
46
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
Edgar R. Fiedler (70) Director Senior Fellow and Economic None
50023 Brogden Counsellor, The Conference Board,
Chapel Hill, NC Inc.( Not-for-profit business
research organization)
Keith R. Fox (46) Director General Partner, Exeter Group of Funds None
10 East 53rd Street
New York, NY 10022
Joan E. Spero (55) Director President, Doris Duke Charitable None
Doris Duke Charitable Foundation Foundation; Department of State -
650 Fifth Avenue Undersecretary of State for Economic,
New York, NY 10128 Business and Agricultural Affairs
(March 1993 to January 1997)
Jean Gleason Stromberg (56) Director Consultant; Director, Financial None
3816 Military Road, NW Institutions Issues, U.S. General
Washington, D.C. Accounting Office (1996-1997);
Partner, Fulbright & Jaworski (law
firm) (1978-1996)
Jean C. Tempel (56) Director Managing Director, First Light None
One Boston Place Capital, LLC. (venture capital firm)
23rd Floor
Boston, MA 02108
Steven Zaleznick (45)* Director President and CEO, AARP Services, Inc. None
601 E. Street, NW
7th Floor
Washington, D.C. 20004
Kathryn L. Quirk (47)# Vice President and Managing Director of Zurich Scudder Director, Senior Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Assistant
Clerk
Thomas V. Bruns (43) *** Vice President Managing Director of Zurich Scudder None
Investments, Inc.
William F. Glavin (41)+ Vice President Managing Director of Zurich Scudder Vice President
Investments, Inc.
Irene T. Cheng (44) # Vice President of Managing Director of Zurich Scudder None
Scudder International Investments, Inc.
Fund, Inc.
Joyce E. Cornell (55) # Vice President of Managing Director of Zurich Scudder None
Scudder International Investments, Inc.
Fund, Inc.
47
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
Susan E. Dahl (34) + Vice President of Managing Director of Zurich Scudder None
Global/International Investments, Inc.
Fund, Inc.
Edmund B. Games, Jr. (61) + Vice President of Managing Director of Zurich Scudder None
Scudder International Investments, Inc.
Fund, Inc.
James E. Masur (40) + Vice President Senior Vice President of Zurich None
Scudder Investments, Inc.
Howard Schneider (43) + Vice President Managing Director of Zurich Scudder None
Investments, Inc.
Carol L. Franklin (46) # Vice President of Managing Director of Zurich Scudder None
Scudder International Investments, Inc.
Fund, Inc.
Ann M. McCreary (43) # Vice President Managing Director of Zurich Scudder None
Investments, Inc.
Joan Gregory (55) # Vice President of Vice President of Zurich Scudder None
Scudder International Investments, Inc.
Fund, Inc.
Tien Yu Sieh (31) # Vice President of Senior Vice President of Zurich None
Scudder International Scudder Investments, Inc.
Fund, Inc.
Jan C. Faller (34)+ Vice President of Vice President of Zurich Scudder None
Global/International Investments, Inc.
Fund, Inc.
William E. Holzer (50) # Vice President of Managing Director of Zurich Scudder None
Global/International Investments, Inc.
Fund, Inc.
Gerald J. Moran (60)# Vice President of Managing Director of Zurich Scudder None
Global/International Investments, Inc.
Fund, Inc.
M. Isabel Saltzman (45)+ Vice President of Managing Director of Zurich Scudder None
Global/International Investments, Inc.
Fund, Inc.
John R. Hebble (42)+ Treasurer Senior Vice President of Zurich Assistant Treasurer
Scudder Investments, Inc.
Caroline Pearson (38)+ Assistant Secretary Senior Vice President of Zurich Clerk
Scudder Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
48
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
John Millette (37)+ Vice President and Vice President of Zurich Scudder None
Secretary Investments, Inc.
Brenda Lyons (37)+ Assistant Treasurer Senior Vice President of Zurich None
Scudder Investments, Inc.
</TABLE>
* Ms. Coughlin and Mr. Zaleznick are considered by the Funds and their
counsel to be persons who are "interested persons" of the Advisor 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.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154
*** Address: 222 South Riverside Plaza, Chicago, Illinois
The Directors and officers of the Corporation also serve in similar capacities
with respect to other Scudder Funds.
To the best of the Corporation's knowledge, as of November 29, 2000, all
Directors and officers of the Corporation, as a group, owned beneficially (as
that term is defined in Section 13 (d) under the Securities Exchange Act of
1934) less than 1% of the outstanding shares of any class of Scudder
International Fund and Scudder Global Fund.
To the best of the Fund's knowledge, as of November 29, 2000, no person owned of
record more than 5% or more of the outstanding shares of any class of Scudder
International Fund, except as stated below. They may be deemed to be the
beneficial owner of certain of these shares.
As of November 30, 2000, 11,200,992 shares in the aggregate, or 13.39% of the
outstanding shares of Scudder International Fund - Class S - were held in the
name of Charles Schwab, 101 Montgomery Street, San Francisco, CA 9410 who may
deemed to be the beneficial owner of such shares.
To the best of the Fund's knowledge, as of November 29, 2000, no person owned of
record more than 5% or more of the outstanding shares of any class of Scudder
Global Fund, except as stated below. They may be deemed to be the beneficial
owner of certain of these shares.
As of November 30, 2000, 5,507,079 shares in the aggregate, or 10.49% of the
outstanding shares of Scudder Global Fund - Class S - were held in the name of
Charles Schwab, 101 Montgomery Street, San Francisco, CA 94101 who may deemed to
be the beneficial owner of such shares.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Directors is responsible for the general oversight of the Funds'
business. A majority of the Board's members are not affiliated with Zurich
Scudder Investments, Inc. These "Independent Directors" have primary
responsibility for assuring that a 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 Funds 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 Advisor
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 Advisor and its affiliates, and
comparative information regarding
49
<PAGE>
fees and expenses of competitive funds. They are assisted in this process by the
Funds' independent public accountants and by independent legal counsel selected
by the Independent Directors.
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Funds' independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
Each Independent Director receives compensation for his or her services, which
includes an annual retainer and an attendance fee for each meeting attended. The
Independent Director who serves as lead director receives additional
compensation for his or her service. No additional compensation is paid to any
Independent Director for travel time to meetings, attendance at director's
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 Advisor. 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 1999 from each Corporation and from all of the Scudder funds as a group.
<TABLE>
<CAPTION>
Scudder Global/International,
Name International Fund, Inc.* Fund, Inc. ** All Scudder Funds
---- ------------------------ ----------- -----------------
<S> <C> <C> <C>
Henry P. Becton, Jr. + $0 $0 $140,000 (30 funds)
Dawn-Marie Driscoll + $0 $0 $150,000 (30 funds)
Edgar R. Fiedler + $0 $0 $73,230 (29 funds)++
Keith R. Fox $43,650 $36,375 $160,325 (23 funds)
Joan E. Spero $47,550 $39,625 $175,275 (23 funds)
Jean Gleason Stromberg + $0 $0 $40,935 (16 funds)
Jean C. Tempel + $0 $0 $140,000 (30 funds)
</TABLE>
+ Newly elected Director. On July 7, 2000, shareholders of the Fund
elected a new Board of Directors. See the "Directors and Officers"
section for the newly constituted Board of Directors.
* In 1999, Scudder International Fund, Inc. consisted 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 Value Fund and Scudder International Growth
Fund.
** In 1999, Global/International Fund, Inc. consisted of five funds:
Scudder Global Fund, Scudder International Bond Fund, Scudder Global
Bond Fund, Global Discovery Fund and Scudder Emerging Markets Income
Fund.
++ Mr. Fielder's total compensation includes the $9,900 accrued, but not
received, through the deferred compensation program.
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<PAGE>
Members of the Board of Directors who are employees of the Advisor or its
affiliates receive no direct compensation from the Corporation, although they
are compensated as employees of the Advisor, or its affiliates, as a result of
which they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
Each 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 Advisor, a Delaware
corporation. The Corporations' underwriting agreement dated May 8, 2000 will
remain in effect until September 30, 2001 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 Funds. The underwriting
agreements were last approved by the Directors on July 10, 2000.
Under the underwriting agreements, a 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 a 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 a 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 a 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 a Fund's shares to the
public and preparing, printing and mailing any other literature or advertising
in connection with the offering of shares of a 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 a Fund, unless a Rule 12b-1 Plan is in effect which provides that a Fund
shall bear some or all of such expenses.
As agent, the Distributor currently offers shares of the Funds on a continuous
basis to investors in all states in which shares of a Fund may from time to time
be registered or where permitted by applicable law. The underwriting agreements
provide 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 a Fund.
Administrative Fee
Each Fund has entered into an administrative services agreement with Scudder
Kemper (the "Administration Agreements"), pursuant to which Scudder Kemper will
provide or pay others to provide substantially all of the administrative
services required by a Fund (other than those provided by Scudder Kemper under
its investment management agreements with the Funds, as described above) in
exchange for the payment by each Fund of an administrative services fee (the
"Administrative Fee") of 0.375% of its average daily net assets for Scudder
International Fund and Scudder Global Fund's average daily net assets. One
effect of these arrangements is to make each Fund's future expense ratio more
predictable. The Administrative Fee became effective August 14, 2000 for
International Fund and September 11, 2000 for Global Fund. For the period August
14, 2000 through August 31, 2000, the Administrative Agreement expense charged
to International Fund amounted to $921,739, all of which was unpaid at August
31, 2000.
Various third-party service providers (the "Service Providers"), some of which
are affiliated with Scudder Kemper, provide certain services to the Funds
pursuant to separate agreements with the Funds. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for the
Funds and maintains their accounting records. Scudder Service Corporation, also
a subsidiary of Zurich Scudder, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Funds. Scudder Trust Company, an
affiliate of Zurich Scudder, provides subaccounting and recordkeeping services
for shareholders in certain retirement
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<PAGE>
and employee benefit plans. As custodian, Brown Brothers Harriman holds the
portfolio securities of the Funds, pursuant to a custodian agreement.
PricewaterhouseCoopers LLP audits the financial statements of the Funds and
provides other audit, tax, and related services. Dechert acts as general counsel
for each Fund.
Zurich Scudder will pay the Service Providers for the provision of their
services to the Funds and will pay other fund expenses, including insurance,
registration, printing and postage fees. In return, each Fund will pay Zurich
Scudder an Administrative Fee.
Each Administration Agreement has an initial term of three years, subject to
earlier termination by a Fund's Board. The fee payable by a Fund to Zurich
Scudder pursuant to the Administration Agreements is reduced by the amount of
any credit received from the Fund's custodian for cash balances.
Certain expenses of the Funds will not be borne by Zurich Scudder under the
Administration Agreements, such as taxes, brokerage, interest and extraordinary
expenses; and the fees and expenses of the Independent Directors (including the
fees and expenses of their independent counsel). In addition, each Fund will
continue to pay the fees required by its investment management agreement with
Zurich Scudder.
TAXES
Each Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code, or a predecessor statute and has qualified as such
since its inception. 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 a Fund does not qualify for 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 a Fund's
earnings and profits, and would be eligible for the dividends received deduction
in the case of corporate shareholders.
Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of a Fund's ordinary income for the calendar year, at least 98% of the excess of
its capital gains over capital losses (adjusted for certain ordinary losses)
realized during the one-year period ending 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 a Fund. Presently, the Funds have
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by a Fund for reinvestment, requiring federal income
taxes to be paid thereon by a Fund, each Fund intends to elect to treat such
capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim a proportionate share of federal income taxes paid by a Fund on
such gains as a credit against the shareholder's federal income tax liability,
and will be entitled to increase the adjusted tax basis of the shareholder's
Fund shares by the difference between such reported gains and the shareholder's
tax credit.
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 each Fund's gross income. If any such dividends constitute a portion of
a Fund's gross income, a portion of the income distributions of a Fund may be
eligible for the 70% deduction for dividends received by corporations.
Shareholders will be informed of the
52
<PAGE>
portion of dividends which so qualify. The dividends-received deduction is
reduced to the extent the shares of a Fund with respect to which the dividends
are received are treated as debt-financed under federal income tax law and is
eliminated if either those shares or the shares of a Fund are deemed to have
been held by a 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 a Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional Shares
will have a cost basis for federal income tax purposes in each Share so received
equal to the net asset value of a Share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution 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 for 2001 ($53,000 for married individuals filing a
joint return, with a phase-out of the deduction for adjusted gross income
between $53,000 and $63,000; $33,000 for a single individual, with a phase-out
for adjusted gross income between $33,000 and $43,000). However, an individual
not permitted to make a deductible contribution to an IRA for any such taxable
year may nonetheless make nondeductible contributions up to $2,000 to an IRA (up
to $2,000 per individual for married couples if only one spouse has earned
income) for that year. There are special rules for determining how withdrawals
are to be taxed if an IRA contains both deductible and nondeductible amounts. In
general, a proportionate amount of each withdrawal will be deemed to be made
from nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by a Fund result in a reduction in the net asset value of that
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Each Fund intends to qualify for and may make the election permitted under
Section 853 of the Code so that shareholders may (subject to limitations) be
able to claim a credit or deduction on their federal income tax returns for, and
will be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by a Fund to foreign countries (which taxes
relate primarily to investment income). Each Fund may make an election under
Section 853 of the Code, provided that more than 50% of the value of the total
assets of a Fund at the close of the taxable year consists of securities in
foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code, except in the case of
certain electing individual 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 a Fund are
held by a Fund or the shareholder, as the case may be, for less
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<PAGE>
than 16 days (46 days in the case of preferred shares) during the 30-day period
(90-day period for preferred shares) beginning 15 days (45 days for preferred
shares) before the shares become ex-dividend. In addition, if a Fund fails to
satisfy these holding period requirements, it cannot elect under Section 853 to
pass through to shareholders the ability to claim a deduction for the related
foreign taxes.
If a Fund does not make the election permitted under section 853 any foreign
taxes paid or accrued will represent an expense to a 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 a 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 a Fund will
be subject to tax under Section 1234 of the Code. In general, no loss will be
recognized by a Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on a Fund's holding period for the option, and in the case of the
exercise of a put option, on a Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any stock in
a Fund's portfolio similar to the stocks on which the index is based. If a Fund
writes an option, no gain is recognized upon its receipt of a premium. If the
option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If a call option is exercised, the character of the gain
or loss depends on the holding period of the underlying stock.
Positions of a Fund which consist of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes a 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 a Fund.
Many futures and forward contracts entered into by a Fund and listed nonequity
options written or purchased by a Fund (including options on debt securities,
options on futures contracts, options on securities indices and options on
currencies), will be governed by Section 1256 of the Code. Absent a tax election
to the contrary, gain or loss attributable to the lapse, exercise or closing out
of any such position generally will be treated as 60% long-term and 40%
short-term, and on the last trading day of a 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 a Fund will be treated
as ordinary income or loss.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if a 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 a Fund's taxable year, if certain conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, a 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 a Fund accrues receivables or liabilities
denominated in a foreign currency and the time a 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
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<PAGE>
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If a Fund invests in stock of certain foreign investment companies, a Fund may
be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of a Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of a Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to a Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in a Fund's investment company taxable income and,
accordingly, would not be taxable to a Fund to the extent distributed by a Fund
as a dividend to its shareholders.
A 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, a Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds a 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, a Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
If a Fund invests in certain high yield original issue discount obligations
issued by corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such event, dividends of investment company taxable income
received from a Fund by its corporate shareholders, to the extent attributable
to such portion of accrued original issue discount, may be eligible for this
deduction for dividends received by corporations if so designated by a Fund in a
written notice to shareholders.
A 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 a Fund may be subject to state and local taxes on distributions
received from a Fund and on redemptions of a Fund's shares.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of a Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on amounts constituting ordinary income received
by him or her, where such amounts are treated as income from U.S. sources under
the Code.
Shareholders should consult their tax advisors about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
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<PAGE>
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Advisor.
The primary objective of the Advisor in placing orders for the purchase and sale
of securities for a Fund is to obtain the most favorable net results, taking
into account such factors as price, commission where applicable, size of order,
difficulty of execution and skill required of the executing broker/dealer. The
Advisor 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 a Fund to reported commissions paid by others. The Advisor
routinely reviews commission rates, execution and settlement services performed
and makes internal and external comparisons.
The Funds' purchases and sales of fixed-income securities are generally placed
by the Advisor with primary market makers for these securities on a net basis,
without any brokerage commission being paid by a Fund. Trading does, however,
involve transaction costs. Transactions with dealers serving as primary market
makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most favorable
net results, it is the Advisor's practice to place such orders with
broker/dealers who supply brokerage and research services to the Advisor or a
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Advisor is authorized when placing portfolio transactions, if applicable, for a
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of execution services and
the receipt of research services. The Advisor 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 Advisor or a Fund in exchange for the direction by the Advisor of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Advisor will not place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of a Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Advisor; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
Although certain research services from broker/dealers may be useful to a Fund
and to the Advisor, it is the opinion of the Advisor that such information only
supplements the Advisor's own research effort since the information must still
be analyzed, weighed, and reviewed by the Advisor's staff. Such information may
be useful to the Advisor in providing services to clients other than a Fund, and
not all such information is used by the Advisor in connection with a Fund.
Conversely, such information provided to the Advisor by broker/dealers through
whom other clients of the Advisor effect securities transactions may be useful
to the Advisor in providing services to a Fund.
The Directors review, from time to time, whether the recapture for the benefit
of the Funds of some portion of the brokerage commissions or similar fees paid
by the Funds on portfolio transactions is legally permissible and advisable.
For the fiscal years ended June 30, 1999 and 1998, Global Fund paid brokerage
commissions of $2,425,890 and $2,451,495, respectively. For the fiscal year
ended June 30, 1999, $1,639,151, (67.57% of the total brokerage commissions paid
by the Fund) resulted from orders placed, consistent with the policy of
obtaining the most favorable net results, with brokers and dealers who provided
supplementary research, market and statistical
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<PAGE>
information to the Fund or the Advisor. The total amount of brokerage
transactions aggregated $1,575,800,538, of which $1,003,696,387 (63.69% of all
brokerage transactions) were transactions which included research commissions.
Such brokerage was not allocated to any particular brokers or dealers or with
any regard to the provision of market quotations for purposes of valuing the
Fund's portfolio or to any other special factors. For the two months ended
August 31, 1999 and the year ended August 31, 2000, Global Fund paid brokerage
commissions of $________ and $_______, respectively. [TO BE UPDATED]
For the fiscal years ended March 31, 1999 and 1998, International Fund paid
brokerage commissions of $9,926,570 and $6,904,371, respectively. For the fiscal
year ended March 31, 1999, $9,741,020 (98.13%) 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 Advisor. The amount of such transactions aggregated $4,239,712,028
(95.76% of all brokerage transactions). The balance of such brokerage was not
allocated to particular broker or dealer with regard to the above-mentioned or
other special factors. For the five months ended August 31, 1999 and the fiscal
year ended August 31, 2000, International Fund paid brokerage commissions of
$________ and $_______, respectively. For the five months ended August 31, 1999
and the fiscal year ended August 31, 2000, $________ (____%) 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 Advisor. The amount of such transactions aggregated
$___________ (____% of all brokerage transactions). The balance of such
brokerage was not allocated to particular broker or dealer with regard to the
above-mentioned or other special factors.
Portfolio Turnover
The Funds' 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. For the fiscal years ended
June 30, 1999 and 1998 Global Fund's portfolio turnover rates were 70% and 51%
respectively, for the two months ended August 31, 1999 and fiscal year ended
August 31, 2000 were 29% (annualized) and 60%, respectively. For the fiscal
years ended March 31, 1999 and 1998 International Fund's portfolio turnover
rates were 80% and 56%, respectively, and for the five months ended August 31,
1999 and fiscal year ended August 31, 2000 were 82% (annualized) and 83%,
respectively. Purchases and sales are made for a Fund's portfolio whenever
necessary, in management's opinion, to meet that Fund's objective.
NET ASSET VALUE
The net asset value of shares of each Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading
(the "Value Time"). 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 separately for each class of shares by dividing the value of the
total assets of each Fund attributable to the shares of that class, less all
liabilities attributable to that class, by the total number of shares of that
class outstanding.
An exchange-traded equity security is valued at its most recent sale price on
the exchange it is traded as of the Value Time. Lacking any sales, the security
is valued at the calculated mean between the most recent bid quotation and the
most recent asked quotation (the "Calculated Mean"). Lacking a Calculated Mean,
the security is valued at the most recent bid quotation. An equity security
which is traded on the Nasdaq Stock Market, Inc. ("Nasdaq") is valued at its
most recent sale price. Lacking any sales, the security is valued at the most
recent bid quotation. The value of an equity security not quoted on the Nasdaq
System, but traded in another over-the-counter market, is its most recent sale
price. Lacking any sales, the security is valued at the Calculated Mean. Lacking
a Calculated Mean, the security is valued at the most recent bid quotation.
Debt securities, other than short-term securities, are valued at prices supplied
by a Fund's pricing agent(s) which reflect broker/dealer supplied valuations and
electronic data processing techniques. Short-term securities purchased with
remaining maturities of sixty days or less shall be valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker.
57
<PAGE>
If it is not possible to value a particular debt security pursuant to the above
methods, the Advisor may calculate the price of that debt security, subject to
limitations established by the Board.
An exchange traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Corporation's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The financial highlights of each Fund included in the Funds' prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110,
independent accountants, given on the authority of said firm as experts in
accounting and auditing. PricewaterhouseCoopers LLP audits the financial
statements of each Fund and provides other audit, tax, and related services.
Other Information
Many of the investment changes in a Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of a Fund. These transactions will reflect investment decisions
made by the Advisor 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 Global Fund Class S is 378947-20-4.
The CUSIP number of Global Fund Class AARP is 378947-87-3.
The CUSIP number of International Fund Class S shares is 811165-10-9.
The CUSIP number of International Fund Class AARP shares is 811165-82-8.
Global Fund has a fiscal year end of August 31. On July 7, 1999, the Directors
of the Fund changed the fiscal year end of the Fund from June 30 to August 31.
International Fund has a fiscal year end of August 31. On June 7, 1999, the
Directors of the Fund changed the fiscal year end of the Fund from March 31 to
August 31.
58
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The Funds employ Brown Brothers Harriman & Company, 40 Water Street, Boston,
Massachusetts 02109 as Custodian for the Funds.
The law firm of Dechert is counsel to the Funds.
Scudder Service Corporation ("SSC"), P.O. Box 219669, Kansas City, Missouri,
64121-9669, a subsidiary of the Advisor, is the transfer and dividend disbursing
agent for the Funds. Service Corporation also serves as shareholder service
agent and provides subaccounting and recordkeeping services for shareholder
accounts in certain retirement and employee benefit plans. Prior to the
implementation of the Administration Agreement, each Fund paid SSC an annual fee
of $26.00 for each retail account and $29.00 for each retirement account. For
the fiscal years ended June 30, 1997, 1998 and 1999, SSC charged Global Fund
aggregate fees of $2,374,492, $2,508,727 and $2,380,471, respectively, and
$368,471 for the two months ended August 31, 1999. Prior to August 14, 2000, the
amount charged to the Fund by SSC aggregated $2,110,505, of which $336,686 is
unpaid at August 31, 2000.
Prior to the inception of Barrett International Shares, Class S shares of
International Fund incurred fees of $3,394,358 and $3,050,321 during the fiscal
years ended March 31, 1999 and 1998, respectively. International Fund incurred
fees of $3,098,197 for Class S shares and $4,857 for Barrett International
Shares, respectively, during the fiscal year ended March 31, 1999, and
$1,258,902 and $4,632, respectively, for the five months ended August 31, 1999.
Prior to August 14, 2000, the amount charged by SSC to International Fund for
Class S shares and Barrett International Shares aggregated $3,420,086 and
$10,603, respectively, of which $602,732 was unpaid at August 31, 2000.
The Fund, or the Advisor (including any affiliate of the Advisor), or both, may
pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are generally
held in an omnibus account.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Advisor, computes net asset value
for the Fund. Prior to the implementation of the Administration Agreement, each
Fund paid Scudder Fund Accounting Corporation an annual fee equal to 0.065% of
the first $150 million of average daily net assets, 0.040% of such assets in
excess of $150 million, 0.020% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the fiscal years ended
June 30, 1998 and 1999, SFAC charged Global Fund aggregate fees of $601,315 and
$585,537, respectively, and $97,186 for the two months ended August 31, 1999.
For the year ended August 31, 2000, the amount charged to Global Fund by SFAC
aggregated $577,424, of which $95,002 is unpaid as of August 31, 2000.
For the fiscal years ended March 31, 1998 and 1999, SFAC charged International
Fund aggregate fees of $838,885 and $795,122, respectively, and $402,576 for the
five months ended August 31, 1999, of which $83,574 was unpaid at August 31,
1999. Prior to August 14, 2000, the amount charged by SFAC to International Fund
aggregated $1,250,099, of which $219,547 was unpaid at August 31, 2000.
Scudder Trust Company, an affiliate of the Advisor, provides subaccounting and
recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. Prior to the implementation of the Administration
Agreement, annual service fees were paid by each Fund to Scudder Trust Company,
Two International Place, Boston, Massachusetts, 02110-4103, an affiliate of the
Advisor, for certain retirement plan accounts. Global Fund and Class S shares of
International Fund paid Scudder Trust Company an annual fee of $29 per
shareholder account. For the fiscal years ended June 30, 1998 and 1999, Global
Fund incurred fees of $1,195,885 and $1,427,397, respectively, and $235,738 for
the two months ended August 31, 1999, of which $119,042 was unpaid at August 31,
1999.
59
<PAGE>
Class S shares of International Fund incurred fees of $2,067,603 and $1,561,049
during the fiscal years ended March 31, 1999 and 1998, respectively, and
$1,202,021 for the five months ended August 31, 1999, of which $254,431 was
unpaid at August 31, 1999. Prior to August 14, 2000, the amount charged by STC
to Class S shares of International Fund aggregated $3,776,386, of which $731,678
was unpaid at August 31, 2000.
The prospectuses and this Statement of Additional Information omit certain
information contained in the Registration Statement which the Fund has filed
with the Commission under the 1933 Act and reference is hereby made to the
Registration Statement for further information with respect to the Fund and the
securities offered hereby. This Registration Statement and its amendments are
available for inspection by the public at the Commission in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of the Funds,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of
Scudder International Fund and Scudder Global Fund dated August 31, 2000, are
each incorporated herein by reference and are hereby deemed to be a part of this
Statement of Additional Information by reference in its entirety.
60
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P to
corporate bonds.
Ratings of Corporate Bonds
S&P: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
<PAGE>
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds which are rated
B generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
<PAGE>
Barrett International Shares
of
SCUDDER INTERNATIONAL FUND
A series of Scudder International Fund, Inc.
A Mutual Fund Which Seeks to Provide
Long-Term Growth of Capital Primarily
from Foreign Equity Securities
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
December 29, 2000
--------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus for the Barrett International Shares, a class
of Scudder International Fund, dated December 29, 2000, 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 dated August 31, 2000 for Scudder
International Fund -- Barrett International Shares is incorporated by reference
and is hereby deemed to be a part of this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
Page
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES.................................1
General Investment Objective and Policies...........................1
Investments.........................................................1
Foreign Investment Risk.............................................2
Master/feeder structure.............................................2
Interfund Lending Program...........................................3
Special Considerations..............................................3
Specialized Investment Techniques...................................6
Investment Restrictions............................................17
PURCHASES...................................................................18
Other Information..................................................19
REDEEMING SHARES............................................................19
Redemption-in-Kind.................................................19
FEATURES AND SERVICES OFFERED BY THE FUND...................................19
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS...................................19
PERFORMANCE INFORMATION.....................................................20
Average Annual Total Return........................................20
Cumulative Total Return............................................20
Total Return.......................................................21
Comparison of Fund Performance.....................................21
FUND ORGANIZATION...........................................................22
INVESTMENT MANAGER..........................................................24
DIRECTORS AND OFFICERS......................................................28
REMUNERATION................................................................30
Responsibilities of the Board -- Board and Committee
Meetings...........................................................30
Compensation of Officers and Directors.............................30
DISTRIBUTOR.................................................................31
CODE OF ETHICS..............................................................32
TAXES.......................................................................33
PORTFOLIO TRANSACTIONS......................................................37
Brokerage Commissions..............................................37
Portfolio Turnover.................................................38
NET ASSET VALUE.............................................................38
ADDITIONAL INFORMATION......................................................39
Experts............................................................39
Other Information..................................................39
FINANCIAL STATEMENTS........................................................40
APPENDIX....................................................................41
i
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder International Fund (the "Fund"), is a diversified series of Scudder
International Fund, Inc. (the "Corporation"), an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act") which continuously offers and redeems its shares at net asset value.
It is a company of the type commonly known as a mutual fund. The Fund currently
offers seven classes of shares: Barrett International Shares, Class S shares
(formerly known as International Shares), Class AARP shares, Class A, Class B,
Class C, and Class I shares. This Statement of Additional Information applies
only to the Barrett International Shares (the "Shares").
Except as otherwise indicated, the Fund's objectives and policies are not
fundamental and may be changed without a shareholder vote. There can be no
assurance that the Fund will achieve its objective. 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. There can be no assurance that the Fund's objective will be
met.
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 Zurich Scudder Investments, Inc. (the "Advisor"), in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. The Advisor may, in its discretion, at any time employ such practice,
technique or instrument for one or more funds but not for all funds advised by
it. Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
The Fund's investment objective is to seek long-term growth of capital primarily
from foreign equity securities. These securities are selected primarily to
permit the Fund to participate in non-U.S. companies and economies that are
believed to have prospects for growth.
The Fund invests in companies, wherever organized, which do business primarily
outside the United States.
Investments
The Fund generally invests in equity securities of established companies, listed
on foreign exchanges (although the Fund may invest in securities traded over the
counter), which the Advisor believes have favorable characteristics. The Fund's
equity investments include common stock, convertible and non-convertible
preferred stock, sponsored and unsponsored depository receipts, and warrants.
When the Advisor believes that it is appropriate to do so in order to achieve
the Fund's investment objective of long-term capital growth, the Fund may invest
up to 20% of its total assets in debt securities. Such debt securities include
debt securities of governments, governmental agencies, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (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 value of fixed-income investments will fluctuate with changes in
interest rates and bond market conditions, tending to rise as interest rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc., ("S&P") or, if
unrated, judged by the Advisor to be of equivalent quality. The Fund may also
invest up to 5% of its total assets in debt securities which are rated below
investment-grade (see "Risk factors").
The Fund intends to diversify investments among several countries and normally
to have investments in securities of at least three different countries other
than the U.S. The Fund will invest primarily in securities of issuers in the 21
developed foreign countries included in the Morgan Stanley Capital International
("MSCI") World ex-US Index, but may invest in "emerging markets." The Fund
considers "emerging markets" to include any country that is defined as an
<PAGE>
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 major portion of the Fund's assets consists of equity securities of
established companies listed on recognized exchanges; the Advisor expects this
condition to continue, although the Fund may invest in other securities. In
selecting securities for the Fund's portfolio, the Advisor applies a
disciplined, multi-part investment approach for selecting stocks for the Fund.
In analyzing companies for investment, the Advisor ordinarily looks for one or
more of the following characteristics: strong competitive positioning,
above-average earnings growth per share, high return on invested capital,
healthy balance sheets and overall financial strength, strength of management
and general operating characteristics which will enable the companies to compete
successfully in the marketplace. The Advisor will further seek to have broad
country representation, favoring those countries that it believes have sound
economic conditions and open markets. The Advisor will also look for
opportunities on a macro-economic level, seeking to identify major changes in
the business environment and companies that are poised to benefit from these
changes. Investment decisions are made without regard to arbitrary criteria as
to minimum asset size, debt-equity ratios or dividend history of portfolio
companies. The Advisor will typically sell an investment when certain criteria
are met, including but not limited to: the price of the security reaches the
Advisor's assessment of its fair value; the underlying investment theme is
judged by the Advisor to have matured; or if the original reason for investing
in the security no longer applies or is no longer valid.
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 Advisor believes that
market conditions so warrant. The Fund may invest up to 20% of its assets under
normal conditions, and without limit for temporary defensive purposes, in cash
or cash equivalents including domestic and foreign money market instruments,
short-term government and corporate obligations and repurchase agreements, when
the Advisor deems such a position advisable in light of economic or market
conditions. It is impossible to accurately predict how long such alternative
strategies may be utilized. In addition, the Fund may engage in reverse
repurchase agreements, illiquid securities and strategic transactions, which may
include derivatives.
Foreign securities such as those purchased by the Fund may be subject to foreign
governmental 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 securities, such as
restricted debt or equity securities (i.e., securities which may require
registration under the Securities Act of 1933, or an exemption therefrom, in
order to be sold in the ordinary course of business) in a private placement.
(See "Illiquid Securities.")
Foreign Investment Risk
While the Fund offers the potential for substantial appreciation over time, it
also involves above-average investment risk in comparison to a mutual fund
investing in a broad range of U.S. equity securities. The Fund is designed as a
long-term investment and not for short-term trading purposes. The Fund should
not be considered a complete investment program, although it could serve as a
core international holding for an individual's portfolio. The Fund's net asset
value, or price, can fluctuate significantly with changes in stock market
levels, political developments, movements in currencies, global investment flows
and other factors.
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
2
<PAGE>
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.
Interfund Lending Program
The Corporations' Board of Directors has approved the filing of an application
for exemptive relief with the Securities and Exchange Commission (the "SEC")
which would permit the Funds to participate in an interfund lending program
among certain investment companies advised by the Advisor. If the Funds receive
the requested relief, the interfund lending program would allow the
participating funds to borrow money from and loan money to each other for
temporary or emergency purposes. The program would be subject to a number of
conditions designed to ensure fair and equitable treatment of all participating
funds, including the following: (1) no fund may borrow money through the program
unless it receives a more favorable interest rate than a rate approximating the
lowest interest rate at which bank loans would be available to any of the
participating funds under a loan agreement; and (2) no fund may lend money
through the program unless it receives a more favorable return than that
available from an investment in repurchase agreements and, to the extent
applicable, money market cash sweep arrangements. In addition, a fund would
participate in the program only if and to the extent that such participation is
consistent with the fund's investment objectives and policies (for instance,
money market funds would normally participate only as lenders and tax exempt
funds only as borrowers). Interfund loans and borrowings would extend overnight,
but could have a maximum duration of seven days. Loans could be called on one
day's notice. A fund may have to borrow from a bank at a higher interest rate if
an interfund loan is called or not renewed. Any delay in repayment to a lending
fund could result in a lost investment opportunity or additional costs. The
program is subject to the oversight and periodic review of the Boards of the
participating funds. To the extent the Funds are actually engaged in borrowing
through the interfund lending program, the Funds, as a matter of non-fundamental
policy, may not borrow for other than temporary or emergency purposes (and not
for leveraging) except that the Funds may engage in reverse repurchase
agreements and dollar rolls for any purpose.
Special Considerations
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less governmental supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have not kept pace with
the volume of securities transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is uninvested and no
cash is earned thereon. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio security or, if the Fund has entered into a
contract to sell the security, could result in possible liability to the
purchaser. Costs associated with transactions in foreign securities are
generally higher than costs associated with transactions in U.S. securities.
Such transactions also involve additional costs for the purchase or sale of
foreign currency.
Certain emerging markets require prior governmental approval of investments by
foreign persons, limit the amount of investment by foreign persons in a
particular company, limit the investment by foreign persons only to a specific
class of securities of a company that may have less advantageous rights than the
classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors. Certain emerging markets may also
restrict investment opportunities in issuers in industries deemed important to
national interest.
Certain emerging markets may require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging market's
balance of payments or for other reasons, a country could impose temporary
restrictions on foreign capital remittances. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments.
In the course of investment in emerging markets, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in one
or more emerging markets. While the Fund will manage its assets in a manner that
will seek to minimize the exposure to such risks, there can be no assurance that
adverse political, social or economic changes will not cause the Fund to suffer
a loss of value in respect of the securities in the Fund's portfolio.
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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 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.
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 governmental 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.
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 Advisor 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, governmental 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.
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The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to repay debt
obligations is the level of international reserves of the country. Fluctuations
in the level of these reserves affect the amount of foreign exchange readily
available for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these debt
obligations.
To the extent that an emerging market country cannot generate a trade surplus,
it must depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign governments
and 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
Depositary 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 the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depositary Receipts will be deemed to be investments in the
underlying securities. Depositary Receipts other than those denominated in U.S.
dollars will be subject to foreign currency exchange rate risk. However, by
investing in ADRs rather than directly in foreign issuers' stock, the Fund
avoids currency risks during the settlement period. In general, there is a
large, liquid market in the United States for most ADRs. However, certain
Depositary Receipts may not be listed on an exchange and therefore may be
illiquid securities.
Warrants. The Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by the Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
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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 Advisor
believes that diversification of assets on an international basis decreases the
degree to which events in any one country, including the U.S., will affect an
investor's entire investment holdings. In certain periods since World War II,
many leading foreign economies and foreign stock market indices have grown more
rapidly than the U.S. economy and leading U.S. stock market indices, although
there can be no assurance that this will be true in the future. Because of the
Fund's investment policy, the Fund is not intended to provide a complete
investment program for an investor.
Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign
securities exchanges and bid to asked spreads in foreign bond markets are
generally higher than commissions or bid to asked spreads on U.S. markets,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less governmental 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 the United States. Any future devaluation may have a
detrimental impact on any investments made by the Fund. The currencies of most
some foreign countries are not freely convertible into other currencies and are
not internationally traded. The Fund will not invest its assets in
non-convertible fixed income securities denominated in currencies that are not
freely convertible into other currencies at the time the investment is made.
These considerations generally are more of a concern in developing countries.
For example, the possibility of revolution and the dependence on foreign
economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Advisor, are
speculative.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various
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currencies. In particular, the Fund's investments are generally denominated in
foreign currencies. The strength or weakness of the U.S. dollar against these
currencies is responsible for part of the Fund's investment performance. If the
dollar falls in value relative to the Japanese yen, for example, the dollar
value of a Japanese stock held in the portfolio will rise even though the price
of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the Japanese stock will fall.
In addition, many foreign currencies have experienced significant devaluation
relative to the dollar. Although the Fund values its assets daily in terms of
U.S. dollars, it does not intend to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. It will do so from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer. The Fund
will conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into options or forward or futures contracts to purchase or
sell foreign currencies.
Trust Preferred Securities. The Fund may invest in Trust Preferred Securities,
which are hybrid instruments issued by a special purpose trust (the "Special
Trust"), the entire equity interest of which is owned by a single issuer. The
proceeds of the issuance to the Fund of Trust Preferred Securities are typically
used to purchase a junior subordinated debenture, and distributions from the
Special Trust are funded by the payments of principal and interest on the
subordinated debenture.
If payments on the underlying junior subordinated debentures held by the Special
Trust are deferred by the debenture issuer, the debentures would be treated as
original issue discount ("OID") obligations for the remainder of their term. As
a result, holders of Trust Preferred Securities, such as the Fund, would be
required to accrue daily for Federal income tax purposes, their share of the
stated interest and the de minimis OID on the debentures (regardless of whether
the Fund receives any cash distributions from the Special Trust), and the value
of Trust Preferred Securities would likely be negatively affected. Interest
payments on the underlying junior subordinated debentures typically may only be
deferred if dividends are suspended on both common and preferred stock of the
issuer. The underlying junior subordinated debentures generally rank slightly
higher in terms of payment priority than both common and preferred securities of
the issuer, but rank below other subordinated debentures and debt securities.
Trust Preferred Securities may be subject to mandatory prepayment under certain
circumstances. The market values of Trust Preferred Securities may be more
volatile than those of conventional debt securities. Trust Preferred Securities
may be issued in reliance on Rule 144A under the Securities Act of 1933, as
amended (the "1933 Act"), and, unless and until registered, are restricted
securities; there can be no assurance as to the liquidity of Trust Preferred
Securities and the ability of holders of Trust Preferred Securities, such as the
Fund, to sell their holdings.
Debt Securities. When the Advisor believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital growth, the Fund may
invest up to 20% of its total assets in debt securities including bonds of
foreign governments, supranational organizations and private issuers, including
bonds denominated in the 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 Advisor. 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.
High Yield/High Risk Bonds. The Fund may also purchase, to a limited extent,
debt securities which are rated below investment-grade (commonly referred to as
"junk bonds"), that is, rated below Baa by Moody's or below BBB by S&P, and
unrated securities, which usually entail greater risk (including the possibility
of default or bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and may be less
liquid, than securities in the higher rating categories. The lower the ratings
of such debt securities, the greater their risks render them like equity
securities. The Fund will invest no more than 5% of its total assets in
securities rated BB or lower by Moody's or Ba by S&P, and may invest in
securities which are rated D by S&P. Securities rated D may be in default with
respect to payment of principal or interest. See the Appendix to this Statement
of Additional Information for a more complete description of the ratings
assigned by ratings organizations and their respective characteristics.
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High yield, high-risk securities are especially subject to adverse change 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 Advisor 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 Advisor's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Advisor will determine
whether it is in the best interest of the Fund to retain or dispose of such
security.
Prices for below investment-grade securities may be affected by legislative and
regulatory developments. For example, new federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation which would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
For more information regarding tax issues related to high yield securities, see
"TAXES."
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under 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 the Fund. It is the 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 Fund's net assets. The Corporation's Board has
approved guidelines for use by the Advisor in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to qualified
institutional buyers; (ii) in a privately negotiated transaction to a limited
number of purchasers; or (iii) in limited quantities after they have been held
for a specified period of time and other conditions are met pursuant to an
exemption from registration. Issuers of restricted securities may not be subject
to the disclosure and other investor protection requirements that would be
applicable if their securities were publicly traded. If adverse market
conditions were to develop during the period between the Fund's decision to sell
a restricted or illiquid security and the point at which the Fund is permitted
or able to sell such security, the Fund might obtain a price less favorable than
the price that prevailed when it decided to sell. Where a registration statement
is required for the resale of restricted securities, the Fund may be required to
bear all or part of the registration expenses. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public and, in such event, the Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker-dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker-dealer has been determined by the Advisor to be at least
as high as that of
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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 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
Advisor 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 Advisor 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.
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, the Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs). Index-based
investments may not replicate exactly the performance of their specified index
because of transaction costs and because of the temporary unavailability of
certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
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MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to correspond generally to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in the Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts. Such strategies are generally accepted as a part of modern portfolio
management and are regularly utilized by many mutual funds and other
institutional investors.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other instruments, purchase and sell futures
contracts and options thereon, enter into various transactions such as swaps,
caps, floors, collars, currency forward contracts, currency futures contracts,
currency swaps or options on currencies or currency futures and various other
currency transactions (collectively, all the above are called "Strategic
Transactions"). In addition, Strategic Transactions may also include new
techniques, instruments or strategies that are permitted as regulatory changes
occur. Strategic Transactions may be used without limit to attempt to protect
against possible changes in the market value of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets or currency
exchange rate fluctuations, to protect the Fund's unrealized gains in the value
of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Advisor'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 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 Advisor'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
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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 futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreements with the Counterparties. 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 Advisor must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Advisor. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract, subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts, other
than futures on individual corporate debt and individual equity securities. The
Fund will not sell put options if, as a result, more than 50% of the Fund's
assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund may be required
to buy the underlying security at a disadvantageous price above the market
price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, for risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of 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
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fide hedging, risk management (including duration management) or other portfolio
management and return enhancement purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the marked to market value of the contract
fluctuates. The purchase of an option on futures involves payment of a premium
for the option without any further obligation on the part of the Fund. If the
Fund exercises an option on a futures contract, it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of, the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from an NRSRO or
(except for OTC currency options) are determined to be of equivalent credit
quality by the Advisor.
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.
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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 Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Advisor believes
that the value of schillings will decline against the U.S. dollar, the Advisor
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, 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 Advisor'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 its obligations under
swaps, the Advisor and the Fund believe such obligations do not constitute
senior
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securities under the 1940 Act, and, accordingly, will not treat them as being
subject to its borrowing restrictions. The Fund will not enter into any swap,
cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Advisor. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency will
generally require the Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to the Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery or with an election of either physical delivery or cash settlement will
be treated the same as other options settling with physical delivery.
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In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and, possibly, daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, 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, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Advisor to be in good standing,
and will not be made unless, in the judgment of the Advisor, 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.
Borrowing. The Fund may not borrow money, except as permitted under Federal law.
The Fund will borrow only when the Advisor believes that borrowing will benefit
the Fund after taking into account considerations such as the costs of the
borrowing. The Fund does not expect to borrow for investment purposes, to
increase return or leverage the portfolio. Borrowing by the Fund will involve
special risk considerations. Although the principal of the Fund's borrowings
will be fixed, the Fund's assets may change in value during the time a borrowing
is outstanding, thus increasing exposure to capital risk.
When-Issued Securities. The Fund may from time to time purchase equity and debt
securities on a "when-issued" or "forward delivery" basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities takes place at a later date. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
or forward delivery securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually acquiring
them unless a sale appears desirable for investment reasons. At the time the
Fund makes the commitment to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The market value of the when-issued
or forward delivery securities may be more or less than the purchase price. The
Fund does not believe that its net asset value or income will be adversely
affected by its purchase of securities on a when-issued or forward delivery
basis.
Investment of Uninvested Cash Balances. The Fund may have cash balances that
have not been invested in portfolio securities ("Uninvested Cash"). Uninvested
Cash may result from a variety of sources, including dividends or interest
received from portfolio securities, unsettled securities transactions, reserves
held for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions and
dividend payments, and new cash received from investors. Uninvested Cash may be
invested directly in money market instruments or other short-term debt
obligations. Pursuant to an Exemptive Order issued by the SEC, the Fund may use
16
<PAGE>
Uninvested Cash to purchase shares of affiliated funds including money market
funds, short-term bond funds and Scudder Cash Management Investment Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment advisor that operate as cash management investment vehicles and
that are excluded from the definition of investment company pursuant to section
3(c)(1) or 3(c)(7) of the 1940 Act (collectively, the "Central Funds") in excess
of the limitations of Section 12(d)(1) of the Investment Company Act. Investment
by the Fund in shares of the Central Funds will be in accordance with the Fund's
investment policies and restrictions as set forth in its registration statement.
Certain of the Central Funds comply with rule 2a-7 under the Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance the Fund's ability to
manage Uninvested Cash.
The Fund will invest Uninvested Cash in Central Funds only to the extent that
the Fund's aggregate investment in the Central Funds does not exceed 25% of its
total assets in shares of the Central Funds. Purchase and sales of shares of
Central Funds are made at net asset value.
Investment Restrictions
The fundamental policies of the Fund set forth below may not be changed without
the approval of a majority of the Fund's outstanding shares. As used in this
Statement of Additional Information, a "majority of the Fund's outstanding
shares" means the lesser of (1) 67% or more of the voting securities present at
such meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy; or (2) more than 50%
of the outstanding voting securities of the Fund. The Fund has elected to be
classified as a diversified series of an open-end investment company.
If a percentage restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Other Investment Policies" above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or the total cost of the Fund's assets will not be
considered a violation of the restriction.
In addition, as a matter of fundamental policy, the Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as
interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940
Act, as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, and as interpreted or modified
by regulatory authority having jurisdiction, from time to
time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans to other persons, except as permitted under the
1940 Act, 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
17
<PAGE>
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:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
The foregoing nonfundamental policies are in addition to policies otherwise
stated in the Prospectus or in this Statement of Additional Information.
PURCHASES
---------
There is a $25,000 minimum initial investment in the Shares. The minimum
subsequent investment in the Shares is $1,000. Investment minimums may be waived
for Directors and officers of the Corporation and certain other affiliates and
entities. The Fund and Scudder Investor Services, Inc. (the "Distributor")
reserve the right to reject any purchase order. All funds will be invested in
full and fractional Shares.
The Shares can be purchased and sold exclusively by investors through Barrett
Associates, Inc. ("Barrett Associates"), 565 Fifth Avenue, New York, NY 10017.
Investors wishing to purchase or sell Shares should contact their Barrett
Associates representative at 212-983-5080, or in person at the above address. A
Barrett Associates representative will then execute the order through Scudder
Service Corporation, a subsidiary of the Advisor (the "Transfer Agent"). Due to
the desire of the Corporation to afford ease of redemption, certificates will
not be issued to indicate ownership in the Fund. Orders for Shares of the Fund
will be executed at the net asset value per Share next determined after an order
has become effective.
Checks drawn on a non-member bank or a foreign bank may take substantially
longer to be converted into federal funds and, accordingly, may delay the
execution of an order. Checks must be payable in U.S. dollars and will be
accepted subject to collection at full face value.
By investing in the Fund, a shareholder appoints the Transfer Agent to establish
an open account to which all shares purchased will be credited with any
dividends and capital gains distributions that are paid in additional Shares.
See "Distribution and Performance Information -- Dividends and Capital Gains
Distributions" in the Shares' Prospectus.
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<PAGE>
Other Information
The Fund has authorized certain members of the NASD other than the Distributor
(namely, Barrett Associates) to accept purchase and redemption orders for the
Fund's shares. The broker 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 Directors and the Distributor, also the Fund's principal
underwriter, each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Directors and the Distributor may suspend or
terminate the offering of shares of the Fund at any time for any reason.
The "Tax Identification Number" section of the Application must be completed
when opening an account. Applications and purchase orders without a certified
tax identification number and certain other certified information (e.g., from
exempt organizations a certification of exempt status), may be returned to the
investor if a correct, certified tax identification number and certain other
required certificates are not supplied.
The Fund may issue shares at net asset value in connection with any merger or
consolidation with, or acquisition of the assets of, any investment company or
personal holding company, subject to the requirements of the 1940 Act.
REDEEMING SHARES
----------------
Payment of redemption proceeds may be made in securities. The Corporation may
suspend the right of redemption with respect to the Fund during any period when
(i) trading on the New York Stock Exchange (the "Exchange") is restricted or the
Exchange is closed, other than customary weekend and holiday closings, (ii) the
SEC has by order permitted such suspension or (iii) an emergency, as defined by
rules of the SEC, exists making disposal of Fund securities or determination of
the value of the net assets of the Fund not reasonably practicable.
A shareholder's account remains open for up to one year following complete
redemption and all costs during the period will be borne by the Fund. This
permits an investor to resume investments.
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 the Fund at the beginning of the
period.
FEATURES AND SERVICES OFFERED BY THE FUND
-----------------------------------------
Special Monthly Summary of Accounts. A special service is available to banks,
brokers, investment advisors, trust companies and others who have a number of
accounts in the Fund. In addition to the copy of the regular Statement of
Account furnished to the registered holder after each transaction, a monthly
summary of accounts can be provided. The monthly summary will show for each
account the account number, the month-end share balance and the dividends and
distributions paid during the month. All costs of this service will be borne by
the Corporation. For information on the special monthly summary of accounts,
contact the Corporation.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
-----------------------------------------
The Fund intends to follow the practice of distributing all of its investment
company taxable income, which includes any excess of net realized short-term
capital gains over net realized long-term capital losses. The Fund may follow
the practice of distributing the entire excess of net realized long-term capital
gains over net realized short-term capital losses.
19
<PAGE>
However, the Fund may retain all or part of such gain for reinvestment after
paying the related federal income taxes for which the shareholders may then be
asked to claim a credit against their federal income tax liability. (See
"TAXES.")
If the Fund does not distribute the amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, the
Fund may be subject to that excise tax. (See "TAXES.") In certain circumstances,
the Fund may determine that it is in the interest of shareholders to distribute
less than the required amount.
Earnings and profits distributed to shareholders on redemptions of Fund shares
may be utilized by the Fund, to the extent permissible, as part of the Fund's
dividends paid deduction on its federal tax return.
The Fund intends to distribute its investment company taxable income and any net
realized capital gains in November or December to avoid federal excise tax,
although an additional distribution may be made if necessary.
Both types of distributions will be made in Shares of the Fund and confirmations
will be mailed to Barrett Associates, on behalf of 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 Barrett Associates, on behalf of each
shareholder, a statement of the federal income tax status of all distributions
in the prior calendar year.
PERFORMANCE INFORMATION
-----------------------
From time to time, quotations of the Shares' performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of return for
the periods of one year, five years, and ten years, all ended on the last day of
a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Shares and assume that all dividends and capital
gains distributions during the respective periods were reinvested in the Shares.
Average annual total return is calculated by finding the average annual compound
rates of return of a hypothetical investment over such periods, according to the
following formula (average annual total return is then expressed as a
percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial
investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value:
ERV is the value, at the end of the
applicable period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Average Annual Total Return for periods ended August 31, 2000
One Year Life of Class*
17.31% 16.37%
* The Class commenced operations on April 3, 1998.
Cumulative Total Return
Cumulative Total Return is the compound rate of return on a hypothetical initial
investment of $1,000 for a specified period. Cumulative Total Return quotations
reflect changes in the price of the Shares and assume that all dividends and
20
<PAGE>
capital gains distributions during the period were reinvested in the Shares.
Cumulative Total Return is calculated by finding the cumulative rates of return
of a hypothetical investment over such periods, according to the following
formula (Cumulative Total Return is then expressed as a percentage):
C = (ERV/P) -1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
Cumulative Total Return for periods ended August 31, 2000
One Year Life of Class*
17.31% 44.18%
* The Class commenced operations on April 3, 1998.
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.
From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of the Fund apart from capital appreciation will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Fund's and classes' performance data.
Quotations of the Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of the Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of the Fund will vary based
on changes in market conditions and the level of the Fund's expenses.
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.
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.
From time to time, in advertising and marketing literature, the Shares'
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
21
<PAGE>
From time to time, in marketing and other Fund literature, Directors and
officers of the Corporation, the Fund's portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Advisor has under
management in various geographical areas may be quoted in advertising and
marketing materials.
The Fund may be advertised as an investment choice in the Advisor's college
planning program.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the potential
risks and rewards associated with an investment in the Fund and the Shares. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risks/returns associated with an investment in bond or equity funds depend upon
many factors. For bond funds these factors include, but are not limited to, the
Fund's overall investment objective, the average portfolio maturity, credit
quality of the securities held, and interest rate movements. For equity funds,
factors include the Fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns associated with an investment in international bond or equity
funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return than growth funds. In
addition, international equity funds usually are considered more risky than
domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning the Fund,
including reprints of, or selections from, editorials or articles about this
Fund.
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 Scudder International Fund, Inc. consists of
2,247,923,888 billion shares of a par value of $.01 each, which capital stock
has been divided into five series: Scudder International Fund, the original
series; Scudder Latin America Fund and Scudder Pacific Opportunities Fund, both
organized in December 1992, Scudder Greater Europe Growth Fund, organized in
October 1994, and Scudder Emerging Markets Growth Fund, organized in May 1996.
Each series consists of 320 million shares except for International Fund which
consists of 620,595,597 million shares. Scudder International Fund is further
divided into seven classes of shares, Class AARP, Class S, Barrett International
Shares, Class A, Class B, Class C, and Class I shares. Scudder Latin America
Fund, Scudder Pacific Opportunities Fund, Scudder Greater Europe Growth Fund and
Scudder Emerging Markets Growth Fund are each further divided into five classes
of shares, Class AARP, Class S, Class A, Class B and Class C. The Directors have
the authority to issue
22
<PAGE>
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,
subject to such charges as may be applicable, at the option of the shareholder.
Shares have no pre-emptive or conversion rights. To the extent that the Funds
offer additional share classes, these classes will be offered in a separate
prospectus and have different fees, requirements and services.
The Directors, in their discretion, may authorize the additional division of
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 assets of the Corporation received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Corporation. If a series were unable to meet its obligations,
the assets of all other series may in some circumstances be available to
creditors for that purpose, in which case the assets of such other series could
be used to meet liabilities which are not otherwise properly chargeable to them.
Expenses with respect to any two or more series are to be allocated in
proportion to the asset value of the respective series except where allocations
of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and by class on matters affecting an individual class. For example, a
change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.
The Corporation's Board of Directors supervises the Fund's activities. The
Corporation adopted a plan pursuant to Rule 18f-3 under the 1940 Act (the
"Plan") to permit the Corporation to establish a multiple class distribution
system for the Fund.
23
<PAGE>
Under the Plan, each class of shares will represent interests in the same
portfolio of investments of the Series, and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Series will relate solely to: (a) different
distribution fee payments or service fee payments associated with any Rule 12b-1
Plan for a particular class of shares and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto) which will be borne
solely by shareholders of such class; (b) different service fees; (c) different
account minimums; (d) the bearing by each class of its Class Expenses, as
defined in Section 2(b) below; (e) the voting rights related to any Rule 12b-1
Plan affecting a specific class of shares; (f) separate exchange privileges; (g)
different conversion features and (h) different class names and designations.
Expenses currently designated as "Class Expenses" by the Corporation's Board of
Directors under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.
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.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall not be liable for actions 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 ADVISOR
------------------
Zurich Scudder Investments, Inc. (the "Advisor"), an
investment counsel firm, acts as investment advisor 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 Advisor introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S.
investing internationally in securities of issuers in several
foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On December 31,
1997, Zurich Insurance Company ("Zurich") acquired a majority
interest in Scudder, and Zurich Kemper Investments, Inc., a
Zurich subsidiary, became part of Scudder. Scudder's name
changed to Scudder Kemper Investments, Inc. On September 7,
1998, the businesses of Zurich (including Zurich's 70%
interest in Scudder Kemper) and the financial services
businesses of B.A.T. Industries p.l.c. ("B.A.T.") were
combined to form a new global insurance and financial services
company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders
initially owned approximately 57% of Zurich Financial Services
Group, with the balance initially owned by former B.A.T.
shareholders. On October 17, 2000, the dual holding company
structure of Zurich Financial Services Group, comprised of
Allied Zurich p.l.c. in the United Kingdom and Zurich Allied
A.G. in Switzerland, was unified into a single Swiss holding
company, Zurich Financial Services. The Advisor changed its
name from Scudder Kemper Investments, Inc. to Zurich Scudder
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 Advisor's income is professional fees received from
providing continuous investment advice. Today, it provides investment counsel
for many individuals and institutions, including insurance companies,
24
<PAGE>
colleges, industrial corporations, and financial and banking organizations as
well as providing investment advice to over 280 open and closed-end mutual
funds.
The Advisor maintains a large research department, which conducts continuous
studies of the factors that affect the position of various industries, companies
and individual securities. The Advisor 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
Advisor's clients. However, the Advisor regards this information and material as
an adjunct to its own research activities. The Advisor'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 Advisor 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 Advisor. 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 Advisor 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 Advisor in the interest of achieving the most
favorable net results to the Fund.
In certain cases, the investments for the Fund are managed by the same
individuals who manage one or more other mutual funds advised by the Advisor,
that have similar names, objectives and investment styles. You should be aware
that the Fund is likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Fund can be expected to vary from those of other mutual funds.
25
<PAGE>
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 the Adviser, 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.
An Amended and Restated investment management agreement (the "Agreement") for
the Fund was approved by the Directors on July 10, 2000 and at a shareholder
meeting held on July 13, 2000 and became effective on August 14, 2000. The
Agreement will continue in effect until September 30, 2001 and from year to year
thereafter only if its continuance is approved annually by the vote of a
majority of those Directors who are not parties to such Agreement or interested
persons of the Advisor or the Corporations, cast in person at a meeting called
for the purpose of voting on such approval, and either by a vote of the
Corporation's Directors or of a majority of the outstanding voting securities of
the respective Fund. The Agreement may be terminated at any time without payment
of penalty by either party on sixty days' written notice and automatically
terminates in the event of its assignment.
Under the Agreement, the Advisor regularly provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objectives, policies and restrictions and determines which securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject always to the Corporation's Articles of Incorporation
and By-Laws, of the 1940 Act and the Code and to the Fund's investment
objective, policies and restrictions, and subject, further, to such policies and
instructions as the Board of the Corporation may from time to time establish.
The Advisor 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 Advisor also renders significant administrative
services (not otherwise provided by third parties) necessary for the
Corporation's operations as an open-end investment company including, but not
limited to, preparing reports and notices to the Directors and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Fund (such as the Fund's transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the SEC 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 Advisor 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
Advisor and makes available, without expense to the Fund, the services of such
Directors,
26
<PAGE>
officers and employees of the Advisor 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 Fund pays the Advisor a fee equal to 0.675% of average
daily net assets on such assets up to $6 billion, 0.625% of average daily net
assets on the next $1 billion, and 0.600% of average daily net assets on such
assets exceeding $7 billion, computed and accrued daily and payable monthly.
Under the Agreement between the Fund and the Advisor, effective September 7,
1998 until August 14, 2000, the management fee payable under the Agreement was
equal to an annual rate of approximately 0.90% of the first $500,000,000 of
average daily net assets, 0.85% of the next $500,000,000 of such net assets,
0.80% of the next $1,000,000,000 of such net assets, 0.75% of the next
$1,000,000,000 of such net assets, and 0.70% of such net assets in excess of
$3,000,000,000, computed and accrued daily and payable monthly.
The investment advisory fees for the fiscal years ended March 31, 1999 and 1998
were $23,819,941 and $22,491,681, respectively. For the five months ended August
31, 1999, the investment advisory fees pursuant to the Agreement amounted to
$11,269,103. For the year ended August 31, 2000, the investment advisory fees
amounted to $36,335,757, which was equivalent to an annual effective rate of
0.76% of the Fund's average daily net assets.
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 Advisor; the cost of
printing and distributing reports and notices to stockholders; and the fees and
disbursements of custodians. The Fund may arrange to have third parties assume
all or part of the expenses of sale, underwriting and distribution of shares of
the Fund. The Fund is also responsible for its expenses of shareholders'
meetings, the cost of responding to shareholders' inquiries, and its expenses
incurred in connection with litigation, proceedings and claims and the legal
obligation it may have to indemnify its officers and Directors of the
Corporation with respect thereto.
The Agreement expressly provides that the Advisor shall not be required to pay a
pricing agent of the Fund for portfolio pricing services, if any.
The Agreement identifies the Advisor 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 Advisor
concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Advisor are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Advisor 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 Advisor in
the performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreement.
Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor'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 Advisor may serve as advisor to other funds with investment objectives and
policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.
None of the officers or Directors of the Corporation may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.
27
<PAGE>
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>
Henry P. Becton, Jr. (56) Director President and General Manager, WGBH --
WGBH Educational Foundation
125 Western Avenue
Allston, MA 02134
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Linda C. Coughlin (48)+* Director and President Managing Director of Zurich Scudder Senior Vice President
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Dawn-Marie Driscoll (53) Director Executive Fellow, Center for Business --
4909 SW 9th Place Ethics, Bentley College; President,
Cape Coral, FL 33914 Driscoll Associates (consulting firm)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Edgar R. Fiedler (70) Director Senior Fellow and Economic --
50023 Brogden Counsellor, The Conference Board,
Chapel Hill, NC Inc. (not-for-profit business
research organization)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Keith R. Fox (45) Director General Partner, Exeter Group of Funds --
10 East 53rd Street
New York, NY 10022
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan E. Spero (55) Director President, Doris Duke Charitable --
Doris Duke Charitable Foundation Foundation; Department of State -
650 Fifth Avenue Undersecretary of State for Economic,
New York, NY 10128 Business and Agricultural Affairs
(March 1993 to January 1997)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean Gleason Stromberg (56) Director Consultant; Director, Financial --
3816 Military Road, NW Institutions Issues, U.S. General
Washington, D.C. Accounting Office (1996-1997);
Partner, Fulbright & Jaworski law
firm (1978-1996)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
28
<PAGE>
---------------------------------- ----------------------- --------------------------------------- -------------------------
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean C. Tempel (56) Director Managing Director, First Light --
One Boston Place Capital, LLC (venture capital firm)
23rd Floor
Boston, MA 02108
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Steven Zaleznick (45)* Director President and CEO, AARP Services, Inc. --
601 E Street, N.W.
Washington, DC 20049
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Irene T. Cheng (46) # Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joyce E. Cornell (56) # Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Carol L. Franklin (47) # Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Edmund B. Games, Jr. (62)+ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan R. Gregory (55) # Vice President Vice President of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Thomas V. Bruns (43)## Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
William F. Glavin (41)+ Vice President Managing Director of Zurich Scudder Vice President
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John R. Hebble (42)+ Treasurer Senior Vice President of Zurich Assistant Treasurer
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
James E. Masur (40)+ Vice President Senior Vice President of Zurich --
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Ann M. McCreary (43)# Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Kathryn L. Quirk (48)# Vice President and Managing Director of Zurich Scudder Director, Senior Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Assistant
Clerk
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Howard Schneider (43)+ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Brenda Lyons (37)+ Assistant Treasurer Senior Vice President of Zurich --
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Tien Yu Sieh (31)# Vice President Senior Vice President of Zurich --
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
29
<PAGE>
---------------------------------- ----------------------- --------------------------------------- -------------------------
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Caroline Pearson (38)+ Assistant Secretary Senior Vice President of Zurich Clerk
Scudder Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John Millette (37)+ Vice President and Vice President of Zurich Scudder --
Secretary Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
</TABLE>
* Ms. Coughlin and Mr. Zaleznick are considered by the Funds and its
counsel to be "interested persons" of the Advisor 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.
+ Address: Two International Place, Boston, Massachusetts 02110
# Address: 345 Park Avenue, New York, New York 10154
## Address: 222 South Riverside Plaza, Chicago, Illinois 60606
The Directors and officers of the Corporation also serve in similar capacities
with respect to other Scudder Funds. The newly-constituted Board may determine
to change its compensation structure.
To the best of the Fund's knowledge, as of November 30, 2000, no person owned of
record more than 5% or more of the outstanding shares of any class of Scudder
International Fund, except as stated below. They may be deemed to be the
beneficial owner of certain of these shares.
As of November 30, 2000, 11,200,992 shares in the aggregate, or 13.39% of the
outstanding shares of Scudder International Fund - Class S - were held in the
name of Charles Schwab, 101 Montgomery Street, San Francisco, CA 9410 who may
deemed to be the beneficial owner of such shares.
REMUNERATION
------------
Responsibilities of the Board -- Board and Committee Meetings
The Board is responsible for the general oversight of the Fund's business. A
majority of the Board's members are not affiliated with the Advisor. These
"Independent Directors" have primary responsibility for assuring that the Fund
is managed in the best interests of its shareholders.
The Board 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 Advisor 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 Advisor 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.
30
<PAGE>
All of the Independent Directors serve on the Committee on Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors
Each Independent Director receives compensation for his or her services, which
include an annual retainer and an attendance fee for each meeting attended. The
Independent Director who serves as Lead Director receives additional
compensation for his or her services. 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 Advisor. 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 1999 from the Corporation and from all of the Scudder funds as a group.
<TABLE>
<CAPTION>
-------------------------------- -------------------------------------- ----------------------
Paid by
Name Scudder International Fund, Inc. All Scudder Funds
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
<S> <C> <C>
Henry P. Becton, Jr.** $0 $140,000
Director (30 funds)
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
Dawn-Marie Driscoll** $0 $150,000
Director (30 funds)
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
Edgar R. Fiedler** $0 $73,230
Director (29 funds)
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
Keith R. Fox $43,650 $160,325
Director (23 funds)
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
Joan E. Spero $47,550 $175,275
Director (23 funds)
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
Jean Gleason Stromberg ** $0 $40,935
Director (16 funds)
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
Jean C. Tempel** $0 $140,000
Director (30 funds)
-------------------------------- -------------------------------------- ----------------------
-------------------------------- -------------------------------------- ----------------------
</TABLE>
* In 1999, Scudder International Fund, Inc. consisted 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 Value Fund and Scudder International Growth
Fund.
** Newly elected Director. On July 13, 2000, shareholders of the Fund
elected a new Board of Directors. See the "Directors and Officers"
section for the newly constituted Board.
31
<PAGE>
Members of the Board who are employees of the Advisor or its affiliates receive
no direct compensation from the Corporation, although they are compensated as
employees of the Advisor, 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, a Massachusetts corporation,
which is a subsidiary of the Advisor, a Delaware corporation. The Corporation's
underwriting agreement dated May 8, 2000 will remain in effect until September
30, 2001 and from year to year thereafter only if its continuance is approved
annually by a majority of the members of the Board who are not parties to such
agreement or interested persons of any such party and either by vote of a
majority of the Board or a majority of the outstanding voting securities of the
Fund. The underwriting agreement was last approved by the Directors on May 8,
2000.
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 SEC
of its registration statement and prospectus and any amendments and supplements
thereto; the registration and qualification of shares for sale in the various
states, including registering the Fund as a broker or dealer in various states
as required; the fees and expenses of preparing, printing and mailing
prospectuses annually to existing shareholders (see below for expenses relating
to prospectuses paid by the Distributor); notices, proxy statements, reports or
other communications to shareholders of the Fund; the cost of printing and
mailing confirmations of purchases of shares and any prospectuses accompanying
such confirmations; any issuance taxes and/or any initial transfer taxes; a
portion of shareholder toll-free telephone charges and expenses of shareholder
service representatives; the cost of wiring funds for share purchases and
redemptions (unless paid by the shareholder who initiates the transaction); the
cost of printing and postage of business reply envelopes; and a portion of the
cost of computer terminals used by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or reports
prepared for its use in connection with the offering of the Fund's shares to the
public and preparing, printing and mailing any other literature or advertising
in connection with the offering of shares of the Fund to the public. The
Distributor will pay all fees and expenses in connection with its qualification
and registration as a broker or dealer under federal and state laws, a portion
of the cost of toll-free telephone service and expenses of shareholder service
representatives, a portion of the cost of computer terminals, and expenses of
any activity which is primarily intended to result in the sale of shares issued
by the Fund, unless a Rule 12b-1 Plan is in effect which provides that the Fund
shall bear some or all of such expenses.
As agent, the Distributor currently offers shares of the Fund on a continuous
basis to investors in all states in which shares of the Fund may from time to
time be registered or where permitted by applicable law. The underwriting
agreement provides that the Distributor accepts orders for shares at net asset
value as no sales commission or load is charged to the investor. The Distributor
has made no firm commitment to acquire shares of the Fund.
CODE OF ETHICS
--------------
The Fund, the Advisor and principal underwriter have each adopted codes of
ethics under rule 17j-1 of the Investment Company Act. Board members, officers
of the Fund and employees of the Advisor and principal underwriter are permitted
to make personal securities transactions, including transactions in securities
that may be purchased or held by the Funds, subject to requirements and
restrictions set forth in the applicable Code of Ethics. The Advisor's Code of
Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Fund. Among other things, the Advisor's Code of Ethics
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
quarterly 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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
AMA InvestmentLink(SM) Program
------------------------------
Pursuant to an Agreement between the Advisor and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Advisor 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 Advisor
32
<PAGE>
with respect to assets invested by AMA members in Scudder funds in connection
with the AMA InvestmentLink(SM) Program. The Advisor will also pay AMA
Solutions, Inc. a general monthly fee, currently in the amount of $833. The AMA
and AMA Solutions, Inc. are not engaged in the business of providing investment
advice and neither is registered as an investment advisor or broker/dealer under
federal securities laws. Any person who participates in the AMA
InvestmentLink(SM) Program will be a customer of the Advisor (or of a subsidiary
thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLink(SM) is a
service mark of AMA Solutions, Inc.
Administrative Fee
------------------
The Fund has entered into an administrative services agreement with Scudder
Kemper (the "Administration Agreement"), pursuant to which Scudder Kemper will
provide or pay others to provide substantially all of the administrative
services required by the Fund (other than those provided by Scudder Kemper under
its investment management agreements with the Fund, as described above) in
exchange for the payment by the Fund of an administrative services fee (the
"Administrative Fee") of 0.375% of its average daily net assets. One effect of
these arrangements is to make the Fund's future expense ratio more predictable.
Various third-party service providers (the "Service Providers"), some of which
are affiliated with Scudder Kemper, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for the
Fund and maintains their accounting records. Scudder Service Corporation, also a
subsidiary of Scudder Kemper, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Fund. Scudder Trust Company, an
affiliate of Scudder Kemper, provides subaccounting and recordkeeping services
for shareholders in certain retirement and employee benefit plans. As custodian,
Brown Brothers Harriman holds the portfolio securities of the Funds, pursuant to
a custodian agreement. PricewaterhouseCoopers LLP audits the financial
statements of the Funds and provides other audit, tax, and related services.
Dechert acts as general counsel for the Fund.
Scudder Kemper will pay the Service Providers for the provision of their
services to the Fund and will pay other fund expenses, including insurance,
registration, printing and postage fees. In return, the Fund will pay Scudder
Kemper an Administrative Fee.
The Administration Agreement has an initial term of three years, subject to
earlier termination by the Fund's Board. The fee payable by the Fund to Scudder
Kemper pursuant to the Administration Agreement is reduced by the amount of any
credit received from the Fund's custodian for cash balances.
Certain expenses of the Fund will not be borne by Scudder Kemper under the
Administration Agreement, such as taxes, brokerage, interest and extraordinary
expenses; and the fees and expenses of the Independent Directors (including the
fees and expenses of their independent counsel). In addition, the Fund will
continue to pay the fees required by its investment management agreement with
Scudder Kemper.
For the period August 14, 2000 through August 31, 2000, the Administrative
Agreement expense charged to the Fund amounted to $921,739, all of which was
unpaid at August 31, 2000.
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 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
33
<PAGE>
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. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by the Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim a proportionate share of federal income taxes paid by the Fund on
such gains as a credit against the shareholder's federal income tax liability,
and will be entitled to increase the adjusted tax basis of the shareholder's
Fund shares by the difference between such reported gains and the shareholder's
tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Dividends from domestic corporations are not expected to comprise a substantial
part of the Fund's gross income. If any such dividends constitute a portion of
the Fund's gross income, a portion of the income distributions of the Fund may
be eligible for the 70% deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law and is eliminated if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholders,
as the case may be, for less than 46 days during the 90-day period beginning 45
days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable as described above, whether received in shares or in cash.
Shareholders electing to receive distributions in the form of additional Shares
will have a cost basis for federal income tax purposes in each Share so received
equal to the net asset value of a Share on the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder Fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.
A qualifying individual may make a deductible Individual Retirement Account
("IRA") contribution 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 for 2001 ($53,000
for married individuals filing a joint return, with a phase-out of the deduction
for adjusted gross income between $53,000 and $63,000; $33,000 for a single
individual, with a phase-out for adjusted gross income between $33,000 and
$43,000). However, an individual not permitted to make a deductible contribution
to an IRA for any such taxable year may nonetheless make nondeductible
contributions up to $2,000 to an IRA (up to $2,000 per individual for married
couples if only one spouse has earned income) for that year. There are special
rules for determining how withdrawals are to be taxed if an IRA contains both
deductible and nondeductible amounts. In general,
34
<PAGE>
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 Internal Revenue Code (the "Code") so that shareholders may
(subject to limitations) be able to claim a credit or deduction on their federal
income tax returns for, and will be required to treat as part of the amounts
distributed to them, their pro rata portion of qualified taxes paid by the Fund
to foreign countries (which taxes relate primarily to investment income). The
Fund may make an election under Section 853 of the Code, provided that more than
50% of the value of the total assets of the Fund at the close of the taxable
year consists of securities in foreign corporations. The foreign tax credit
available to shareholders is subject to certain limitations imposed by the Code,
except in the case of certain electing individual taxpayers who have limited
creditable foreign taxes and no foreign source income other than passive
investment-type income. Furthermore, the foreign tax credit is eliminated with
respect to foreign taxes withheld on dividends if the dividend-paying shares or
the shares of the Fund are held by the Fund or the shareholder, as the case may
be, for less than 16 days (46 days in the case of preferred shares) during the
30-day period (90-day period for preferred shares) beginning 15 days (45 days
for preferred shares) before the shares become ex-dividend. In addition, if the
Fund fails to satisfy these holding period requirements, it cannot elect under
Section 853 to pass through to shareholders the ability to claim a deduction for
the related foreign taxes.
If the Fund does not make the election permitted under section 853 any foreign
taxes paid or accrued will represent an expense to the Fund which will reduce
its investment company taxable income. Absent this election, shareholders will
not be able to claim either a credit or a deduction for their pro rata portion
of such taxes paid by the Fund, nor will shareholders be required to treat as
part of the amounts distributed to them their pro rata portion of such taxes
paid.
Equity options (including covered call options written on portfolio stock) and
OTC 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
35
<PAGE>
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.
If the Fund invests in stock of certain foreign investment companies, the Fund
may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark-to-market losses and any loss from an actual disposition of shares would be
reported as ordinary loss to the extent of any net mark-to-market gains included
in income in prior years. The effect of the election would be to treat excess
distributions and gain on dispositions as ordinary income which is not subject
to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
If the Fund invests in certain high yield original issue discount obligations
issued by corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such event, dividends of investment company taxable income
received from the Fund by its corporate shareholders, to the extent attributable
to such portion of accrued original issue discount, may be eligible for this
deduction for dividends received by corporations if so designated by the Fund in
a written notice to shareholders.
The Fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the 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,
36
<PAGE>
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 advisors about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
PORTFOLIO TRANSACTIONS
----------------------
Brokerage Commissions
Allocation of brokerage is supervised by the Advisor.
The primary objective of the Advisor 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
Advisor 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 Advisor
routinely reviews commission rates, execution and settlement services performed
and makes internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally placed
by the Advisor 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 Advisor's practice to place such orders with
broker/dealers who supply brokerage and research services to the Advisor 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
Advisor 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 Advisor 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 Advisor or the Fund in exchange for the direction by the Advisor of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Advisor 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 Advisor will place
orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Advisor; 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.
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<PAGE>
Although certain research services from broker/dealers may be useful to the Fund
and to the Advisor, it is the opinion of the Advisor that such information only
supplements the Advisor's own research effort since the information must still
be analyzed, weighed, and reviewed by the Advisor's staff. Such information may
be useful to the Advisor in providing services to clients other than the Fund,
and not all such information is used by the Advisor in connection with the Fund.
Conversely, such information provided to the Advisor by broker/dealers through
whom other clients of the Advisor effect securities transactions may be useful
to the Advisor in providing services to the Fund.
The Directors review from time to time whether the recapture for the benefit of
the Fund of some portion of the brokerage commissions or similar fees paid by
the Fund on portfolio transactions is legally permissible and advisable.
For the year ended August 31, 2000, the Fund paid brokerage commissions of $[ ].
For the five month period beginning April 1, 1999 through August 31, 1999 and
for the fiscal years ended March 31, 1999, 1998 and 1997, the Fund paid
brokerage commissions of $4,793,968, $9,926,570, $6,904,372 and $5,275,727
respectively.
For the year ended August 31, 2000, $[ ] ( % of the total brokerage commissions
paid by the Fund) resulted from orders for transactions, placed consistent with
the policy of seeking to obtain the most favorable net results, with brokers and
dealers who provided supplementary research, market and statistical information
to the Fund or the Advisor. The amount of such transactions aggregated $[ ] ( %
of all brokerage transactions). The balance of such brokerage was not allocated
to particular broker or dealer with regard to the above-mentioned or other
special factors.
For the five-month period ended August 31, 1999, $3,625,740 (75% of the total
brokerage commissions paid by the Fund) resulted from orders for transactions,
placed consistent with the policy of seeking to obtain the most favorable net
results, with brokers and dealers who provided supplementary research, market
and statistical information to the Fund or the Advisor. The amount of such
transactions aggregated $2,316,472,713 (72% of all brokerage transactions). The
balance of such brokerage was not allocated to particular broker or dealer with
regard to the above-mentioned or other special factors.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. The Fund's portfolio
turnover rates for the fiscal years ended August 31, 2000 and the five months
ended August 31, 1999, and the fiscal years ended March 31, 1999 and 1998 were
83%, 82% (annualized), 80% and 56%, respectively. Purchases and sales are made
for the Fund's portfolio whenever necessary, in management's opinion, to meet
the Fund's objective.
NET ASSET VALUE
---------------
The net asset value of shares of the Fund is computed as of the close of regular
trading on the Exchange on each day the Exchange is open for trading. The
Exchange is scheduled to be closed on the following holidays: New Year's Day,
Dr. Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas and on the preceding
Friday or subsequent Monday when one of these holidays falls on a Saturday or a
Sunday, respectively. Net asset value per share is determined by dividing the
value of the total assets of the Fund attributable to the shares of that class,
less all liabilities attributable to the shares of that class, by the total
number of shares of that class outstanding.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent bid
quotation. An equity security which is traded on the Nasdaq Stock Market, Inc.
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on the Nasdaq System, but traded in another over-the-counter
market, is its most recent sale price. Lacking any sales, the security is valued
at the Calculated Mean. Lacking a Calculated Mean, the security is valued at the
most recent bid quotation.
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<PAGE>
Debt securities, other than short-term securities, are valued at prices supplied
by the Fund's pricing agent(s) which reflect broker/dealer supplied valuations
and electronic data processing techniques. Short-term securities purchased with
remaining maturities of sixty days or less shall be valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Advisor may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Corporation's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.
ADDITIONAL INFORMATION
----------------------
Experts
The Financial Highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, independent accountants, and given on the authority of that
firm as experts in accounting and auditing. PricewaterhouseCoopers, LLP is
responsible for performing annual and semiannual audits of the financial
statements and financial highlights of the Fund in accordance with generally
accepted auditing standards, and the preparation of federal tax returns.
Other Information
Many of the investment changes in the Fund will be made at prices different from
those prevailing at the time they may be reflected in a regular report to
shareholders of the Fund. These transactions will reflect investment decisions
made by the Advisor in the light of its other portfolio holdings and tax
considerations and should not be construed as recommendations for similar action
by other investors.
The CUSIP number of the Shares is 811165703.
The Fund has a fiscal year end of August 31. On June 7, 1999, the Directors of
the Fund changed the fiscal year end of the Fund from March 31 to August 31.
The Fund employs Brown Brothers Harriman & Company, 40 Water Street, Boston,
Massachusetts 02109 as Custodian for the Fund.
39
<PAGE>
The law firm of Dechert is counsel to the Fund.
Scudder Service Corporation ("Service Corporation"), P.O. Box 219669, Kansas
City, Missouri, 64121-9669, a subsidiary of the Advisor, is the transfer and
dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. Prior
to the implementation of the Administration Agreement, the Fund paid Service
Corporation an annual fee of $26.00 for each retail account and $29.00 for each
retirement account. For the year ended August 31, 2000, the Fund incurred fees
of $10,603 for the Shares and $3,420,086 for the Class S Shares, respectively,
of which $602,732 was unpaid at August 31, 2000. The Fund incurred fees of
$4,632 for the Shares and $1,258,902 for the Class S Shares, respectively,
during the five months ended August 31, 1999.The Fund incurred fees of $4,857
for the Shares and $3,098,197 for the Class S shares, respectively, during the
fiscal year ended March 31, 1999. Prior to the inception of the Barrett
International Shares, the Class S shares of the Fund incurred fees of $3,394,358
during the fiscal year ended March 31, 1998.
The Fund, or the Advisor (including any affiliate of the Advisor), or both, may
pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Advisor, computes net asset value
for the Fund. Prior to the implementation of the Administration Agreement, the
Fund paid Scudder Fund Accounting Corporation an annual fee equal to 0.065% of
the first $150 million of average daily net assets, 0.040% of such assets in
excess of $150 million, 0.020% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. The Fund incurred fees of
$893,682 and $838,885 during the fiscal years ended March 31, 1999 and 1998,
respectively. For the five months ended August 31, 1999, the fee was $402,576.
Prior to August 14, 2000, the amount charged to the Fund by SFAC aggregated
$1,250,099, of which $219,547 was unpaid at August 31, 2000.
Kemper Service Corporation ("KSvC"), 811 Main Street, Kansas City, Missouri,
64105-2005, a subsidiary of the Advisor, is the transfer, dividend-paying and
shareholder service agent for Class A, B and C shares of the Fund and also
provides subaccounting and recordkeeping services for shareholder accounts in
certain retirement and employee benefit plans. Prior to the implementation of
the Administration Agreement, the Fund paid KSvC a fee of $5.00 for each new
account, an annual fee of $18.00 for each account maintained for a participant,
an asset-based fee of 0.08% and out-of-pocket reimbursement.
Scudder Trust Company, an affiliate of the Advisor, provides subaccounting and
recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. Prior to the implementation of the Administration
Agreement, annual service fees were paid by the Class S shares of the Fund to
Scudder Trust Company, Two International Place, Boston, Massachusetts
02110-4103, an affiliate of the Advisor, for such accounts. The Class S shares
of the Fund paid Scudder Trust Company an annual fee of $29 per shareholder
account. The Class S shares of the Fund incurred fees of $2,067,603 and
$1,561,049 during the fiscal years ended March 31, 1999 and 1998, respectively.
For the five months ended August 31, 1999, the Class S shares of the Fund
incurred fees of $1,202,021. Prior to August 14, 2000, the amount charged to
Class S shares of the Fund aggregated $3,776,386, of which $731,678 is unpaid at
August 31, 2000.
The Shares' prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement which the Fund has filed
with the SEC 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 SEC in Washington, D.C.
FINANCIAL STATEMENTS
--------------------
The financial statements, including the investment portfolio of the Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Fund dated August 31, 2000 are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information by reference in
its entirety.
40
<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.
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
<PAGE>
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.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 29, 2000
SCUDDER INTERNATIONAL FUND (Class A, B, C and Class I Shares)
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Class A (formerly known as Class R),
Class B, Class C and Class I Shares (the "Shares") of Scudder International Fund
(the "Fund"), a diversified series of Scudder International Fund, Inc. (the
"Corporation"), an open-end management investment company. It should be read in
conjunction with the prospectus of the Shares dated December 29, 2000. The
prospectus may be obtained without charge from the Fund at the address or
telephone number on this cover or the firm from which this Statement of
Additional Information was received.
Scudder International Fund offers the following classes of shares: Class
AARP, Class S, Barrett International Shares, Class A, Class B, Class C and Class
I shares (the "Shares"). Only Class A, Class B, Class C and Class I shares of
Scudder International Fund are offered herein.
TABLE OF CONTENTS
Investment Restrictions.....................................................2
Investment Policies and Techniques..........................................4
Dividends, Distributions and Taxes.........................................23
Performance................................................................28
Investment Manager and Underwriter.........................................31
Portfolio Transactions.....................................................37
Purchase of Shares.........................................................41
Redemption or Repurchase of Shares.........................................46
Special Features...........................................................50
Officers and Directors.....................................................55
Shareholder Rights.........................................................59
Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's
investment manager.
The financial statements appearing in the Fund's August 31, 2000 Annual Report
to Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.
<PAGE>
Investment Restrictions
The Fund has adopted certain fundamental investment restrictions which cannot be
changed without approval of a "majority" of its outstanding voting Shares. As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), this
means the lesser of (1) 67% of the Fund's Shares present at a meeting where more
than 50% of the outstanding Shares are present in person or by proxy; or (2)
more than 50% of the Fund's outstanding Shares.
Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.
The Fund has elected to be classified as a diversified series of an open-end
management investment company.
If a percentage restriction on investment or utilization of assets as set forth
under "Investment Restrictions" and "Other Investment Policies" above is adhered
to at the time an investment is made, a later change in percentage resulting
from changes in the value or the total cost of the Fund's assets will not be
considered a violation of the restriction.
The Fund may not, as a fundamental policy:
1. borrow money, except as permitted under the 1940 Act, and as interpreted or
modified by regulatory authority having
jurisdiction, from time to time;
2. issue senior securities, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time;
3. concentrate its investments in a particular industry, as that term is used
in the 1940 Act, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
4. engage in the business of underwriting securities issued by others, except
to the extent that the Fund may be deemed to be an underwriter in
connection with the disposition of portfolio securities;
5. purchase or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments secured by
real estate or interests therein, except that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of the Fund's
ownership of securities;
6. purchase physical commodities or contracts relating to physical
commodities; or
7. make loans to other persons, except as permitted under the 1940 Act, and as
interpreted or modified by regulatory authority having jurisdiction, from
time to time.
With respect to fundamental policy number five above, the Fund has no current
intention to hold and sell real estate acquired as a result of the Fund's
ownership.
Other Investment Policies
The Directors of the Corporation have voluntarily adopted certain policies and
restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Directors based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice to or approval
of shareholders.
As a matter of nonfundamental policy, the Fund currently does not intend to:
1. borrow money in an amount greater than 5% of its total assets, except (i)
for temporary or emergency purposes and (ii) by engaging in reverse
repurchase agreements, dollar rolls, or other investments or transactions
described in the Fund's registration statement which may be deemed to be
borrowings;
2. enter into either of reverse repurchase agreements or dollar rolls in an
amount greater than 5% of its total assets;
2
<PAGE>
3. purchase securities on margin or make short sales, except (i) short sales
against the box, (ii) in connection with arbitrage transactions, (iii) for
margin deposits in connection with futures contracts, options or other
permitted investments, (iv) that transactions in futures contracts and
options shall not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be necessary for
the clearance of securities transactions;
4. purchase options, unless the aggregate premiums paid on all such options
held by the Fund at any time do not exceed 20% of its total assets; or sell
put options, if as a result, the aggregate value of the obligations
underlying such put options would exceed 50% of its total assets;
5. enter into futures contracts or purchase options thereon unless immediately
after the purchase, the value of the aggregate initial margin with respect
to such futures contracts entered into on behalf of the Fund and the
premiums paid for such options on futures contracts does not exceed 5% of
the fair market value of the Fund's total assets; provided that in the case
of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing the 5% limit;
6. purchase warrants if as a result, such securities, taken at the lower of
cost or market value, would represent more than 5% of the value of the
Fund's total assets (for this purpose, warrants acquired in units or
attached to securities will be deemed to have no value); and
7. lend portfolio securities in an amount greater than 5% of its total assets.
The foregoing nonfundamental policies are in addition to policies otherwise
stated in the Prospectus or in this Statement of Additional Information.
Master/feeder Fund Structure. The Board of Directors has the discretion to
retain the current distribution arrangement for the Fund while investing in a
master fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the Securities and Exchange Commission (the "SEC") that permits the Fund to
participate in an interfund lending program among certain investment companies
advised by the Advisor. The interfund lending program allows the participating
funds to borrow money from and loan money to each other for temporary or
emergency purposes. The program is subject to a number of conditions designed to
ensure fair and equitable treatment of all participating funds, including the
following: (1) no fund may borrow money through the program unless it receives a
more favorable interest rate than a rate approximating the lowest interest rate
at which bank loans would be available to any of the participating funds under a
loan agreement; and (2) no fund may lend money through the program unless it
receives a more favorable return than that available from an investment in
repurchase agreements and, to the extent applicable, money market cash sweep
arrangements. In addition, a fund may participate in the program only if and to
the extent that such participation is consistent with the fund's investment
objectives and policies (for instance, money market funds would normally
participate only as lenders and tax exempt funds only as borrowers). Interfund
loans and borrowings may extend overnight, but could have a maximum duration of
seven days. Loans may be called on one day's notice. A fund may have to borrow
from a bank at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional costs. The program is subject to the
oversight and periodic review of the Boards of the participating funds. To the
extent the Fund is actually engaged in borrowing through the interfund lending
program, the Fund, as a matter of non-fundamental policy, may not borrow for
3
<PAGE>
other than temporary or emergency purposes (and not for leveraging), except that
the Fund may engage in reverse repurchase agreements and dollar rolls for any
purpose.
Investment Policies and Techniques
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Descriptions in this Statement of Additional Information of a particular
investment practice or technique in which the Fund may engage (such as short
selling, hedging, etc.) or a financial instrument in which the Fund may purchase
(such as options, forward foreign currency contracts, etc.) are meant to
describe the spectrum of investments that the Advisor, in its discretion, might,
but is not required to, use in managing the Fund's portfolio assets. The Advisor
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.
Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes for
trading purposes.
The Fund seeks long-term growth of capital primarily from foreign equity
securities. These securities are selected primarily to permit the Fund to
participate in non-U.S. companies and economies that are believed to have
prospects for growth.
The Fund generally invests in equity securities of established companies, listed
on foreign exchanges (although the Fund may also invest in securities traded
over the counter), which the Advisor believes have favorable characteristics.
The Fund's equity investments include common stock, convertible and
non-convertible preferred stock, sponsored and unsponsored depository receipts,
and warrants.
When the Advisor believes that it is appropriate to do so in order to achieve
the Fund's investment objective of long-term capital growth, the Fund may invest
up to 20% of its total assets in debt securities. Such debt securities include
debt securities of governments, governmental agencies, supranational
organizations and private issuers, including bonds denominated in the European
Currency Unit (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 value of fixed-income investments will fluctuate with changes in
interest rates and bond market conditions, tending to rise as interest rates
decline and decline as interest rates rise. The Fund will predominantly purchase
"investment-grade" bonds, which are those rated Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc., ("S&P") or, if
unrated, judged by the Advisor to be of equivalent quality. The Fund may also
invest up to 5% of its total assets in debt securities which are rated below
investment-grade (see "Risk factors").
The Fund intends to diversify investments among several countries and normally
to have investments in securities of at least three different countries other
than the U.S. The Fund will invest primarily in securities of issuers in the 21
developed foreign countries included in the Morgan Stanley Capital International
("MSCI") World ex-US Index, but may invest in "emerging markets." The Fund
considers "emerging markets" to include any country that is defined as an
emerging or developing economy by any of the International Bank of
Reconstruction and Development (i.e., the World Bank), the International Finance
Corporation or the United Nations or its authorities. It is expected that the
Fund's investments will include companies of varying size as measured by assets,
sales or market capitalization.
4
<PAGE>
The major portion of the Fund's assets consists of equity securities of
established companies listed on recognized exchanges; the Advisor expects this
condition to continue, although the Fund may invest in other securities. In
selecting securities for the Fund's portfolio, the Advisor applies a
disciplined, multi-part investment approach for selecting stocks for the Fund.
In analyzing companies for investment, the Advisor ordinarily looks for one or
more of the following characteristics: strong competitive positioning,
above-average earnings growth per share, high return on invested capital,
healthy balance sheets and overall financial strength, strength of management
and general operating characteristics which will enable the companies to compete
successfully in the marketplace. The Advisor will further seek to have broad
country representation, favoring those countries that it believes have sound
economic conditions and open markets. The Advisor will also look for
opportunities on a macro-economic level, seeking to identify major changes in
the business environment and companies that are poised to benefit from these
changes. Investment decisions are made without regard to arbitrary criteria as
to minimum asset size, debt-equity ratios or dividend history of portfolio
companies. The Advisor will typically sell an investment when certain criteria
are met, including but not limited to: the price of the security reaches the
Advisor's assessment of its fair value; the underlying investment theme is
judged by the Advisor to have matured; or if the original reason for investing
in the security no longer applies or is no longer valid.
In applying the disciplined, multi-part investment approach for selecting stocks
for the Fund, the Advisor first analyzes the pool of foreign dividend-paying
securities, primarily from the world's more mature markets, and targeting stocks
that have high relative yields compared to the average for their markets. In the
Advisor'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 Advisor
believes that these potentially favorable risk and return characteristics exist
because the higher dividends offered by these stocks act as a "cushion" when
markets are volatile and because the stocks with higher yields tend to have more
attractive valuations (e.g., lower price-to-earning ratios and lower
price-to-book ratios). The second stage of portfolio construction involves a
fundamental analysis of each company's financial strength, profitability,
projected earnings, competitive positioning, and ability of management. During
this step, the Advisor's research team identifies what it believes are the most
promising stocks for the Fund's portfolio. The third stage of the investment
process involves diversifying the portfolio among different industry sectors.
The key element of this stage is evaluating how the stocks in different sectors
react to economic factors such as interest rates, inflation, Gross Domestic
Product, and consumer spending, and then attaining a proper balance of stocks in
these sectors based on the Advisor's economic forecast. The fourth and final
stage of this ongoing process is diversifying the portfolio among different
countries. The Advisor will seek to have broad country representation, favoring
those countries that it believes have sound economic conditions and open
markets. The Fund's strategy is to manage risk and create opportunity at each of
the four stages in its investment process, starting with the focus on stocks
with high relative yields.
The Fund may hold up to 20% of its net assets in U.S. and foreign fixed income
securities for temporary defensive purposes when the Advisor believes that
market conditions so warrant. The Fund may invest up to 20% of its net assets
under normal conditions, and without limit for temporary defensive purposes, in
cash or cash equivalents including domestic and foreign money market
instruments, short-term government and corporate obligations and repurchase
agreements, when the Advisor deems such a position advisable in light of
economic or market conditions. It is impossible to predict how long alternative
strategies may be utilized. In addition, the Fund may engage in reverse
repurchase agreements, illiquid securities and strategic transactions, which may
include derivatives.
Foreign securities such as those purchased by the Fund may be subject to foreign
governmental 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 securities such as
restricted debt or equity securities (i.e., securities which may require
registration under the Securities Act of 1933, as amended, (the "1933 Act"), or
5
<PAGE>
an exemption therefrom, in order to be sold in the ordinary course of business)
in a private placement. (See "Illiquid Securities".)
The Fund invests in companies, wherever organized, which do business primarily
outside the United States. The Fund cannot guarantee a gain or eliminate the
risk of loss. The net asset value of the Fund's shares will increase or decrease
with changes in the market price of the Fund's investments, and there is no
assurance that the Fund's objectives will be achieved.
Foreign Investment Risk
While the Fund offers the potential for substantial appreciation over time, they
also involve above-average investment risk in comparison to a mutual fund
investing in a broad range of U.S. equity securities. The Fund is designed as a
long-term investment and not for short-term trading purposes. The Fund should
not be considered a complete investment program, although it could serve as a
core international holding for an individual's portfolio. The Fund's net asset
value, or price, can fluctuate significantly with changes in stock market
levels, political developments, movements in currencies, global investment flows
and other factors.
Special Considerations
Investing in Emerging Markets. The Fund's investments in foreign securities may
be in developed countries or in countries considered by the Fund's Advisor to
have developing or "emerging" markets, which involves exposure to economic
structures that are generally less diverse and mature than in the United States,
and to political systems that may be less stable. A developing or emerging
market country can be considered to be a country that is in the initial stages
of its industrialization cycle. Currently, emerging markets generally include
every country in the world other than the United States, Canada, Japan,
Australia, New Zealand, Hong Kong, Singapore and most Western European
countries. Currently, investing in many emerging markets may not be desirable or
feasible because of the lack of adequate custody arrangements for the Fund's
assets, overly burdensome repatriation and similar restrictions, the lack of
organized and liquid securities markets, unacceptable political risks or other
reasons. As opportunities to invest in securities in emerging markets develop,
the Fund may expand and further broaden the group of emerging markets in which
it invests. In the past, markets of developing or emerging market countries have
been more volatile than the markets of developed countries; however, such
markets often have provided higher rates of return to investors. The Advisor
believes that these characteristics may be expected to continue in the future.
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
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 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.
6
<PAGE>
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 Fund may suspend redemption of its shares for any
period during which an emergency exists, as determined by 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
Fund'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 governmental 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 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 Advisor 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
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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, governmental 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 their exports in
currencies other than dollars or non-emerging market currencies, their 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. Despite the risk of price volatility,
however, common stock have historically offered a greater potential for
long-term gain on investment, compared to other classes of financial assets such
as bonds or cash equivalents, although there can be no assurance that this will
be true in the future.
Depository Receipts. The Fund may invest sponsored or unsponsored American
Depository Receipts ("ADRs"), European Depositary Receipts ("EDRs"), 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"). Depositary receipts provide
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indirect investment in securities of foreign issuers. Prices of unsponsored
Depository Receipts may be more volatile than if the issuer of the underlying
securities sponsored them. 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, Depository Receipts in registered form are designed for
use in the United States securities markets and Depository Receipts in bearer
form are designed for use in securities markets outside the United States. For
purposes of the Fund's investment policies, the Fund's investments in ADRs, GDRs
and other types of Depository Receipts will be deemed to be investments in the
underlying securities. Depository Receipts, including those denominated in U.S.
dollars will be subject to foreign currency exchange rate risk. However, by
investing in US dollar-denominated 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 Depository Receipts may not be listed on an exchange and therefore may
be illiquid securities.
Warrants. The Fund may invest in warrants up to 5% of the value of its 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 the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Specialized Investment Techniques
Foreign Currencies. Because investments in foreign securities usually will
involve currencies of foreign countries, and because the Fund may hold foreign
currencies and forward contracts, futures contracts and options on foreign
currencies and foreign currency futures contracts, the value of the assets of
the Fund as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
the Fund may incur costs and experience conversion difficulties and
uncertainties in connection with conversions between various currencies.
Fluctuations in exchange rates may also affect the earning power and asset value
of the foreign entity issuing the security.
The strength or weakness of the U.S. dollar against these currencies is
responsible for part of the Fund's investment performance. If the dollar falls
in value relative to the Japanese yen, for example, the dollar value of a
Japanese stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the Japanese stock will fall. Many foreign
currencies have experienced significant devaluation relative to the dollar.
Although the Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
options or forward or futures contracts to purchase or sell foreign currencies.
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Trust Preferred Securities. The Fund may invest in Trust Preferred Securities,
which are hybrid instruments issued by a special purpose trust (the "Special
Trust"), the entire equity interest of which is owned by a single issuer. The
proceeds of the issuance to the Fund of Trust Preferred Securities are typically
used to purchase a junior subordinated debenture, and distributions from the
Special Trust are funded by the payments of principal and interest on the
subordinated debenture.
If payments on the underlying junior subordinated debentures held by the Special
Trust are deferred by the debenture issuer, the debentures would be treated as
original issue discount ("OID") obligations for the remainder of their term. As
a result, holders of Trust Preferred Securities, such as the Fund, would be
required to accrue daily for Federal income tax purposes their share of the
stated interest and the de minimis OID on the debentures (regardless of whether
the Fund receives any cash distributions from the Special Trust), and the value
of Trust Preferred Securities would likely be negatively affected. Interest
payments on the underlying junior subordinated debentures typically may only be
deferred if dividends are suspended on both common and preferred stock of the
issuer. The underlying junior subordinated debentures generally rank slightly
higher in terms of payment priority than both common and preferred securities of
the issuer, but rank below other subordinated debentures and debt securities.
Trust Preferred Securities may be subject to mandatory prepayment under certain
circumstances. The market values of Trust Preferred Securities may be more
volatile than those of conventional debt securities. Trust Preferred Securities
may be issued in reliance on Rule 144A under the 1933 Act, and, unless and until
registered, are restricted securities; there can be no assurance as to the
liquidity of Trust Preferred Securities and the ability of holders of Trust
Preferred Securities, such as the Fund, to sell their holdings.
Debt Securities. When the Advisor believes that it is appropriate to do so in
order to achieve International Fund's objective of long-term capital growth, the
Fund may invest up to 20% of its total assets in debt securities including bonds
of foreign governments, supranational organizations and private issuers,
including bonds denominated in the Euro. Portfolio debt investments will be
selected on the basis of, among other things, yield, credit quality, and the
fundamental outlooks for currency, economic 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.
Investment-Grade Bonds. 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 Advisor.
Moody's considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. To the extent that the Fund invests in
higher-grade securities, the Fund will not be able to avail itself of
opportunities for higher income which may be available at lower grades.
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 judged to be of equivalent quality as determined by the
Advisor. These securities 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 to principal and income, and may be less
liquid, than securities in the higher rating categories and are considered
speculative. The lower the ratings of such debt securities, the more their risks
render them like equity securities. The International Fund will invest no more
than 5% of its total assets in securities rated BB or lower by Moody's or Ba by
S&P, and may invest in securities which are rated D by S&P. Securities rated D
may be in default with respect to payment of principal or interest. See the
Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.
Issuers of such high yielding securities often are highly leveraged and may not
have available to them more traditional methods of financing. Therefore, the
risk associated with acquiring the securities of such issuers generally is
greater than is the case with higher rated securities. For example, during an
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economic downturn or a sustained period of rising interest rates, highly
leveraged issues may experience financial stress. During such periods, such
issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations may also be
adversely affected by specific corporate developments, or the issuer's inability
to meet specific projected business forecasts, or the unavailability of
additional financing. The risk of loss from default by the issuer is
significantly greater for the holders of high yield securities because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer. 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 Fund may have difficulty disposing of certain high yield (high risk)
securities because they may have a thin trading market. Because not all dealers
maintain markets in all high yield securities, the Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market may have an adverse effect on
the market price and the Fund's ability to dispose of particular issues and may
also make it more difficult for the Fund to obtain accurate market quotations
for purposes of valuing the Fund's assets. Market quotations generally are
available on many high yield issues only from a limited number of dealers and
may not necessarily represent firm bids of such dealers or prices for actual
sales. 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
generally the policy of the Advisor 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 Advisor's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Advisor 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. Also, Congress has from time to time considered
legislation which would restrict or eliminate the corporate tax deduction for
interest payments in these securities and regulate corporate restructurings.
Such legislation may significantly depress the prices of outstanding securities
of this type.
On average, for the period ended August 31, 2000, the International Fund's
holdings in debt securities rated below investment grade by one or more
nationally recognized rating services, or judged by the Advisor to be of
equivalent quality to the established categories of such rating services
comprised less than 5% of the Fund's total assets. For more information
regarding tax issues related to high yield securities, see "Taxes."
Illiquid Securities and Restricted Securities.
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The Fund may purchase securities that are subject to legal or contractual
restrictions on resale ("restricted securities"). Generally speaking, restricted
securities may be sold (i) only to qualified institutional buyers; (ii) in a
privately negotiated transaction to a limited number of purchasers; or (iii) in
limited quantities after they have been held for a specified period of time and
other conditions are met pursuant to an exemption from registration. Issuers of
restricted securities may not be subject to the disclosure and other investor
protection requirements that would be applicable if their securities were
publicly traded.
Restricted securities are often illiquid, but they may also be liquid. For
example, restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid.
The Corporation's Board of Directors has approved guidelines for use by the
Advisor in determining whether a security is illiquid. Among the factors the
Investment Manager 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.
Issuers of restricted securities may not be subject to the disclosure and other
investor protection requirement that would be applicable if their securities
were publicly traded. Where a registration statement is required for the resale
of restricted securities, the Fund may be required to bear all or part of the
registration expenses. The Fund may be deemed to be an "underwriter" for
purposes of the 1933 Act when selling restricted securities to the public and,
in such event, the Fund may be liable to purchasers of such securities if the
registration statement prepared by the issuer is materially inaccurate or
misleading.
The Fund may also purchase securities that are not subject to legal or
contractual restrictions on resale, but that are deemed illiquid. Such
securities may be illiquid, for example, because there is a limited trading
market for them.
The Fund may be unable to sell a restricted or illiquid security. In addition,
it may be more difficult to determine a market value for restricted or illiquid
securities. Moreover, if adverse market conditions were to develop during the
period between the Fund's decision to sell a restricted or illiquid security and
the point at which the Fund is permitted or able to sell such security, the Fund
might obtain a price less favorable than the price that prevailed when it
decided to sell.
This investment practice, therefore, could have the effect of increasing the
level of illiquidity of the Fund. It is the 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 Fund's net assets.
Repurchase Agreements.
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The Fund may invest in repurchase agreements pursuant to its investment
guidelines. In a repurchase agreement, the Fund acquires ownership of a security
and simultaneously commits to resell that security to the seller, typically a
bank or broker/dealer.
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.
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
Advisor seeks to reduce 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
(including interest) 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 such securities 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 Advisor 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. Such transactions may increase fluctuations
in the market value of Fund assets and its yield.
Dollar Roll Transactions. Dollar roll transactions consist of the sale by the
Fund to a bank or broker/dealer (the "counterparty") of GNMA certificates or
other mortgage-backed securities together with a commitment to purchase from the
counterparty similar, but not identical, securities at a future date, at the
same price. The counterparty receives all principal and interest payments,
including prepayments, made on the security while it is the holder. The Fund
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of several
months with a different purchase and repurchase price fixed and a cash
settlement made at each renewal without physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment agreement
pursuant to which the Fund agrees to buy a security on a future date.
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The Fund will segregate cash, U.S. Government securities or other liquid assets
in an amount sufficient to meet their purchase obligations under the
transactions. The Fund will also maintain asset coverage of at least 300% for
all outstanding firm commitments, dollar rolls and other borrowings.
Dollar rolls may be treated for purposes of the Investment Company Act of 1940,
as amended as borrowings of the Fund because they involve the sale of a security
coupled with an agreement to repurchase. A dollar roll involves costs to the
Fund. For example, while the Fund receives a fee as consideration for agreeing
to repurchase the security, the Fund forgoes the right to receive all principal
and interest payments while the counterparty holds the security. These payments
to the counterparty may exceed the fee received by the Fund, thereby effectively
charging the Fund interest on its borrowing. Further, although the Fund can
estimate the amount of expected principal prepayment over the term of the dollar
roll, a variation in the actual amount of prepayment could increase or decrease
the cost of the Fund's borrowing.
The entry into dollar rolls involves potential risks of loss that are different
from those related to the securities underlying the transactions. For example,
if the counterparty becomes insolvent, the Fund's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before the Fund is able to purchase them. Similarly, the Fund
may be required to purchase securities in connection with a dollar roll at a
higher price than may otherwise be available on the open market. Since, as noted
above, the counterparty is required to deliver a similar, but not identical
security to the Fund, the security that the Fund is required to buy under the
dollar roll may be worth less than an identical security. Finally, there can be
no assurance that the Fund's use of the cash that it receives from a dollar roll
will provide a return that exceeds borrowing costs.
Investment Company Securities. The Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. The Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, the Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs). Index-based
investments may not replicate exactly the performance of their specified index
because of transaction costs and because of the temporary unavailability of
certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all the
companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
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DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial Average(SM). They
are issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio
of all the component common stocks of the Dow Jones Industrial Average and seeks
to closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to correspond generally to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Strategic Transactions and Derivatives. The Fund may, but are not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective maturity
or duration of fixed-income securities in the Fund's portfolio, or enhancing
potential gain. These strategies may be executed through the use of derivative
contracts.
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 (subject to certain
limitations imposed by the 1940 Act) to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets or currency exchange rate
fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Advisor'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 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 Advisor'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
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options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, currency or other instrument at the exercise price. For
instance, the Fund's purchase of a put option on a security might be designed to
protect its holdings in the underlying instrument (or, in some cases, a similar
instrument) against a substantial decline in the market value by giving the Fund
the right to sell such instrument at the option exercise price. A call option,
upon payment of a premium, gives the purchaser of the option the right to buy,
and the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, currency or other instrument might be intended to protect the Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, although in the
future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
The Fund's ability to close out its position as a purchaser or seller of an OCC
or exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. Among the possible reasons for the absence of a liquid
option market on an exchange are: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities including reaching daily
price limits; (iv) interruption of the normal operations of the OCC or an
exchange; (v) inadequacy of the facilities of an exchange or OCC to handle
current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
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OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although they are 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 they paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Advisor must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The Fund will engage in OTC option transactions only with U.S.
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers" or broker/dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of A-1 from S&P or P-1 from
Moody's or an equivalent rating from any nationally recognized statistical
rating organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Advisor. The staff of the
SEC currently takes the position that OTC options purchased by the Fund, and
portfolio securities "covering" the amount of the Fund's obligation pursuant to
an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are illiquid, and are subject to the Fund's limitation on
investing no more than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that they receive may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in their portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by the Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject to
the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though the Fund will receive the option
premium to help protect them 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 they might otherwise
have sold.
The Fund may purchase and sell put options on securities including U.S. Treasury
and agency securities, mortgage-backed securities, foreign sovereign debt,
corporate debt securities, equity securities (including convertible securities)
and Eurodollar instruments (whether or not they hold the above securities in
their portfolios), and on securities indices, currencies and futures contracts
other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. The Fund may enter into futures contracts or
purchase or sell put and call options on such futures as a hedge against
anticipated interest rate, currency or equity market changes, and for duration
management, 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
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the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
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 and return enhancement management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercise an option on a futures contract they will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as they would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Advisor.
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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 except as described below. 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 their
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 generally will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
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 have or in which the Fund expect
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 Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Advisor believes
that the value of schillings will decline against the U.S. dollar, the Advisor
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, 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 Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
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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 they do 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 offsetting positions) to cover their obligations under
swaps, the Advisor and the Fund believes such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to their borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Advisor. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
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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 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 the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or sale of
a security denominated in a particular currency, which requires no segregation,
a currency contract which obligates the Fund to buy or sell currency 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 the Fund, including those on securities, currency,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of 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 the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of 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, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
cash or liquid assets sufficient to meet their obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of their obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid assets having a value
equal to the accrued excess. Caps, floors and collars require segregation of
assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, if the Fund held a futures or forward contract,
instead of segregating cash or liquid assets it could purchase a put option on
the same futures or forward contract with a strike price as high or higher than
the price of the contract held. Other Strategic Transactions may also be offset
in combinations. If the offsetting transaction terminates at the time of or
after the primary transaction no segregation is required, but if it terminates
prior to such time, cash or liquid assets equal to any remaining obligation
would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company. (See "Taxes.")
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Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery and a loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Advisor to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
Borrowing. The Fund may not borrow money, except as permitted under Federal law.
The Fund will borrow only when the Advisor believes that borrowing will benefit
the Fund after taking into account considerations such as the costs of the
borrowing. Borrowing by the Fund will involve special risk considerations.
Although the principal of the Fund's borrowings will be fixed, the Fund's assets
may change in value during the time that a borrowing is outstanding,
proportionately increasing exposure to capital risk.
When-Issued Securities. The Fund may from time to time purchase equity and debt
securities on a "when-issued", "delayed delivery" or "forward delivery" basis.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment for the
securities takes place at a later date. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues
to the Fund.
While when-issued or forward delivery securities may be sold prior to the
settlement date, the Fund intends to purchase such securities with the purpose
of actually acquiring them unless a sale appears desirable for investment
reasons. At the time the Fund makes the commitment to purchase a security on a
when-issued or forward delivery basis, it will record the transaction and
reflect the value of the security in determining its net asset value. At the
time of settlement, the market value of the when-issued or forward delivery
securities may be more or less than the purchase price. The Fund does not
believe that its net asset value or income will be adversely affected by its
purchase of securities on a when-issued or forward delivery basis.
Investment of Uninvested Cash Balances. The Fund may have cash balances that
have not been invested in portfolio securities ("Uninvested Cash"). Uninvested
Cash may result from a variety of sources, including dividends or interest
received from portfolio securities, unsettled securities transactions, reserves
held for investment strategy purposes, scheduled maturity of investments,
liquidation of investment securities to meet anticipated redemptions and
dividend payments, and new cash received from investors. Uninvested Cash may be
invested directly in money market instruments or other short-term debt
obligations. Pursuant to an Exemptive Order issued by the SEC, the Fund may use
Uninvested Cash to purchase shares of affiliated funds including money market
funds, short-term bond funds and Scudder Cash Management Investment Trust, or
one or more future entities for which Zurich Scudder Investments acts as trustee
or investment advisor that operate as cash management investment vehicles and
that are excluded from the definition of investment company pursuant to section
3(c)(1) or 3(c)(7) of the 1940 Act (collectively, the "Central Funds") in excess
of the limitations of Section 12(d)(1) of the Investment Company Act. Investment
by the Fund in shares of the Central Funds will be in accordance with the Fund's
investment policies and restrictions as set forth in its registration statement.
Certain of the Central Funds comply with rule 2a-7 under the Act. The other
Central Funds are or will be short-term bond funds that invest in fixed-income
securities and maintain a dollar weighted average maturity of three years or
less. Each of the Central Funds will be managed specifically to maintain a
highly liquid portfolio, and access to them will enhance the Fund's ability to
manage Uninvested Cash.
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The Fund will invest Uninvested Cash in Central Funds only to the extent that
the Fund's aggregate investment in the Central Funds does not exceed 25% of its
total assets in shares of the Central Funds. Purchase and sales of shares of
Central Funds are made at net asset value.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to follow the practice of distributing all of their investment
company taxable income, which includes any excess of net realized short-term
capital gains over net realized long-term capital losses. The Fund may follow
the practice of distributing the entire excess of net realized long-term capital
gains over net realized short-term capital losses. However, the Fund may retain
all or part of such gain for reinvestment after paying the related federal
income taxes for which the shareholders may then be asked to claim a credit
against their federal income tax liability. (See "Taxes" hereafter.)
If the Fund does not distribute the amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, the
Fund may be subject to that excise tax. (See "Taxes" hereafter.) In certain
circumstances, the Fund may determine that it is in the interest of shareholders
to distribute less than the required amount.
Earnings and profits distributed to shareholders on redemptions of Fund shares
may be utilized by the Fund, to the extent permissible, as part of the Fund's
dividends paid deduction on its federal tax return.
The Fund intends to distribute its investment company taxable income and any net
realized capital gains in November or December to avoid federal excise tax,
although an additional distribution may be made if necessary.
Both types of distributions will be made in Shares of the Fund and confirmations
will be mailed to each shareholder unless a shareholder has elected to receive
cash, in which case a check will be sent. Distributions of investment company
taxable income and net realized capital gains are taxable (See "Taxes"
hereafter.), 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.
Dividends paid by the Fund with respect to each class of its shares will be
calculated in the same manner, at the same time and on the same day. The level
of income dividends per share (as a percentage of net asset value) will be lower
for Class B and Class C Shares than for Class A Shares primarily as a result of
the distribution services fee applicable to Class B and Class C Shares.
Distributions of capital gains, if any, will be paid in the same proportion for
each class.
Income and capital gain dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional shares of the same class of the Fund
at net asset value on the reinvestment date, except that, upon written request
to the Shareholder Service Agent, a shareholder may select one of the following
options:
o To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
o To receive income and capital gain dividends in cash.
Dividends will be reinvested in Shares of the same class of the Fund unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of other Scudder Funds with multiple classes of shares or Kemper Funds as
provided in the prospectus. See "Special Features -- Class A Shares -- Combined
Purchases" for a list of such other Funds. To use this privilege of investing
dividends of the Fund in shares of another Scudder or Kemper Fund, shareholders
must maintain a minimum account value of $1,000 in the Fund distributing the
dividends. The Fund will reinvest dividend checks (and future dividends) in
shares of that same Fund and class if checks are returned as undeliverable.
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Dividends and other distributions of the Fund in the aggregate amount of $10 or
less are automatically reinvested in shares of the Fund unless the shareholder
requests that such policy not be applied to the shareholder's account.
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 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. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are retained by the Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains, will be
able to claim a proportionate share of federal income taxes paid by the Fund on
such gains as a credit against the shareholder's federal income tax liability,
and will be entitled to increase the adjusted tax basis of the shareholder's
Fund shares by the difference between such reported gains and the shareholder's
tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Dividends from domestic corporations are not expected to comprise a substantial
part of the Fund's gross income. If any such dividends constitute a portion of
the Fund's gross income, a portion of the income distributions of the Fund may
be eligible for the 70% deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law and is eliminated if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholders,
as the case may be, for less than 46 days during the 90-day period beginning 45
days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital gain
over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
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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.
A qualifying individual may make a deductible IRA contribution 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 for 2001 ($53,000 for married individuals filing a
joint return, with a phase-out of the deduction for adjusted gross income
between $53,000 and $63,000; $33,000 for a single individual, with a phase-out
for adjusted gross income between $33,000 and $43,000). However, an individual
not permitted to make a deductible contribution to an IRA for any such taxable
year may nonetheless make nondeductible contributions up to $2,000 to an IRA (up
to $2,000 per individual for married couples if only one spouse has earned
income) for that year. There are special rules for determining how withdrawals
are to be taxed if an IRA contains both deductible and nondeductible amounts. In
general, a proportionate amount of each withdrawal will be deemed to be made
from nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.
Distributions by the Fund result in a reduction in the net asset value of the
Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
In some cases, shareholders of the Fund will not be permitted to take all or a
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term " reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
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
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will be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code, except in the case of
certain electing individual taxpayers who have limited creditable foreign taxes
and no foreign source income other than passive investment-type income.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect under Section 853 to pass
through to shareholders the ability to claim a deduction for the related foreign
taxes.
If the Fund does not make the election permitted under section 853 any foreign
taxes paid or accrued will represent an expense to the Fund which will reduce
its investment company taxable income. Absent this election, shareholders will
not be able to claim either a credit or a deduction for their pro rata portion
of such taxes paid by the Fund, nor will shareholders be required to treat as
part of the amounts distributed to them their pro rata portion of such taxes
paid.
Equity options (including covered call options written on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any stock in
the Fund's portfolio similar to the stocks on which the index is based. If the
Fund writes an option, no gain is recognized upon its receipt of a premium. If
the option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If a call option is exercised, the character of the gain
or loss depends on the holding period of the underlying stock.
Positions of the Fund which consist of at least one stock and at least one stock
option or other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stocks
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed nonequity
options written or purchased by the Fund (including options on debt securities,
options on futures contracts, options on securities indices and options 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
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<PAGE>
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.
If the Fund invests in stock of certain foreign investment companies, the Fund
may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
The Fund may make an election to mark to market its shares of these foreign
investment companies in lieu of being subject to U.S. federal income taxation.
At the end of each taxable year to which the election applies, the Fund would
report as ordinary income the amount by which the fair market value of the
foreign company's stock exceeds the Fund's adjusted basis in these shares; any
mark-to-market losses and any loss from an actual disposition of shares would be
reported as ordinary loss to the extent of any net mark-to-market gains included
in income in prior years. The effect of the election would be to treat excess
distributions and gain on dispositions as ordinary income which is not subject
to a fund level tax when distributed to shareholders as a dividend.
Alternatively, the Fund may elect to include as income and gain its share of the
ordinary earnings and net capital gain of certain foreign investment companies
in lieu of being taxed in the manner described above.
If the Fund invests in certain high yield original issue discount obligations
issued by corporations, a portion of the original issue discount accruing on the
obligation may be eligible for the deduction for dividends received by
corporations. In such event, dividends of investment company taxable income
received from the Fund by its corporate shareholders, to the extent attributable
to such portion of accrued original issue discount, may be eligible for this
deduction for dividends received by corporations if so designated by the Fund in
a written notice to shareholders.
The Fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the 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.
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<PAGE>
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 advisors about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
PERFORMANCE
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information will be computed separately for each class.
Class B and C shares are newly offered and therefore have no available
performance information.
Performance figures for the period before a class existed (August 2, 1999 in the
case of Class A and December 29, 2000 in the case of Class B andC shares) are
derived from the historical performance of Class S shares, adjusted to reflect
the higher gross total annual operating expenses applicable to Class A, B and C
shares. The performance figures are also adjusted to reflect the maximum sales
charge of 5.75% for Class A shares and the maximum current contingent deferred
sales charge of 4% for Class B shares and 1% for Class C shares. In addition,
since Class A shares (formerly, Class R) were offered without a sales charge
from August 2, 1999 to December 29, 2000, the performance of Class A for this
period has been adjusted to reflect the current sales charge applicable to Class
A shares.
The returns in the chart below assume reinvestment of distributions at net asset
value and represent both actual past performance figures and adjusted
performance figures of the Class A, B and C shares of the Fund as described
above; they do not guarantee future results. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Average Annual Total Return
Average annual total return is the average annual compound rate of return for
the periods of one year, five years and ten years (or such shorter periods as
may be applicable dating from the commencement of the Fund's operations), 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
computing 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:
T = Average Annual Total Return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value, at the
end of the applicable
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period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Average Annual Total Returns for the Period Ended August 31, 2000 ^(1)(2)
1 Year 5 Years 10 Years
Scudder International Fund -- Class A 9.88% 14.20% 10.64%
Scudder International Fund -- Class B 12.36% 14.42% 10.41%
Scudder International Fund -- Class C 15.86% 14.68% 10.44%
(1) Because Class A (formerly, Class R) shares were not introduced until August
2, 1999 and B and C shares were not introduced until December 29, 2000, the
total returns for Class A, B and C shares for the period prior to their
introduction are based upon the performance of Class S shares as described
above. In addition, since Class A shares (formerly, Class R) were offered
without a sales charge from August 2, 1999 to December 29, 2000, the
performance of Class A for this period has been adjusted to reflect the
current sales charge applicable to Class A shares.
(2) As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for the Fund or class will vary based on changes in market
conditions and the level of the Fund's and class' expenses.
In connection with communicating its average annual total return to current or
prospective shareholders, the Fund also may compare these figures to the
performance of other mutual funds tracked by mutual fund rating services or to
unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
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 computing 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 of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
Cumulative Total Returns for the Period Ended August 31, 2000 ^(1)
1 Year 5 Years 10 Years
Scudder International Fund -- Class A 9.88% 94.26% 174.83%
Scudder International Fund -- Class B 12.36% 96.13% 169.28%
Scudder International Fund -- Class C 15.86% 98.35% 169.95%
(1) Because Class A (formerly, Class R) shares were not introduced until August
2, 1999 and B and C shares were not introduced until December 29, 2000, the
total returns for Class A, B and C shares for the period prior to their
introduction are based upon the performance of Class S shares as described
above. In addition, since Class A shares (formerly, Class R) were offered
without a sales charge from August 2, 1999 to December 29, 2000, the
performance of Class A for this period has been adjusted to reflect the
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<PAGE>
current sales charge applicable to Class A shares.
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.
From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of the Fund apart from capital appreciation will be cited, as
an update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Fund's and classes' performance data.
Quotations of a Fund's performance are based on historical earnings, show the
performance of a hypothetical investment, and are not intended to indicate
future performance of the Fund. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of the Fund's expenses.
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.
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.
From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, members of the Board
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 Advisor has under
management in various geographical areas may be quoted in advertising and
marketing materials.
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.
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<PAGE>
Because bank products guarantee the principal value of an investment and money
market funds seek stability of principal, these investments are considered to be
less risky than investments in either bond or equity funds, which may involve
the loss of principal. However, all long-term investments, including investments
in bank products, may be subject to inflation risk, which is the risk of erosion
of the value of an investment as prices increase over a long time period. The
risks/returns associated with an investment in bond or equity funds depend upon
many factors. For bond funds these factors include, but are not limited to, a
fund's overall investment objective, the average portfolio maturity, credit
quality of the securities held and interest rate movements. For equity funds,
factors include a fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the securities. The
risks/returns associated with an investment in international bond or equity
funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment categories
in the following order: bank products, money market funds, bond funds and equity
funds. Shorter-term bond funds generally are considered less risky and offer the
potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return than growth funds. In
addition, international equity funds usually are considered more risky than
domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical information made by
independent sources may also be used in advertisements concerning the Fund,
including reprints of, or selections from, editorials or articles about the
Fund.
INVESTMENT MANAGER AND UNDERWRITER
Investment Manager. Zurich Scudder Investments, Inc., Two International Place,
Boston, Massachusetts, an investment counsel firm, acts as investment advisor to
the Fund. This organization, the predecessor of which is Scudder, Stevens &
Clark, Inc., ("Scudder") 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
Advisor 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 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 was changed to Scudder Kemper
Investments, Inc. On September 7, 1998, the businesses of Zurich (including
Zurich's 70% interest in the Advisor) 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. On October 17, 2000, the dual holding
company structure of Zurich Financial Services Group, comprised of Allied Zurich
p.l.c. in the United Kingdom and Zurich Allied A.G. in Switzerland, was unified
into a single Swiss holding company, Zurich Financial Services. The Advisor
changed its name from Scudder Kemper Investments, Inc. to Zurich Scudder
Investments, Inc. The Advisor manages the Fund's daily investment and business
affairs subject to the policies established by the Corporation's Board of
Directors. The Directors have overall responsibility for the management of the
Fund under Massachusetts law.
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.
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Pursuant to an investment management agreement with the Fund, the Advisor acts
as the Fund's investmentadvisor, manages its investments, administers its
business affairs, furnishes office facilities and equipment, provides clerical
and administrative services and permits any of its officers or employees to
serve without compensation as trustees or officers of the Fund if elected to
such positions.
The principal source of the Advisor'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, industrial
corporations, and financial and banking organizations, as well as providing
investment advice to over 280 open and closed-end mutual funds.
The Advisor maintains a large research department, which conducts continuous
studies of the factors that affect the position of various industries, companies
and individual securities. The Advisor 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
Advisor's clients. However, the Advisor regards this information and material as
an adjunct to its own research activities. The Advisor's international
investment management team travels the world researching hundreds of companies.
In selecting securities in which the Fund may invest, the conclusions and
investment decisions of the Advisor 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 Advisor. 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 Advisor 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 Advisor in the interest of achieving the most
favorable net results to the Fund.
In certain cases, the investments for the fund are managed by the same
individuals who manage one or more other mutual funds advised by the Advisor,
that have similar names, objectives and investment styles. You should be aware
that the Funds are likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Funds can be expected to vary from those of these other mutual funds.
Upon consummation of the transaction between Zurich and B.A.T, the Fund's
existing investment management agreement with Scudder Kemper were deemed to have
been assigned and, therefore, terminated. The Board approved a new investment
management agreement with Scudder Kemper, which was substantially identical to
the prior investment management agreement, except for the date 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.
An Amended and Restated investment management agreement (the "Agreement") was
most recently approved by the Directors on July 10, 2000 and at a shareholder
meeting held on July 13, 2000 and became effective on August 14, 2000. The
Agreement will continue in effect until from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Directors
who are not parties to such Agreement or interested persons of the Advisor or
the Fund, 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 terminates in the event of its assignment.
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Under the Agreement, the Advisor regularly provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject to the Corporation's Declaration of Trust, By-Laws, the
1940 Act, 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
Advisor 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 Fund.
Under the Agreement, the Advisor 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 SEC
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 Advisor pays the compensation and expenses of all Directors, officers and
executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York; Boston, Massachusetts and Chicago,
Illinois) of the Fund affiliated with the Advisor and makes available, without
expense to the Corporation, the services of such Directors, officers and
employees of the Advisor as may duly be elected officers or Directors of the
Corporation, subject to their individual consent to serve and to any limitations
imposed by law, and provides the Fund's office space and facilities.
For these services as of August 14, 2000, the management fee payable under the
Agreement is equal to an annual rate of 0.675% on the first $6 billion of
average daily net assets, 0.625% on the next $1 billion of such net assets, and
0.600% of such net assets in excess of $7 billion, computed and accrued daily
and payable monthly.
Under the Agreement between the Fund and the Advisor, effective September 7,
1998 until August 14, 2000, the management fee payable under the Agreement was
equal to an annual rate of approximately 0.90% of the first $500,000,000 of
average daily net assets, 0.85% of the next $500,000,000 of such net assets,
0.80% of the next $1,000,000,000 of such net assets, 0.75% of the next
$1,000,000,000 of such net assets, and 0.70% of such net assets in excess of
$3,000,000,000, computed and accrued daily and payable monthly.
Accordingly, for the year ended August 31, 2000, the investment advisory fees
amounted to $36,335,757, which was equivalent to an annual effective rate of
0.76% of the Fund's average daily net assets. For the five months ended August
31, 1999, the net investment advisory fees were $11,269,103. The net investment
advisory fees for the fiscal year ended March 31, 1999 and 1998 were $23,819,941
and $22,491,681, respectively.
Under the Agreement the Fund is responsible for all of its other expenses
including: organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; brokers' commissions; legal,
auditing and accounting expenses; taxes and governmental fees; the fees and
expenses of the Transfer Agent; 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
Advisor; 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'
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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 identifies the Advisor 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 Advisor
concerning such Agreement, the Directors of the Corporation who are not
"interested persons" of the Advisor are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Advisor 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 Advisor in
the performance of its duties or from reckless disregard by the Advisor of its
obligations and duties under the Agreement.
Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor'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 Advisor may serve as advisor to other funds with investment objectives and
policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.
None of the officers or Directors of the Corporation may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of Shares of the Fund.
The term Scudder Investments is the designation given to the services provided
by Zurich Scudder Investments, Inc. and its affiliates to the Scudder Family of
Funds.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Advisor and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Advisor 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 Advisor with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLinkSM Program. The Advisor
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment advisor
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLinkSM Program will be a customer of the Advisor (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.
Code of Ethics
The Fund, the Advisor and principal underwriter have each adopted codes of
ethics under rule 17j-1 of the Investment Company Act. Board members, officers
of the Corporation and employees of the Advisor and principal underwriter are
permitted to make personal securities transactions, including transactions in
securities that may be purchased or held by the Fund, subject to requirements
and restrictions set forth in the applicable Code of Ethics. The Advisor's Code
of Ethics contains provisions and requirements designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of the Fund. Among other things, the Advisor's Code of Ethics
prohibits certain types of transactions absent prior approval, imposes time
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periods during which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker confirmations and
quarterly 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
Advisor's Code of Ethics may be granted in particular circumstances after review
by appropriate personnel.
Principal Underwriter. Pursuant to separate underwriting and distribution
services agreements ("distribution agreements"), Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois 60606, an affiliate of the
Advisor, is the principal underwriter and distributor for the Class A, B and C
shares of the Fund and acts as agent of the Fund in the continuous offering of
its Shares. KDI bears all of its expenses of providing services pursuant to the
distribution agreement, including the payment of any commissions. The Fund pays
the cost for the prospectus and shareholder reports to be set in type and
printed for existing shareholders, and KDI, as principal underwriter, pays for
the printing and distribution of copies thereof used in connection with the
offering of Shares to prospective investors. KDI also pays for supplementary
sales literature and advertising costs.
The distribution agreement continues in effect from year to year so long as such
continuance is approved for each class at least annually by a vote of the Board
of Directors of the Fund, including the Directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
agreement. The agreement automatically terminates in the event of its assignment
and may be terminated for a class at any time without penalty by the Fund or by
KDI upon 60 days' notice. Termination by the Fund with respect to a class may be
by vote of a majority of the Board of Directors or a majority of the Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the distribution agreement or a "majority of the
outstanding voting securities" of the class of the Fund, as defined under the
1940 Act. The distribution agreement may not be amended for a class to increase
the fee to be paid by the Fund with respect to such class without approval by a
majority of the outstanding voting securities of such class of the Fund, and all
material amendments must in any event be approved by the Board of Directors in
the manner described above with respect to the continuation of the distribution
agreement.
Class B Shares and Class C Shares. The Fund has adopted a plan under Rule 12b-1
(the "Rule 12b-1 Plan") that provides for fees payable as an expense of the
Class B shares and Class C shares that are used by KDI to pay for distribution
and services for those classes. Because 12b-1 fees are paid out of fund assets
on an ongoing basis they will, over time, increase the cost of an investment and
cost more than other types of sales charges.
Rule 12b-1 Plan. Since the distribution agreement provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by KDI to
pay for distribution services for those classes, that agreement is approved and
reviewed separately for the Class B shares and the Class C shares in accordance
with Rule 12b-1 under the 1940 Act, which regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares.
If a Rule 12b-1 Plan (the "Plan") is terminated in accordance with its terms,
the obligation of the Fund to make payments to KDI pursuant to the Plan will
cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under a Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under the Plan
may or may not be sufficient to reimburse KDI for its expenses incurred.
For its services under the distribution agreement, KDI receives a fee from the
Fund, payable monthly, at the annual rate of 0.75% of average daily net assets
of the Fund attributable to Class B shares. This fee is accrued daily as an
expense of Class B shares. KDI also receives any contingent deferred sales
charges. KDI currently compensates firms for sales of Class B shares at a
commission rate of 3.75%.
For its services under the distribution agreement, KDI receives a fee from the
Fund, payable monthly, at the annual rate of 0.75% of average daily net assets
of the Fund attributable to Class C shares. This fee is accrued daily as an
expense of Class C shares. KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm and
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the fee continues until terminated by KDI or the Fund. KDI also receives any
contingent deferred sales charges.
Administrative Fee. The Fund has entered into an administrative services
agreement with the Advisor (the "Administration Agreement"), pursuant to which
the Advisor will provide or pay others to provide substantially all of the
administrative services required by the Fund (other than those provided by the
Advisor under its investment management agreements with the Fund, as described
above) in exchange for the payment by the Fund of an administrative services fee
(the "Administrative Fee") of 0.40% for Class A, 0.45% for Class B and 0.43% for
Class C. One effect of this arrangement is to make the future expense ratio for
each class more predictable.
Various third party service providers (the "Service Providers"), some of which
are affiliated with the Advisor, provide certain services to the Fund pursuant
to separate agreements with the Fund. Scudder Fund Accounting Corporation, a
subsidiary of the Advisor, computes net asset value for the Fund and maintains
their accounting records. PricewaterhouseCoopers LLP audits the financial
statements of the Fund and provides other audit, tax, and related services.
Dechert acts as general counsel for the Fund.
The Advisor will pay the Service Providers for the provision of their services
to the Fund and will pay other fund expenses, including insurance, registration,
printing and postage fees. In return, the Fund will pay the Advisor an
Administrative Fee.
Each Administration Agreement has an initial term of three years, subject to
earlier termination by the Fund's Board. The fee payable by the Fund to the
Advisor pursuant to the Administration Agreement is reduced by the amount of any
credit received from the Fund's custodian for cash balances.
Certain expenses of the Fund will not be borne by the Advisor under the
Administration Agreement, such as taxes, brokerage, interest and extraordinary
expenses; and the fees and expenses of the Independent Directors (including the
fees and expenses of their independent counsel). In addition, the Fund will
continue to pay the fees required by its investment management agreement with
the Advisor. For the period August 14, 2000 through August 31, 2000, the
Administrative Agreement expense charged to the Fund amounted to $921,739, all
of which was unpaid at August 31, 2000.
Administrative Services. Administrative services are provided to the Fund on
behalf of Class A, B and C shareholders under an administrative services
agreement ("administrative agreement") with KDI. KDI bears all its expenses of
providing services pursuant to the administrative agreement between KDI and the
Fund, including the payment of service fees. The Fund pays KDI an administrative
services fee, payable monthly, at an annual rate of up to 0.25% for Class A and
1.00% for Class B and Class C of the average daily net assets of each class.
KDI enters into related arrangements with various broker-dealer firms and other
service or administrative firms ("firms") that provide services and facilities
for their customers or clients who are investors in the Fund. The firms provide
such office space and equipment, telephone facilities and personnel as is
necessary or beneficial for providing information and services to their clients.
Such services and assistance may include, but are not limited to, establishing
and maintaining accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Fund, assistance to
clients in changing dividend and investment options, account designations and
addresses and such other administrative services as may be agreed upon from time
to time and permitted by applicable statute, rule or regulation. With respect to
Class A Shares, KDI pays each firm a service fee, payable quarterly, at an
annual rate of up to 0.25% of the net assets in Fund accounts that it maintains
and services attributable to Class A Shares, commencing with the month after
investment. With respect to Class B and Class C Shares, KDI currently advances
to firms the first-year service fee at a rate of up to 0.25% of the purchase
price of such Shares. For periods after the first year, KDI currently intends to
pay firms a service fee at a rate of up to 0.25% (calculated monthly and paid
quarterly) of the net assets attributable to Class B and Class C Shares
maintained and serviced by the firm. After the first year, a firm becomes
eligible for the quarterly service fee and the fee continues until terminated by
KDI or the Fund. Firms to which service fees may be paid include affiliates of
KDI. In addition KDI may, from time to time, from its own resources pay certain
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firms additional amounts for ongoing administrative services and assistance
provided to their customers and clients who are shareholders of the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is payable at an annual rate of 0.25%
based upon Fund assets in accounts for which a firm provides administrative
services and at the annual rate of 0.15% based upon Fund assets in accounts for
which there is no firm of record (other than KDI) listed on the Fund's records.
The effective administrative services fee rate to be charged against all assets
of the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which a firm of record provides
administrative services. The Board of Directors of the Fund, in its discretion,
may approve basing the fee to KDI at the annual rate of 0.25% on all Fund assets
in the future
Certain trustees or officers of the Fund are also directors or officers of the
Advisor or KDI, as indicated under "Officers and Directors."
Fund Accounting Agent. Scudder Fund Accounting Corporation ("SFAC"), Two
International Place, Boston, Massachusetts, a subsidiary of the Advisor,
computes net asset value for the Fund. Prior to the implementation of the
Administration Agreement, the Fund paid 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 fiscal years ended
March 31, 1998 and 1999, SFAC charged the Fund aggregate fees of $838,885 and
$893,682, respectively, and $402,576 for the five months ended August 31, 1999.
Prior to August 14, 2000, the amount charged to the Fund by SFAC aggregated
$1,250,099, of which $219,547 was unpaid at August 31, 2000.
Custodian, Transfer Agent and Shareholder Service Agent. The Fund employs Brown
Brothers Harriman & Company, 40 Water Street, Boston, Massachusetts 02109 as
Custodian for the Fund. The Custodian attends to the collection of principal and
income, and payment for and collection of proceeds of securities bought and sold
by the Fund. Kemper Service Company ("KSVC"), 811 Main Street, Kansas City,
Missouri 64105-2005, an affiliate of the Advisor, is the Fund's transfer agent,
dividend-paying agent and shareholder service agent for the Fund's Class A, B
and C shares. Prior to the implementation of the Administration Agreement, KSVC
received as transfer agent, annual account fees of $5 per account, transaction
and maintenance charges, annual fees associated with the contingent deferred
sales charge (Class B shares only) and out-of-pocket expense reimbursement.
Prior to August 14, 2000, the amount charged to Class R Shares aggregated
$71,173.
Independent Accountants and Reports to Shareholders. 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, given on the authority of said firm as experts in
auditing and accounting. PricewaterhouseCoopers LLP audits the financial
statements of the Fund and provides other audit, tax and related services.
Shareholders will receive annual audited and semi-annual unaudited financial
statements.
PORTFOLIO TRANSACTIONS
Brokerage Commissions. Allocation of brokerage may be placed by the Advisor.
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The primary objective of the Advisor 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
Advisor 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 Advisor
routinely reviews commission rates, execution and settlement services performed
and makes internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally placed
by the Advisor 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 Advisor's practice to place such orders with
broker/dealers who supply brokerage and research services to the Advisor 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
Advisor 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 Advisor 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 Advisor or the Fund in exchange for the direction by the Advisor of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Advisor will not place orders with a broker/dealer 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 Advisor 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.
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Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Advisor, it is the opinion
of the Advisor that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Advisor's staff. Such information may be useful to the Advisor in providing
services to clients other than the Fund and not all such information is used by
the Advisor in connection with the Fund. Conversely, such information provided
to the Advisor by broker/dealers through whom other clients of the Advisor
effect securities transactions may be useful to the Advisor in providing
services to the Fund.
The Directors of the Fund review, from time to time, whether the recapture for
the benefit of the Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable.
For the fiscal years ended March 31, 1999 and 1998, the Fund paid brokerage
commissions of $9,926,570 and $6,904,371, respectively. For the fiscal year
ended March 31, 1999, $9,741,020 (98.13%) 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 Advisor.
The amount of such transactions aggregated $4,239,712,028 (95.76% of all
brokerage transactions). The balance of such brokerage was not allocated to
particular broker or dealer with regard to the above-mentioned or other special
factors.
For the fiscal year ended August 31, 2000, the Fund paid brokerage commissions
of $_________. For the fiscal year ended August 31, 2000, $________ (_____%) 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 Advisor. The amount of such transactions
aggregated $_________ (____% of all brokerage transactions). The balance of such
brokerage was not allocated to particular broker or dealer with regard to the
above-mentioned or other special factors.
Portfolio Turnover
The Fund's average annual portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. For the fiscal years ended
March 31, 1999 and 1998 the Fund's portfolio turnover rates were 79.9% and
55.7%, respectively, and for the five months ended August 31, 1999 and the
fiscal year ended August 31, 2000 were 81.5% and 83%, respectively. Purchases
and sales are made for the Fund's portfolio whenever necessary, in management's
opinion, to meet the Fund's objective.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close of regular
trading on the Exchange on each day the Exchange is open for trading (the "Value
Time"). 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
separately for each class of shares by dividing the value of the total assets of
the Fund attributable to the shares of that class, less all liabilities
attributable to that class, by the total number of shares of that class
outstanding. The per share net asset value of the Class B and Class C Shares of
the Fund will generally be lower than that of the Class A Shares of the Fund
because of the higher expenses borne by the Class B and Class C Shares.
39
<PAGE>
An exchange-traded equity security is valued at its most recent sale price on
the exchange it is traded as of the Value Time. Lacking any sales, the security
is valued at the calculated mean between the most recent bid quotation and the
most recent asked quotation (the "Calculated Mean"). Lacking a Calculated Mean,
the security is valued at the most recent bid quotation. An equity security,
which is traded on the Nasdaq Stock Market, Inc. ("Nasdaq"), is valued at its
most recent sale price. Lacking any sales, the security is valued at the most
recent bid quotation. The value of an equity security not quoted on the Nasdaq
System, but traded in another over-the-counter market, is its most recent sale
price. Lacking any sales, the security is valued at the Calculated Mean. Lacking
a Calculated Mean, the security is valued at the most recent bid quotation.
Debt securities, other than short-term securities, are valued at prices supplied
by the Fund's pricing agent(s) which reflect broker/dealer supplied valuations
and electronic data processing techniques. Short-term securities purchased with
remaining maturities of sixty days or less shall be valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Advisor may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures and other
financial instruments is valued at its most recent sale price on such exchange.
Lacking any sales, the options contract is valued at the Calculated Mean.
Lacking any Calculated Mean, the options contract is valued at the most recent
bid quotation in the case of a purchased options contract, or the most recent
asked quotation in the case of a written options contract. An options contract
on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more exchanges
and in the over-the-counter market, quotations are taken from the market in
which the security is traded most extensively.
If, in the opinion of the Corporation's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner, which, in the discretion of the Valuation Committee,
most fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms of the
currency in which the market quotation used is expressed ("Local Currency"), the
value of these portfolio assets in terms of U.S. dollars is calculated by
converting the Local Currency into U.S. dollars at the prevailing currency
exchange rate on the valuation date.
Purchase, Repurchase and Redemption of Shares
Fund Shares are sold at their public offering price, which is the net asset
value per such shares next determined after an order is received in proper form
plus, with respect to Class A Shares, an initial sales charge. The minimum
initial investment for Class A, B or C is $1,000 and the minimum subsequent
investment is $100 but such minimum amounts may be changed at any time. The Fund
may waive the minimum for purchases by trustees, directors, officers or
employees of the Fund or the Advisor and its affiliates. An order for the
purchase of Shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until the Fund determines that
it has received payment of the proceeds of the check. The time required for such
a determination will vary and cannot be determined in advance.
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<PAGE>
PURCHASE OF SHARES
Alternative Purchase Arrangements. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution/services fees. These differences are summarized in the table below.
Each class has distinct advantages and disadvantages for different investors,
and investors may choose the class that best suits their circumstances and
objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees^(1)
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge of 0.25%(1) Initial sales charge
5.75% of the public offering waived or reduced for
price^(2) certain purchases
Class B Maximum contingent deferred 1.00% Shares convert to Class
sales charge of 4% of redemption A shares six years after
proceeds; declines to zero after issuance
six years
Class C Contingent deferred sales charge 1.00% No conversion feature
of 1% of redemption proceeds
for redemptions made during
first year after purchase
</TABLE>
(1) There is a service fee of 0.25% for each class.
(2) Class A shares purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent deferred sales charge
if redeemed within one year of purchase and a 0.50% contingent deferred
sales charge if redeemed within the second year of purchase.
The minimum initial investment for each of Class A, B and C of the Fund is
$1,000 and the minimum subsequent investment is $100. The minimum initial
investment for an Individual Retirement Account is $250 and the minimum
subsequent investment is $50. Under an automatic investment plan, such as Bank
Direct Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent investment is $50. These minimum amounts may be changed
at any time in management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
Initial Sales Charge Alternative - Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
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<PAGE>
<TABLE>
<CAPTION>
Sales Charge
------------
Allowed to Dealers
As a Percentage As a Percentatge as a Percentage of
of Offering Price Net Asset Value* Offering Price
----------------- ---------------- --------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.20%
$50,000 but less than $100,000 4.50 4.71 4.00
$100,000 but less than $250,000 3.50 3.63 3.00
$250,000 but less than $500,000 2.60 2.67 2.25
$500,000 but less than $1 million 2.00 2.04 1.75
$1 million and over .00** .00** ***
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow to dealers up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed, such
dealers may be deemed to be underwriters as that term is defined in the 1933
Act.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in such Fund or other Scudder
Kemper Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases" totals at least $1,000,000 including purchases of Class A shares
pursuant to the "Combined Purchases," "Letter of Intent" and "Cumulative
Discount" features described under "Special Features"; or (b) a
participant-directed qualified retirement plan described in Code Section 401(a),
a participant-directed non-qualified deferred compensation plan described in
Code Section 457 or a participant-directed qualified retirement plan described
in Code Section 403(b)(7) which is not sponsored by a K-12 school district,
provided in each case that such plan has not less than 200 eligible employees
(the "Large Order NAV Purchase Privilege"). Redemption within two years of the
purchase of shares purchased under the Large Order NAV Purchase Privilege may be
subject to a contingent deferred sales charge. See "Redemption or Repurchase of
Shares -- Contingent Deferred Sales Charge -- Large Order NAV Purchase
Privilege."
KDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
shares pursuant to the Large Order NAV Purchase Privilege to employer-sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Scudder Kemper
Mutual Fund listed under "Special Features -- Class A Shares -- Combined
Purchases," including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features referred to above. The privilege of
purchasing Class A shares of the Fund at net asset value under the Large Order
NAV Purchase Privilege is not available if another net asset value purchase
privilege also applies.
Class A shares of the Fund or of any other Scudder Kemper Mutual Fund listed
under "Special Features -- Class A Shares -- Combined Purchases" may be
purchased at net asset value in any amount by members of the plaintiff class in
the proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is
generally non-transferable and continues for the lifetime of individual class
42
<PAGE>
members and for a ten-year period for non-individual class members. To make a
purchase at net asset value under this privilege, the investor must, at the time
of purchase, submit a written request that the purchase be processed at net
asset value pursuant to this privilege specifically identifying the purchaser as
a member of the "Tabankin Class." Shares purchased under this privilege will be
maintained in a separate account that includes only shares purchased under this
privilege. For more details concerning this privilege, class members should
refer to the Notice of (1) Proposed Settlement with Defendants; and (2) Hearing
to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in
connection with the aforementioned court proceeding. For sales of Fund shares at
net asset value pursuant to this privilege, KDI may in its discretion pay
investment dealers and other financial services firms a concession, payable
quarterly, at an annual rate of up to 0.25% of net assets attributable to such
shares maintained and serviced by the firm. A firm becomes eligible for the
concession based upon assets in accounts attributable to shares purchased under
this privilege in the month after the month of purchase and the concession
continues until terminated by KDI. The privilege of purchasing Class A shares of
the Fund at net asset value under this privilege is not available if another net
asset value purchase privilege also applies.
Class A shares of the Fund may be purchased at net asset value by persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Scudder Kemper Mutual Funds
pursuant to personal services contracts with KDI, for themselves or members of
their families. KDI in its discretion may compensate financial services firms
for sales of Class A shares under this privilege at a commission rate of 0.50%
of the amount of Class A shares purchased.
Class A shares of the Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, employees (including retirees) and sales representatives of the Fund,
its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Fund,
for themselves or their spouses or dependent children; (c) any trust, pension,
profit-sharing or other benefit plan for only such persons; (d) persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm; and (e) persons who purchase shares of the Fund
through KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase the Fund's Class A shares at net asset value through reinvestment
programs described in the prospectuses of such trusts that have such programs.
Class A shares of the Fund may be sold at net asset value through certain
investment advisors registered under the 1940 Act and other financial services
firms acting solely as agent for their clients, that adhere to certain standards
established by KDI, including a requirement that such shares be sold for the
benefit of their clients participating in an investment advisory program or
agency commission program under which such clients pay a fee to the investment
advisor or other firm for portfolio management or agency brokerage services.
Such shares are sold for investment purposes and on the condition that they will
not be resold except through redemption or repurchase by the Fund. The Fund may
also issue Class A shares at net asset value in connection with the acquisition
of the assets of or merger or consolidation with another investment company, or
to shareholders in connection with the investment or reinvestment of income and
capital gain dividends.
43
<PAGE>
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
Deferred Sales Charge Alternative -- Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares -- Contingent Deferred
Sales Charge -- Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when they have been
outstanding long enough for KDI to have been compensated for distribution
related expenses. For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and other distributions paid with respect
to Class B shares in a shareholder's Fund account will be converted to Class A
shares on a pro rata basis.
Purchase of Class C Shares. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares -- Contingent Deferred Sales Charge --
Class C Shares." KDI currently advances to firms the first year distribution fee
at a rate of 0.75% of the purchase price of such shares. For periods after the
first year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
Purchase of Class I Shares. Class I shares are offered at net asset value
without an initial sales charge and are not subject to a contingent deferred
sales charge or a Rule 12b-1 distribution fee. Also, there is no administration
services fee charged to Class I shares. As a result of the relatively lower
expenses for Class I shares, the level of income dividends per share (as a
percentage of net asset value) and, therefore, the overall investment value,
will typically be higher for Class I shares than for Class A, Class B, or Class
C shares.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Zurich
Scudder Investments, Inc. and its affiliates and rollover accounts from those
plans; (2) the following investment advisory clients of Zurich Scudder and its
investment advisory affiliates that invest at least $1 million in a Fund:
unaffiliated benefit plans, such as qualified retirement plans (other than
individual retirement accounts and self-directed retirement plans); unaffiliated
banks and insurance companies purchasing for their own accounts; and endowment
funds of unaffiliated non-profit organizations; (3) investment-only accounts for
large qualified plans, with at least $50 million in total plan assets or at
least 1,000 participants; (4) trust and fiduciary accounts of trust companies
and bank trust departments providing fee based advisory services that invest at
least $1 million in a Fund on behalf of each trust; (5) policy holders under
44
<PAGE>
Zurich-American Insurance Group's collateral investment program investing at
least $200,000 in a Fund; and (6) investment companies managed by Zurich Scudder
that invest primarily in other investment companies. Class I shares currently
are available for purchase only from KDI, principal underwriter for the Fund,
and, in the case of category (4) above, selected dealers authorized by KDI.
Share certificates are not available for Class I shares.
Which Arrangement is Better for You? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. In making
this decision, investors should review their particular circumstances carefully
with their financial representative. Investors making investments that qualify
for reduced sales charges might consider Class A shares. Investors who prefer
not to pay an initial sales charge and who plan to hold their investment for
more than six years might consider Class B shares. Investors who prefer not to
pay an initial sales charge but who plan to redeem their shares within six years
might consider Class C shares. KDI has established the following procedures
regarding the purchase of Class A, Class B and Class C shares. These procedures
do not reflect in any way the suitability of a particular class of shares for a
particular investor and should not be relied upon as such. That determination
must be made by investors with the assistance of their financial representative.
Orders for Class B shares or Class C shares for $500,000 or more will be
declined. Orders for Class B shares or Class C shares by employer sponsored
employee benefit plans (not including plans under Code Section 403 (b)(7)
sponsored by a K-12 school district) using the subaccount record keeping system
made available through the Shareholder Service Agent ("KemFlex Plans") will be
invested instead in Class A shares at net asset value where the combined
subaccount value in a Fund or other Kemper Mutual Funds listed under "Special
Features - Class A Shares - Combined Purchases" is in excess of $1 million for
Class B shares or $5 million for Class C shares including purchases pursuant to
the "Combined Purchases," "Letter of Intent" and "Cumulative Discount" features
described under "Special Features." KemFlex Plans that on May 1, 2000 have in
excess of $1 million invested in Class B shares of Kemper Mutual Funds, or have
in excess of $850,000 invested in Class B shares of Kemper Mutual Funds and are
able to qualify for the purchase of Class A shares at net asset value (e.g.,
pursuant to a Letter of Intent), will have future investments made in Class A
shares and will have the option to covert their holdings in Class B shares to
Class A shares free of any contingent deferred sales charge on May 1, 2002. For
more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
Class I shares are available only to certain institutional investors.
General. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks or other financial services firms may be subject to
various state laws regarding the services described above and may be required to
register as dealers pursuant to state law. If banking firms were prohibited from
acting in any capacity or providing any of the described services, management
would consider what action, if any, would be appropriate. KDI does not believe
that termination of a relationship with a bank would result in any material
adverse consequences to the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of shares of the Fund sold under the following conditions: (i) the purchased
shares are held in a Kemper IRA account, (ii) the shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
In addition to the discounts or commissions described above, KDI will, from time
to tome, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash, to firms that sell shares of the Fund. In some
instances, such discounts, commissions or other incentives will be offered only
to certain firms that sell or are expected to sell during specified time periods
certain minimum amounts of shares of the Fund, or other Funds underwritten by
KDI.
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<PAGE>
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value of the Fund next determined after receipt in good order
by KDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
(see "Net Asset Value") and received in good order by KDI prior to the close of
its business day will be confirmed at a price based on the net asset value
effective on that day ("trade date"). The Fund reserves the right to determine
the net asset value more frequently than once a day if deemed desirable. Dealers
and other financial services firms are obligated to transmit orders promptly.
Collection may take significantly longer for a check drawn on a foreign bank
than for a check drawn on a domestic bank. Therefore, if an order is accompanied
by a check drawn on a foreign bank, funds must normally be collected before
shares will be purchased. See "Purchase and Redemption of Shares."
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Fund's shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This prospectus should be read in connection with such firms'
material regarding their fees and services.
The Fund reserves the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders for any reason. Also, from time to
time, the Fund may temporarily suspend the offering of any class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders of such class of such Fund normally are permitted to continue to
purchase additional shares of such class and to have dividends reinvested.
Tax Identification Number. Be sure to complete the Tax Identification Number
section of the Fund's application when you open an account. Federal tax law
requires the Fund to withhold 31% of taxable dividends, capital gains
distributions and redemption and exchange proceeds from accounts (other than
those of certain exempt payees) without a correct certified Social Security or
tax identification number and certain other certified information or upon
notification from the IRS or a broker that withholding is required. The Fund
reserves the right to reject new account applications without a correct
certified Social Security or tax identification number. The Fund also 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 applicable Fund with a tax
identification number during the 30-day notice period.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this prospectus.
REDEMPTION OR REPURCHASE OF SHARES
General. Any shareholder may require the Fund to redeem his or her shares. When
shares are held for the account of a shareholder by the Fund's transfer agent,
the shareholder may redeem such shares by sending a written request with
signatures guaranteed to Scudder Kemper Mutual Funds, Attention: Redemption
Department, P.O. Box 219153, Kansas City, Missouri 64141-9153. When certificates
for shares have been issued, they must be mailed to or deposited with the
Shareholder Service Agent, along with a duly endorsed stock power and
accompanied by a written request for redemption. Redemption requests and a stock
power must be endorsed by the account holder with signatures guaranteed by a
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commercial bank, trust company, savings and loan association, federal savings
bank, member firm of a national securities exchange or other eligible financial
institution. The redemption request and stock power must be signed exactly as
the account is registered including any special capacity of the registered
owner. Additional documentation may be requested, and a signature guarantee is
normally required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.
The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Payment for shares redeemed will be made in cash
as promptly as practicable but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for transfer. When the Fund is asked to redeem shares for which
it may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase Privilege may be subject
to a contingent deferred sales charge (see "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares"), the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge -- Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge -- Class C Shares"
below).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $800 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer-sponsored employee benefit plans
using the subaccount record-keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
Telephone Redemptions. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder or guardian account holder by written instruction to the
Shareholder Service Agent with signatures guaranteed. Telephone requests may be
made by calling 1-800-621-1048. Shares purchased by check or through
EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this privilege
of redeeming shares by telephone request until such shares have been owned for
at least 10 days. This privilege of redeeming shares by telephone request or by
written request without a signature guarantee may not be used to redeem shares
held in certificated form and may not be used if the shareholder's account has
had an address change within 30 days of the redemption request. During periods
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when it is difficult to contact the Shareholder Service Agent by telephone, it
may be difficult to use the telephone redemption privilege, although investors
can still redeem by mail. The Fund reserves the right to terminate or modify
this privilege at any time.
Repurchases (Confirmed Redemptions). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. There
is no charge by KDI with respect to repurchases; however, dealers or other firms
may charge customary commissions for their services. Dealers and other financial
services firms are obligated to transmit orders promptly. The repurchase price
will be the net asset value of the Fund next determined after receipt of a
request by KDI. However, requests for repurchases received by dealers or other
firms prior to the determination of net asset value (see "Net Asset Value") and
received by KDI prior to the close of KDI's business day will be confirmed at
the net asset value effective on that day. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
Expedited Wire Transfer Redemptions. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in shares being redeemed that day at the net asset value per Share Fund
effective on that day and normally the proceeds will be sent to the designated
account the following business day. Delivery of the proceeds of a wire
redemption of $250,000 or more may be delayed by the Fund for up to seven days
if the Fund or the Shareholder Service Agent deems it appropriate under
then-current market conditions. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048 or in writing,
subject to the limitations on liability described under "General" above. The
Fund is not responsible for the efficiency of the federal wire system or the
account holder's financial services firm or bank. The Fund currently does not
charge the account holder for wire transfers. The account holder is responsible
for any charges imposed by the account holder's firm or bank. There is a $1,000
wire redemption minimum (including any contingent deferred sales charge). To
change the designated account to receive wire redemption proceeds, send a
written request to the Shareholder Service Agent with signatures guaranteed as
described above or contact the firm through which shares of the Fund were
purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire transfer until such shares have been owned
for at least 10 days. Account holders may not use this privilege to redeem
shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege, although investors can still
redeem by mail. The Fund reserves the right to terminate or modify this
privilege at any time.
Contingent Deferred Sales Charge - Large Order NAV Purchase Privilege. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer-sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f) redemptions of shares whose
dealer of record at the time of the investment notifies KDI that the dealer
waives the discretionary commission applicable to such Large Order NAV Purchase.
Contingent Deferred Sales Charge - Class B Shares. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
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shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
Year of Redemption Contingent Deferred
After Purchase Sales Charge
-------------- ------------
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special Features
-- Systematic Withdrawal Plan" below), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for redemptions
to satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts). The contingent deferred sales charge will
also be waived in connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the subaccount record
keeping system made available by the Shareholder Service Agent: (a) redemptions
to satisfy participant loan advances (note that loan repayments constitute new
purchases for purposes of the contingent deferred sales charge and the
conversion privilege), (b) redemptions in connection with retirement
distributions (limited at any one time to 10% of the total value of plan assets
invested in the Fund), (c) redemptions in connection with distributions
qualifying under the hardship provisions of the Internal Revenue Code and (d)
redemptions representing returns of excess contributions to such plans.
Contingent Deferred Sales Charge -- Class C Shares. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the shares redeemed excluding amounts not subject to the charge.
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special Features --
Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any IRA
systematic withdrawal based on the shareholder's life expectancy including, but
not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service Agent
(g) redemption of shares by an employer sponsored employee benefit plan that
offers funds in addition to Scudder Kemper Mutual Funds and whose dealer of
record has waived the advance of the first year administrative service and
distribution fees applicable to such shares and agrees to receive such fees
quarterly, and (g) redemption of shares purchased through a dealer-sponsored
asset allocation program maintained on an omnibus record-keeping system provided
the dealer of record had waived the advance of the first year administrative
services and distribution fees applicable to such shares and has agreed to
receive such fees quarterly.
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Contingent Deferred Sales Charge - General. The following example will
illustrate the operation of the contingent deferred sales charge. Assume that an
investor makes a single purchase of $10,000 of the Fund's Class B shares and
that 16 months later the value of the shares has grown by $1,000 through
reinvested dividends and by an additional $1,000 of share appreciation to a
total of $12,000. If the investor were then to redeem the entire $12,000 in
share value, the contingent deferred sales charge would be payable only with
respect to $10,000 because neither the $1,000 of reinvested dividends nor the
$1,000 of share appreciation is subject to the charge. The charge would be at
the rate of 3% ($300) because it was in the second year after the purchase was
made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in March
1998 will be eligible for the second year's charge if redeemed on or after March
1, 1999. In the event no specific order is requested when redeeming shares
subject to a contingent deferred sales charge, the redemption will be made first
from shares representing reinvested dividends and then from the earliest
purchase of shares. KDI receives any contingent deferred sales charge directly.
Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other Scudder Kemper Mutual Fund listed under "Special Features --
Class A Shares -- Combined Purchases" (other than shares of the Kemper Cash
Reserves Fund purchased directly at net asset value) may reinvest up to the full
amount redeemed at net asset value at the time of the reinvestment in Class A
shares of the Fund or of the other listed Scudder Kemper Mutual Funds. A
shareholder of the Fund or other Scudder Kemper Mutual Funds who redeems Class A
shares purchased under the Large Order NAV Purchase Privilege (see "Purchase of
Shares -- Initial Sales Charge Alternative -- Class A Shares") or Class B shares
or Class C shares and incurs a contingent deferred sales charge may reinvest up
to the full amount redeemed at net asset value at the time of the reinvestment,
in the same class of shares as the case may be, of the Fund or of other Scudder
Kemper Mutual Funds. The amount of any contingent deferred sales charge also
will be reinvested. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge schedule.
Also, a holder of Class B shares who has redeemed shares may reinvest up to the
full amount redeemed, less any applicable contingent deferred sales charge that
may have been imposed upon the redemption of such shares, at net asset value in
Class A shares of the Fund or of the other Scudder Kemper Mutual Funds listed
under "Special Features -- Class A Shares -- Combined Purchases." Purchases
through the reinvestment privilege are subject to the minimum investment
requirements applicable to the shares being purchased and may only be made for
Scudder Kemper Mutual Funds available for sale in the shareholder's state of
residence as listed under "Special Features -- Exchange Privilege." The
reinvestment privilege can be used only once as to any specific shares and
reinvestment must be effected within six months of the redemption. If a loss is
realized on the redemption of shares of the Fund, the reinvestment in shares of
the Fund may be subject to the "wash sale" rules if made within 30 days of the
redemption, resulting in a postponement of the recognition of such loss for
federal income tax purposes. The reinvestment privilege may be terminated or
modified at any time.
Redemption in Kind. Although it is the Fund's present policy to redeem in cash,
if the Board of Directors determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the SEC, taking such securities at the same value used to
determine net asset value, and selecting the securities in such manner as the
Board of Directors may deem fair and equitable. If such a distribution occurred,
shareholders receiving securities and selling them could receive less than the
redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be as liquid as a redemption
entirely in 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 a Share at the
beginning of the period.
SPECIAL FEATURES
Class A Shares -- Combined Purchases. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
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following Funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Strategic Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International Fund, Kemper State Tax-Free Income Series, Kemper Blue Chip Fund,
Kemper Global Income Fund, Kemper Target Equity Fund (series are subject to a
limited offering period), Kemper Intermediate Municipal Bond Fund, Kemper Cash
Reserves Fund (available only upon exchange or conversion from Class A shares of
another Scudder Kemper Mutual Fund), Kemper U.S. Mortgage Fund, Kemper
Short-Intermediate Government Fund, Kemper Value Plus Growth Fund, Kemper
Horizon Fund, Kemper New Europe Fund, Inc., Kemper Asian Growth Fund, Kemper
Aggressive Growth Fund, Kemper Global/International Series, Inc., Kemper Equity
Trust and Kemper Securities Trust, Scudder 21st Century Growth Fund, The Japan
Fund, Inc., Scudder High Yield Tax Free Fund, Scudder Pathway Series -Moderate
Portfolio, Scudder Pathway Series - Conservative Portfolio, Scudder Pathway
Series - Growth Portfolio, Scudder International Fund, Scudder Growth and Income
Fund, Scudder Large Company Growth Fund, Scudder Health Care Fund, Scudder
Technology Innovation Fund, Global Discovery Fund, Value Fund, and Classic
Growth Fund ("Scudder Kemper Mutual Funds"). Except as noted below, there is no
combined purchase credit for direct purchases of shares of Zurich Money Funds,
Cash Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account
Trust, Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market
Funds"), which are not considered a "Scudder Kemper Mutual Fund" for purposes
hereof. For purposes of the Combined Purchases feature described above as well
as for the Letter of Intent and Cumulative Discount features described below,
employer sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent may include: (a)
Money Market Funds as "Kemper Mutual Funds", (b) all classes of shares of any
Scudder Kemper Mutual Fund and (c) the value of any other plan investments, such
as guaranteed investment contracts and employer stock, maintained on such
subaccount record keeping system.
Class A Shares - Letter of Intent. The same reduced sales charges for Class A
shares, as shown in the applicable prospectus, also apply to the aggregate
amount of purchases of such Scudder Kemper Mutual Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer-sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Scudder Kemper Mutual Funds held of record as of the initial purchase
date under the Letter as an "accumulation credit" toward the completion of the
Letter, but no price adjustment will be made on such shares. Only investments in
Class A shares are included for this privilege.
Class A Shares - Cumulative Discount. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Scudder Kemper Mutual Funds (computed at the maximum
offering price at the time of the purchase for which the discount is applicable)
already owned by the investor.
Class A Shares - Availability of Quantity Discounts. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
Exchange Privilege. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Scudder
Kemper Mutual Funds in accordance with the provisions below.
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Class A Shares. Class A shares of the Scudder Kemper Mutual Funds and shares of
the Money Market Funds listed under "Special Features -- Class A Shares --
Combined Purchases" above may be exchanged for each other at their relative net
asset values. Shares of Money Market Funds and the Kemper Cash Reserves Fund
that were acquired by purchase (not including shares acquired by dividend
reinvestment) are subject to the applicable sales charge on exchange. Series of
Kemper Target Equity Fund are available on exchange only during the Offering
Period for such series as described in the applicable prospectus. Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investors Municipal Cash Fund and Investors Cash Trust are available on exchange
but only through a financial services firm having a services agreement with KDI.
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Scudder Kemper Mutual
Fund or a Money Market Fund under the exchange privilege described above without
paying any contingent deferred sales charge at the time of exchange. If the
Class A shares received on exchange are redeemed thereafter, a contingent
deferred sales charge may be imposed in accordance with the foregoing
requirements provided that the shares redeemed will retain their original cost
and purchase date for purposes of calculating the contingent deferred sales
charge.
Class B Shares. Class B shares of the Fund and Class B shares of any other
Scudder Kemper Mutual Fund listed under "Special Features -- Class A Shares --
Combined Purchases" may be exchanged for each other at their relative net asset
values. Class B shares may be exchanged without a contingent deferred sales
charge being imposed at the time of exchange. For purposes of calculating the
contingent deferred sales charge that may be imposed upon the redemption of the
Class B shares received on exchange, amounts exchanged retain their original
cost and purchase date.
Class C Shares. Class C shares of the Fund and Class C shares of any other
Scudder Kemper Mutual Fund listed under "Special Features -- Class A Shares --
Combined Purchases" may be exchanged for each other at their relative net asset
values. Class C shares may be exchanged without a contingent deferred sales
charge being imposed at the time of exchange. For purposes of determining
whether there is a contingent deferred sales charge that may be imposed upon the
redemption of the Class C shares received by exchange, they retain the cost and
purchase date of the shares that were originally purchased and exchanged.
General. Shares of a Scudder Kemper Mutual Fund with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange through
another Scudder Kemper Mutual Fund, or from a Money Market Fund, may not be
exchanged thereafter until they have been owned for 15 days (the "15-Day Hold
Policy"). In addition, shares of a Scudder Kemper Mutual Fund with a value of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
another Scudder Kemper Mutual Fund, or from a money market fund, may not be
exchanged thereafter until they have been owned for 15 days, if, in the
Advisor's judgment, the exchange activity may have an adverse effect on the
fund. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to the Scudder Kemper Mutual Fund and
therefore may be subject to the 15-Day Hold Policy.
For purposes of determining whether the 15-Day Hold Policy applies to a
particular exchange, the value of the shares to be exchanged shall be computed
by aggregating the value of shares being exchanged for all accounts under common
control, discretion or advice, including, without limitation, accounts
administered by a financial services firm offering market timing, asset
allocation or similar services. The total value of shares being exchanged must
at least equal the minimum investment requirement of the Scudder Kemper Mutual
Fund into which they are being exchanged. Exchanges are made based on relative
dollar values of the shares involved in the exchange. There is no service fee
for an exchange; however, dealers or other firms may charge for their services
in effecting exchange transactions. Exchanges will be effected by redemption of
shares of the fund held and purchase of shares of the other fund. For federal
income tax purposes, any such exchange constitutes a sale upon which a gain or
loss may be realized, depending upon whether the value of the shares being
exchanged is more or less than the shareholder's adjusted cost basis of such
shares. Shareholders interested in exercising the exchange privilege may obtain
prospectuses of the other Funds from dealers, other firms or KDI. Exchanges may
be accomplished by a written request to Kemper Service Company, Attention:
Exchange Department, P.O. Box 419557, Kansas City, Missouri 64141-6557, or by
telephone if the shareholder has given authorization. Once the authorization is
on file, the Shareholder Service Agent will honor requests by telephone at
1-800-621-1048, subject to the limitations on liability under "Redemption or
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Repurchase of Shares -- General." Any share certificates must be deposited prior
to any exchange of such shares. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
telephone exchange privilege. The exchange privilege is not a right and may be
suspended, terminated or modified at any time. Exchanges may only be made for
Funds that are available for sale in the shareholder's state of residence.
Currently, Tax-Exempt California Money Market Fund is available for sale only in
California and Investors Municipal Cash Fund is available for sale only in
certain states. Except as otherwise permitted by applicable regulations, 60
days' prior written notice of any termination or material change will be
provided.
Systematic Exchange Privilege. The owner of $1,000 or more of any class of the
shares of a Scudder Kemper Mutual Fund or Money Market Fund may authorize the
automatic exchange of a specified amount ($50 minimum) of such shares for shares
of the same class of another such Scudder Kemper Mutual Fund. If selected,
exchanges will be made automatically until the shareholder or the Scudder Kemper
Mutual Fund terminates the privilege. Exchanges are subject to the terms and
conditions described above under "Exchange Privilege," except that the $1,000
minimum investment requirement for the Scudder Kemper Mutual Fund acquired on
exchange is not applicable. This privilege may not be used for the exchange of
shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated ClearingHouse System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem Shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such Shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares -- General." Once enrolled
in EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
Bank Direct Deposit. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (minimum $50
and maximum $50,000) from the shareholder's account at a bank, savings and loan
or credit union into the shareholder's Fund account. By enrolling in Bank Direct
Deposit, the shareholder authorizes the Fund and its agents to either draw
checks or initiate Automated ClearingHouse debits against the designated account
at a bank or other financial institution. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Shareholder Service Agent for appropriate forms. A shareholder may terminate
his or her Plan by sending written notice to Kemper Service Company, P.O. Box
419415, Kansas City, Missouri 64141-6415. Termination by a shareholder will
become effective within thirty days after the Shareholder Service Agent has
received the request. The Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Fund may terminate or modify this privilege at any time.
Payroll Direct Deposit and Government Direct Deposit. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
53
<PAGE>
Systematic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to Individual Retirement Accounts. The minimum periodic
payment is $50. The maximum annual rate at which Class B shares may be redeemed
(and Class A shares purchased under the Large Order NAV Purchase Privilege and
Class C shares in their first year following the purchase) under a systematic
withdrawal plan is 10% of the net asset value of the account. Shares are
redeemed so that the payee will receive payment approximately the first of the
month. Any income and capital gain dividends will be automatically reinvested at
net asset value. A sufficient number of full and fractional shares will be
redeemed to make the designated payment. Depending upon the size of the payments
requested and fluctuations in the net asset value of the shares redeemed,
redemptions for the purpose of making such payments may reduce or even exhaust
the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
Tax-Sheltered Retirement Plans. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
This includes Savings Incentive Match Plan for Employees of Small Employers
("SIMPLE"), Simplified Employee Pension Plan ("SEP") IRA accounts and
prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted by
employers. The maximum annual contribution per participant is the lesser of
25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, simple 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisors before
establishing a retirement plan.
The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the Exchange is closed other than customary
weekend and holiday closings or during any period in which trading on the
Exchange is restricted, (b) during any period when an emergency exists as a
result of which (i) disposal of the Fund's investments is not reasonably
practicable, or (ii) it is not reasonably practicable for the Fund to determine
the value of its net assets, or (c) for such other periods as the SEC may by
order permit for the protection of the Fund's shareholders.
54
<PAGE>
The conversion of Class B Shares to Class A Shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B Shares and
not Class A Shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B Shares to Class A Shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B Shares to Class
A Shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B Shares would occur, and Shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described in the prospectus.
OFFICERS AND DIRECTORS
The officers and Directors of the Corporation, their ages, their principal
occupations and their affiliations, if any, with the Advisor, and Kemper
Distributors, Inc., are as follows:
<TABLE>
<CAPTION>
Position with
Underwriter,
Position with Kemper
Name, Age, and Address Fund Principal Occupation** Distributors, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
<S> <C> <C> <C>
Henry P. Becton, Jr. (56) Director President, WGBH Educational Foundation --
WGBH
125 Western Avenue
Allston, MA 02134
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Linda C. Coughlin (48)+* Director and President Managing Director of Zurich Scudder Director and Vice
Investments, Inc. Chairman
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Dawn-Marie Driscoll (53) Director Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley College;
Cape Coarl, FL 33914 President, Driscoll Associates
(consulting firm)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Edgar R. Fiedler (70) Director Senior Fellow and Economic --
50023 Brogden Counselor, The Conference Board,
Chapel Hill, NC Inc.(not-for-profit business
research organization)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Keith R. Fox (45) Director General Partner, The Exeter Group of --
10 East 53rd Street Funds; Private Equity Investor
New York, NY 10022
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
55
<PAGE>
Position with
Underwriter,
Position with Kemper
Name, Age, and Address Fund Principal Occupation** Distributors, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan E. Spero (55) Director President, Doris Duke Charitable --
Doris Duke Charitable Foundation Foundation; Department of State -
650 Fifth Avenue Undersecretary of State for Economic,
New York, NY 10128 Business and Agricultural Affairs
(March 1993 to January 1997)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean Gleason Stromberg (56) Director Consultant; Director, Financial --
3816 Military Road, NW Institutions Issues, U.S. General
Washington, D.C. Accounting Office (1996-1997);
Partner, Fulbright & Jaworski (law
firm) (1978-1996)
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Jean C. Tempel (56) Director Managing Director, First Light --
One Boston Place 23rd Floor Capital, LLC (venture capital firm)
Boston, MA 02108
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Steven Zaleznick (45)* Director President and CEO, AARP Services, Inc. --
601 E Street
Washington, D.C. 20004
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Thomas V. Bruns (43)# Vice President Managing Director of Zurich Scudder President
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Irene T. Cheng (44)++ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joyce E. Cornell (55)++ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Carol L. Franklin (46)++ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Edmund B. Games, Jr. (61)+ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
William F. Glavin (41)+ Vice President Managing Director of Zurich Scudder Managing Director
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Joan Gregory (55)++ Vice President Vice President of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
James E. Masur (40)+ Vice President Senior Vice President of Zurich --
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
56
<PAGE>
Position with
Underwriter,
Position with Kemper
Name, Age, and Address Fund Principal Occupation** Distributors, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
Ann M. McCreary (43)++ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Kathryn L. Quirk (47)++ Vice President and Managing Director of Zurich Scudder Director, Secretary,
Assistant Secretary Investments, Inc. Chief Legal Officer and
Vice President
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Howard S. Schneider (43)+ Vice President Managing Director of Zurich Scudder __
Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Tien-Yu Sieh (31)++ Vice President Senior Vice President of Zurich __
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John R. Hebble (42)+ Treasurer Senior Vice President of Zurich __
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Brenda Lyons (37)+ Assistant Treasurer Senior Vice President of Zurich
Scudder Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
Caroline Pearson (38)+ Assistant Secretary Senior Vice President of Zurich __
Scudder Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
---------------------------------- ----------------------- --------------------------------------- -------------------------
---------------------------------- ----------------------- --------------------------------------- -------------------------
John Millette (37)+ Vice President and Vice President of Zurich Scudder --
Secretary Investments, Inc.
---------------------------------- ----------------------- --------------------------------------- -------------------------
</TABLE>
* Ms. Coughlin and Mr. Zaleznick are considered by the Fund and its counsel
to be persons who are "interested persons" of the Advisor or of the
Corporation, within the meaning of the 1940 Act.
** Unless otherwise stated, all of the Directors and officers have been
associated with their respective companies for more than five years, but
not necessarily in the same capacity.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
# 222 South Riverside Plaza, Chicago, Illinois
The Directors and Officers of the Corporation also serve in similar capacities
with other Scudder Funds.
To the best of the Corporation's knowledge, as of November 30, 2000, all
Directors and officers of the Corporation, as a group, owned beneficially (as
that term is defined in Section 13 (d) under the Securities Exchange Act of
1934) less than 1% of the outstanding shares of any class of Scudder
International Fund.
57
<PAGE>
To the best of the Fund's knowledge, as of November 30, 2000, no person owned of
record more than 5% or more of the outstanding shares of any class of Scudder
International Fund, except as stated below. They may be deemed to be the
beneficial owner of certain of these shares.
As of November 30, 2000, 11,200,992 shares in the aggregate, or 13.39% of the
outstanding shares of Scudder International Fund Class S - were held in the name
of Charles Schwab, 101 Montgomery Street, San Francisco, CA 9410 who may deemed
to be the beneficial owner of such shares.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Directors of the Corporation is responsible for the general
oversight of the Fund's business. A majority of the Board's members are not
affiliated with Zurich Scudder 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 of the Corporation and other operational matters,
including policies and procedures designated to assure compliance with various
regulatory requirements. At least annually, the Independent Directors review the
fees paid to Scudder and its affiliates for investment advisory services and
other administrative and shareholder services. In this regard, they evaluate,
among other things, the quality and efficiency of the various other services
provided, costs incurred by Scudder and its affiliates, and comparative
information regarding fees and expenses of competitive funds. They are assisted
in this process by the Fund's independent public accountants and by independent
legal counsel selected by the Independent Directors.
All of the Independent Directors serve on the Committee of Independent
Directors, which nominates Independent Directors and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Directors from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Directors of the Fund
Each Independent Director receives compensation for his or her services, which
includes an annual retainer and an attendance fee for each meeting attended. The
Independent Director who serves as lead trustee receives additional compensation
for his or her service. 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
trustee 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 Advisor. 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 1999 from the Corporation and from all of the Scudder funds as a group.
<TABLE>
<CAPTION>
Scudder International
Name Fund, Inc.* All Scudder Funds
-------------------------------- --------------------------- -----------------------------
<S> <C> <C> <C>
Henry P. Becton, Jr.** $0 $140,000 (30 funds)
-------------------------------- --------------------------- -----------------------------
Dawn-Marie Driscoll** $0 $150,000 (30 funds)
-------------------------------- --------------------------- -----------------------------
Edgar R. Fiedler+** $0 $73,230 (29 funds)
-------------------------------- --------------------------- -----------------------------
Keith R. Fox $43,650 $160,325 (23 funds)
-------------------------------- --------------------------- -----------------------------
58
<PAGE>
Scudder International
Name Fund, Inc.* All Scudder Funds
-------------------------------- --------------------------- -----------------------------
Joan E. Spero $47,550 $175,275 (23 funds)
-------------------------------- --------------------------- -----------------------------
Jean Gleason Stromberg** $0 $40,935 (16 funds)
-------------------------------- --------------------------- -----------------------------
Jean C. Tempel** $0 $140,000 (30 funds)
-------------------------------- --------------------------- -----------------------------
</TABLE>
* In 1999, Scudder International Fund, Inc. consisted 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 Value Fund and Scudder International Growth Fund.
** Newly elected Director. On July 7, 2000, shareholders of the Fund elected a
new Board of Directors. See the "Directors and Officers" section for the
newly constituted Board of Directors.
+ Mr. Fiedler's total compensation includes the $9,900 accrued, but not
received, through the deferred compensation program.
Members of the Board of Directors who are employees of the Advisor or its
affiliates receive no direct compensation from the Corporation, although they
are compensated as employees of the Advisor, or its affiliates, as a result of
which they may be deemed to participate in fees paid by the Fund.
SHAREHOLDER RIGHTS
Scudder International Fund, Inc. 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 2,247,923,888
billion shares of a par value of $.01 each, which capital stock has been divided
into five series: Scudder International Fund, the original series; Scudder Latin
America Fund and Scudder Pacific Opportunities Fund, both organized in December
1992, Scudder Greater Europe Growth Fund, organized in October 1994, and Scudder
Emerging Markets Growth Fund, organized in May 1996. Each series consists of 320
million shares except for International Fund which consists of 620,595,597
million shares. Scudder International Fund is further divided into seven classes
of shares, Class AARP, Class S, Barrett International Shares, Class A (formerly
known as Class R shares), Class B, Class C, and Class I shares. Scudder Latin
America Fund, Scudder Pacific Opportunities Fund, Scudder Greater Europe Growth
Fund and Scudder Emerging Markets Growth Fund are each further divided into five
classes of shares, Class AARP, Class S, Class A, Class B and Class C. 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, subject to such charges as may
be applicable, at the option of the shareholder. Shares have no pre-emptive or
conversion rights. To the extent that the Funds offer additional share classes,
these classes will be offered in a separate prospectus and have different fees,
requirements and services.
59
<PAGE>
The Directors of the Corporation, in their discretion, may authorize the
additional division of 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 assets of the Corporation received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Corporation. If a series were unable to meet its obligations,
the assets of all other series may in some circumstances be available to
creditors for that purpose, in which case the assets of such other series could
be used to meet liabilities which are not otherwise properly chargeable to them.
Expenses with respect to any two or more series are to be allocated in
proportion to the asset value of the respective series except where allocations
of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series and by class on matters affecting an individual class. For example, a
change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.
The Corporation's Board of Directors supervises the Fund's activities. The
Corporation adopted a plan pursuant to Rule 18f-3 under the 1940 Act (the
"Plan") to permit the Corporation to establish a multiple class distribution
system for the Fund.
Under the Plan, each class of shares will represent interests in the same
portfolio of investments of the Series, and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Series will relate solely to: (a) different
distribution fee payments or service fee payments associated with any Rule 12b-1
Plan for a particular class of shares and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto) which will be borne
solely by shareholders of such class; (b) different service fees; (c) different
account minimums; (d) the bearing by each class of its Class Expenses, as
defined in Section 2(b) below; (e) the voting rights related to any Rule 12b-1
Plan affecting a specific class of shares; (f) separate exchange privileges; (g)
different conversion features and (h) different class names and designations.
60
<PAGE>
Expenses currently designated as "Class Expenses" by the Corporation's Board of
Directors under the Plan include, for example, transfer agency fees attributable
to a specific class, and certain securities registration fees.
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 Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall not be liable for actions 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 of
the Corporation 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.
ADDITIONAL INFORMATION
Other Information
The CUSIP numbers of the classes are:
Class A: 811165-810
Class B: 811165-794
Class C: 811165-786
Class I: 811165-778
The Fund has a fiscal year ending August 31. On June 7, 1999, the Directors of
the Fund changed the fiscal year end of the Fund from March 31 to August 31.
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
61
<PAGE>
made by the Advisor in light of the Fund's investment objectives and policies,
its other portfolio holdings and tax considerations, and should not be construed
as recommendations for similar action by other investors.
The Fund employs Brown Brothers Harriman & Company, 40 Water Street, Boston,
Massachusetts 02109 as Custodian for the Fund.
The law firm of Dechert is counsel to the Fund.
The Fund's Shares prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement and its amendments
which the Fund has filed with the SEC under the 1933 Act and reference is hereby
made to the Registration Statement for further information with respect to the
Fund and the securities offered hereby. The Registration Statement and its
amendments are available for inspection by the public at the SEC in Washington,
D.C.
Financial Statements
The financial statements, including the investment portfolio of the Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Fund dated August 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.
62
<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.
63
<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.
64
<PAGE>
<PAGE>
SCUDDER INTERNATIONAL FUND, INC.
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 of Amendment 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.)
<PAGE>
(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.)
(a)(13) Articles Supplementary dated June 7, 1999.
(Incorporated by reference to Post-Effective Amendment No. 72 to
the Registration Statement.)
(a)(14) Articles Supplementary dated March 31, 2000 is incorporated by
reference to Post-Effective Amendment No. 79 to the Registration
Statement.
(a)(15) Articles of Amendment dated August 11, 2000 is filed herein.
(a)(16) Articles Supplementary dated November 30, 2000 is filed herein.
(a)(17) Articles Supplementary dated November 30, 2000 is filed herein.
(a)(18) Articles Supplementary dated December 26, 2000 is filed herein.
(a)(19) Articles of Amendment dated December 26, 2000 is filed herein.
(a)(20) Articles Supplementary dated December 26, 2000 is filed herein.
(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.)
2
<PAGE>
(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.)
(b)(6) Amended and Restated By-Laws of the Registrant dated February 7,
2000 is incorporated by reference to Post-Effective Amendment No.
80 to the Registration Statement.
(b)(7) Amendment to the By-laws, dated November 13, 2000, is filed herein.
(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.)
(d)(9) Investment Management Agreement between the Registrant, on behalf
of Scudder International Fund, Inc. and Scudder Kemper
Investments, Inc. dated August 14, 2000 is filed herein.
(d)(10) Amended and Restated Investment Management Agreement between the
Registrant, on behalf of Scudder Pacific Opportunities Fund and
Scudder Kemper Investments, Inc. dated May 8, 2000 is
incorporated by reference to Post-Effective Amendment No. 80 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.)
(e)(2) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated May 8, 2000 is incorporated by reference to
Post-Effective Amendment No. 80 to the Registration Statement.
(e)(3) Underwriting and Distribution Services Agreement between the
Registrant and Kemper Distributors, Inc. (on behalf of Scudder
Emerging Markets Growth Fund, Scudder Greater Europe Growth Fund,
Scudder International Fund, Scudder Latin America Fund and Scudder
Pacific Opportunities Fund), dated November 9, 2000, is filed
herein.
4
<PAGE>
(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.)
(g)(6) Revised fee schedule for Exhibit (g)(4) is filed herein.
(g)(7) 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)(8) Fee schedule for Exhibit (g)(6).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(9) 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)(10) Fee schedule for Exhibit (g)(8).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
5
<PAGE>
(g)(11) 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)(12) Fee schedule for Exhibit (g)(10).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.).
(g)(13) 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)(14) Fee schedule for Exhibit (g)(12).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(15) 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)(16) 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.)
(h)(2) Fee schedule for Exhibit (h)(1).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(3) Agency Agreement between the Registrant (on behalf of Scudder
International Fund) and Kemper Service Company, dated November 8,
2000, is filed herein.
(h)(4) 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.)
6
<PAGE>
(h)(5) 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)(6) 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)(7) 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)(8) 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)(9) 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)(10) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Fund, and Scudder Fund Accounting
Corporation dated April 12, 1995 is
incorporated by reference to Post-Effective Amendment No. 45 to
the Registration Statement.
(h)(11) 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)(12) 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.)
7
<PAGE>
(h)(13) 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.)
(h)(14) 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)(15) 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)(16) 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)(17) Revised Fund Accounting Services Agreement between the Registrant
(on behalf of Scudder International Fund) and Scudder Fund
Accounting Corporation, dated November 13, 2000, is filed herein.
(h)(18) 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. 72 to
the Registration Statement.)
(h)(19) Fee schedule for Exhibit (h)(16).
(Incorporated by reference to Post-Effective Amendment No. 72 to
the Registration Statement.)
(h)(20) Agency Agreement between Scudder International Fund, Inc., and
Kemper Service Company dated June 7, 1999.
(Incorporated by reference to Post-Effective Amendment No. 72 to
the Registration Statement.)
(h)(21) Administrative Agreement between the Registrant on behalf of
Scudder International Fund, Inc. and Scudder Kemper Investments,
Inc. dated October 2, 2000 is filed herein.
8
<PAGE>
(h)(22) Amended and Restated Administrative Agreement between the
Registrant and Scudder Kemper Investments, Inc., dated November
13, 2000, is filed herein.
(h)(23) Shareholder Services Agreement between the Registrant and Kemper
Distributors, Inc., dated November 13, 2000, is filed herein.
(i) Opinion and Consent of Counsel is filed herein.
(j) Consent of Independent Accountants is filed herein.
(k) Inapplicable.
(l) Inapplicable.
(m) (m)(1) Rule 12(b)-1 and Administrative Services Plan with respect to
Scudder International Fund Class R shares.
(Incorporated by reference to Post-Effective Amendment No. 72 to
the Registration Statement.)
(m)(2) Amended and Restated Rule 12b-1 Plan for Scudder International
Fund, dated November 13, 2000, is filed herein.
(n) (n)(1) Plan with respect to Scudder International Fund pursuant to
Rule 18f-3.
(Incorporated by reference to Post-Effective Amendment No. 58
Exhibit (o)(1) to the Registration Statement.)
(n)(2) Amended Plan with respect to Scudder International Fund pursuant
to Rule 18f-3 dated June 7, 1999. (Incorporated by reference to
Post-Effective Amendment No. 72 Exhibit (o)(2) to the Registration
Statement.)
(n)(3) Amended and Restated Plan with respect to Scudder International
Fund pursuant to Rule 18f-3 is filed herein.
(n)(4) Plan with respect to Scudder Latin America Fund pursuant to
Rule 18f-3 is incorporated by reference to Post-Effective
Amendment No. 80 to the Registration Statement.
(n)(5) Plan with respect to Scudder Pacific Opportunities Fund pursuant
to Rule 18f-3 is incorporated by reference to Post-Effective
Amendment No. 80 to the Registration Statement.
(n)(6) Plan with respect to Scudder Greater Europe Growth Fund pursuant
to Rule 18f-3 is incorporated by reference to Post-Effective
Amendment No. 80 to the Registration Statement.
9
<PAGE>
(n)(7) Plan with respect to Scudder Emerging Markets Growth Fund pursuant
to Rule 18f-3 is incorporated by reference to Post-Effective
Amendment No. 80 to the Registration Statement.
(n)(8) Amended and Restated Plan with respect to Scudder International
Fund pursuant to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 80 to the Registration Statement.
(n)(9) Amended and Restated Plan with respect to Scudder Pacific
Opportunities Fund pursuant to Rule 18f-3 is incorporated by
reference to Post-Effective Amendment No. 80 to the Registration
Statement.
(n)(10) Amended and Restated Plan with respect to Scudder Latin America
Fund pursuant to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 80 to the Registration Statement.
(n)(11) Amended and Restated Plan with respect to Scudder Greater Europe
Growth Fund pursuant to Rule 18f-3 is incorporated by reference
to Post-Effective Amendment No. 80 to the Registration Statement.
(n)(12) Amended and Restated Plan with respect to Scudder Emerging Markets
Growth Fund pursuant to Rule 18f-3 is incorporated by reference
to Post-Effective Amendment No. 80 to the Registration Statement.
(n)(13) Amended and Restated Plan with respect to Scudder International
Fund pursuant to Rule 18f-3 is incorporated by reference to
Post-Effective Amendment No. 80 to the Registration Statement.
(p) (p)(1) Scudder Kemper Investments, Inc. and Scudder Investor Services,
Inc. Code of Ethics is incorporated by reference to Post-Effective
Amendment No. 79 Exhibit p to the Registration Statement.
(p)(2) Code of Ethics of Scudder International Fund, Inc. is
incorporated by reference to Post-Effective Amendment No. 80 to
the Registration Statement.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant.
-------- --------------------------------------------------------------
None
10
<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
11
<PAGE>
amended, or the Investment Company Act of 1940, as amended, or
of any valid rule, regulation or order of the Securities and
Exchange Commission under those Acts or (ii) protect any
director or officer of the Corporation against any liability
to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of his or
her obligations and duties hereunder.
Article V of Registrant's Amended and Restated By-Laws states
as follows:
ARTICLE V
---------
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 1. Indemnification of Directors and Officers. Any person who
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, 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
12
<PAGE>
Law, the Securities Act of 1933 and the 1940 Act, as such statutes are now or
hereafter in force, whether the standards required by this Article V have been
met; provided, however, that indemnification shall be made only following: (1) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the person to be indemnified was not liable by reason of
disabling conduct or (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the person to be
indemnified was not liable by reason of disabling conduct, by (a) the vote of
the majority of a quorum of disinterested non-party Directors or (b) an
independent legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or Directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933 and the 1940 Act, as such statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as may be provided by action
of the Board of Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action by a Director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a Director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
SECTION 6. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a Director,
officer, employee or agent 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
---- ------------------------------------
13
<PAGE>
<S> <C>
Stephen R. Beckwith Treasurer, Scudder Kemper Investments, Inc.**
Director, Kemper Service Company
Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director and Treasurer, 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**
Director and Chairman, Scudder Threadneedle International Ltd.
Director, Scudder Kemper Holdings (UK) Ltd. oo
Director and President, Scudder Realty Holdings Corporation *
Director, Scudder, Stevens & Clark Overseas Corporation o
Director and Treasurer, Zurich Investment Management, Inc. xx
Director and Treasurer, Zurich Kemper Investments, Inc.
Lynn S. Birdsong Director, Vice President and Chief Investment Officer, Scudder Kemper Investments,
Inc.**
Director and Chairman, Scudder Investments (Luxembourg) S.A.#
Director, Scudder Investments (U.K.) Ltd. oo
Director and Chairman of the Board, Scudder Investments Asia, Ltd. ooo
Director and Chairman, Scudder Investments Japan, Inc. +
Senior Vice President, Scudder Investor Services, Inc.
Director and Chairman, Scudder Trust (Cayman) Ltd. @@@
Director, Scudder, Stevens & Clark Australia x
Director and Vice President, Zurich Investment Management, Inc. xx
Director and President, Scudder, Stevens & Clark Corporation **
Director and President, Scudder , Stevens & Clark Overseas Corporation o
Director, Scudder Threadneedle International Ltd.
Director, Korea Bond Fund Management Co., Ltd. @@
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company xxx
Nicholas Bratt Director, Scudder Kemper Investments, Inc.**
Vice President, Scudder, Stevens & Clark Corporation **
Vice President, Scudder, Stevens & Clark Overseas Corporation 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 xxx
Director, ZKI Holding Corporation xx
14
<PAGE>
Harold D. Kahn Chief Financial Officer, Scudder Kemper Investments, Inc.**
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Vice President, Chief Legal Officer and Secretary, Kemper Distributors,
Inc.
Director and Secretary, Kemper Service Company
Director, Senior Vice President, Chief Legal Officer & Assistant Clerk, Scudder
Investor Services, Inc.
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director and Secretary, 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. @
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation o
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, Chief Legal Officer and Secretary, Scudder Financial
Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd. @@
Director, Scudder Threadneedle International Ltd.
Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd.
Director, Scudder Investments Japan, Inc. +
Director and Secretary, Scudder Kemper Holdings (UK) Ltd. oo
Director and Secretary, Zurich Investment Management, Inc. xx
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 o
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc. @
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of
Luxembourg
Director, Scudder Threadneedle International Ltd.
Director, Scudder Investments Japan, Inc. +
Director, Scudder Kemper Holdings (UK) Ltd. oo
President and Director, Zurich Investment Management, Inc. xx
Director and Deputy Chairman, Scudder Investment Holdings Ltd.
</TABLE>
* Two International Place, Boston, MA
15
<PAGE>
@ 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
@@@ Grand Cayman, Cayman Islands, British West Indies
o 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
xxx 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
oo One South Place, 5th Floor, London EC2M 2ZS England
ooo One Exchange Square, 29th Floor, Hong Kong
+ Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon, Minato-ku,
Tokyo 105-0001
x Level 3, Five Blue Street, North Sydney, NSW 2060
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.
<TABLE>
<CAPTION>
(1) (2) (3)
<S> <C> <C> <C>
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
<S> <C> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154-0010
Ann P. Burbank Vice President None
Two International Place
Boston, MA 02110-4103
Mark S. Casady President, Director and Assistant None
Two International Place Treasurer
Boston, MA 02110-4103
Linda C. Coughlin Director and Senior Vice President Trustee and President
Two International Place
Boston, MA 02110-4103
16
<PAGE>
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
Scott B. David Vice President None
Two International Place
Boston, MA 02110-4103
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154-0010
William F. Glavin Vice President None
Two International Place
Boston, MA 02110-4103
Robert J. Guerin Vice President None
Two International Place
Boston, MA 02110-4103
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110-4103
James J. McGovern Chief Financial Officer and Treasurer None
345 Park Avenue
New York, NY 10154-0010
Kimberly S. Nassar Vice President None
Two International Place
Boston, MA 02110-4103
Gloria S. Nelund Vice President None
345 Park Avenue
New York, NY 10154-0010
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110-4103
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110-4103
Kevin G. Poole Vice President None
Two International Place
Boston, MA 02110-4103
Kathryn L. Quirk Director, Senior Vice President, Chief Vice President and
345 Park Avenue Legal Officer and Assistant Clerk Assistant Secretary
New York, NY 10154-0010
Howard S. Schneider Vice President None
Two International Place
Boston, MA 02110-4103
17
<PAGE>
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110-4103
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions And Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
(d)
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's shares (on behalf of Scudder International Fund - Class A,
B, C and I) and acts as principal underwriter of the Scudder Kemper
Funds.
(e)
Information on the officers and directors of Kemper Distributors, Inc.,
principal underwriter for the Registrant is set forth below. The
principal business address is 222 South Riverside Plaza, Chicago,
Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Positions and Offices with Positions and
Name Kemper Distributors, Inc. Offices with Registrant
---- ------------------------- -----------------------
<S> <C> <C> <C>
Thomas V. Bruns President None
Linda C. Coughlin Director and Vice Chairman None
Kathryn L. Quirk Director, Secretary, Chief Legal Vice President
Officer and Vice President
James J. McGovern Chief Financial Officer and Treasurer None
Linda J. Wondrack Vice President and Chief Compliance Officer Vice President
Paula Gaccione Vice President None
Michael E. Harrington Managing Director None
Todd N. Gierke Assistant Treasurer None
Philip J. Collora Assistant Secretary Vice President and Secretary
18
<PAGE>
Diane E. Ratekin Assistant Secretary None
Mark S. Casady Director and Chairman President
Terrence S. McBride Vice President None
Robert Froelich Managing Director None
C. Perry Moore Senior Vice President and Managing Director None
Lorie O'Malley Managing Director None
William F. Glavin Managing Director None
Gary N. Kocher Managing Director None
Susan K. Crenshaw Vice President None
Johnston A. Norris Managing Director and Senior Vice President None
John H. Robison, Jr. Managing Director and Senior Vice President None
Robert J. Guerin Vice President None
Kimberly S. Nassar Vice President None
Scott B. David Vice President None
</TABLE>
(f) Not applicable
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, 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
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 Boston and the Commonwealth of
Massachusetts on the 22nd day of December 2000.
SCUDDER INTERNATIONAL FUND, INC.
By /s/John Millette
----------------
John Millette
Secretary
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/ Linda C. Coughlin
--------------------------------------
Linda C. Coughlin President (Chief Executive Officer) December 22, 2000
/s/ Henry P. Becton, Jr.
--------------------------------------
Henry P. Becton, Jr.* Director December 22, 2000
/s/Dawn-Marie Driscoll
--------------------------------------
Dawn-Marie Driscoll* Director December 22, 2000
/s/ Edgar R. Fiedler
--------------------------------------
Edgar R. Fiedler * Director December 22, 2000
/s/ Keith R. Fox
--------------------------------------
Keith R. Fox* Director December 22, 2000
/s/ Joan E. Spero
--------------------------------------
Joan E. Spero* Director December 22, 2000
/s/ Jean Gleason Stromberg
--------------------------------------
Jean Gleason Stromberg * Director December 22, 2000
/s/ Jean C. Tempel
--------------------------------------
Jean C. Tempel* Director December 22, 2000
/s/ Steven Zaleznick
--------------------------------------
Steven Zaleznick* Director December 22, 2000
/s/John R. Hebble
--------------------------------------
John R. Hebble Treasurer (Chief Financial Officer) December 22, 2000
</TABLE>
<PAGE>
*By: /s/John Millette
----------------
John Millette**
Secretary
**Attorney-in-fact pursuant to the powers of attorney contained in and
incorporated by reference to Post- Effective Amendment No. 80 to the
Registration Statement, as filed on July 14, 2000.
<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. 83
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 63
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER INTERNATIONAL FUND, INC.
<PAGE>
SCUDDER INTERNATIONAL FUND, INC.
EXHIBIT INDEX
(a)(15)
(a)(16)
(a)(17)
(a)(18)
(a)(19)
(a)(20)
(b)(7)
(e)(3)
(g)(6)
(h)(3)
(h)(17)
(h)(21)
(h)(22)
(h)(23)
(i)
(j)
(m)(2)
(n)(3)