Filed electronically with the Securities and Exchange Commission on
December 26, 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. 82
and/or --
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 62
--
Scudder International Fund, Inc.
----------------------------------
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
-----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2565
--------------
Caroline Pearson
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/___/ Immediately upon filing pursuant to paragraph (b)
/___/ ______ days after filing pursuant to paragraph (a)(2)
/_X_/ On March 1, 2001 pursuant to paragraph (a)(1)
/___/ days after filing pursuant to paragraph (a)(1)
/___/ On (date) pursuant to paragraph (a)(2) of Rule 485
/___/ On _________________ 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
INVESTMENTS(SM)
[LOGO]
March 1, 2001
Prospectus
--------------------------------------------------------------------------------
Scudder Latin America 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
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How the Fund Works How to Invest in the Fund
4 The Fund's Investment Strategy 11 Choosing a Share Class
5 The Main Risks of Investing 16 How to Buy Shares
in the Fund
17 How to Exchange or Sell Shares
6 The Fund's Performance History
18 Policies You Should Know
7 How Much Investors Pay About
8 Other Policies and Risks 23 Understanding Distributions
and Taxes
9 Who Manages and Oversees
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
|
ticker symbol | XXXXX XXXXX XXXXX
fund number | 000 000 000
Scudder Latin America Fund
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The Fund's Investment Strategy
The fund seeks long-term capital appreciation by investing at least 65% of total
assets in Latin American common stocks and other equities (equities that are
traded mainly on Latin American markets, issued or guaranteed by a Latin
American government or issued by a company organized under the laws of a Latin
American country or any company with more than half of its business in Latin
America). Although the fund may invest in any Latin American country, it expects
to invest primarily in common stocks of established companies in Argentina,
Brazil, Chile, Colombia, Mexico and Peru.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom up research. The managers look for companies that have relatively low
debt and high cash flows and that reinvest significantly in their core
businesses. The managers also consider a company's competitive strength, as
measured by such factors as market share, return on capital and gross margins.
Growth orientation. The managers generally look for companies that have
above-average potential for sustainable earnings growth and whose market value
appears reasonable in light of their business prospects.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, seeking to identify stocks that may benefit
from them.
--------------------------------------------------------------------------------
OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 35% of total assets in debt securities, including junk
bonds (i.e., grade BB and below). Compared to investment-grade bonds, junk bonds
may pay higher yields and have higher volatility and higher risk of default on
payments.
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies or securities), the
managers don't intend to use them as principal investments, and may not use them
at all.
4
<PAGE>
The managers may favor different securities at different times, while still
maintaining variety in terms of the companies and industries represented. 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 when 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, Latin American markets. When Latin American
stock prices fall, you should expect the value of your investment to fall as
well. Stocks of emerging markets, a category that includes Latin America, 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. 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. The fact that the fund concentrates on a single geographical region
could affect fund performance. For example, Latin American companies could be
hurt by such factors as regional economic downturns, currency devaluations,
runaway inflation, governmental instability or fluctuations in commodity prices.
A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
geographical areas, industries, companies or other matters
o derivatives could produce disproportionate losses
o at times, it could be 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 can accept above-average risks and are
interested in the long-term growth potential of Latin American markets.
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 share classes offered in this prospectus -- Classes A, B and C -- were
created after the fund began. Because of this, the performance figures shown in
the bar chart and table for the period before a class existed are based on the
historical performance of the fund's original share class (Class S), adjusted to
reflect the higher operating expenses of the new class. All classes of the fund
are shares of the same investment portfolio, but each has its own expenses and
sales charges. Class S shares are offered in a different prospectus.
Scudder Latin America Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
1991 0.00
1992 0.00
1993 0.00
1994 0.00
1995 0.00
1996 0.00
1997 0.00
1998 0.00
1999 0.00
2000 0.00
2000 Total Return as of _______: 0.00%
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/2000
--------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
--------------------------------------------------------------------------------
Class A 0.00 0.00 0.00
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Class B 0.00 0.00 0.00
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Class C 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index: The IFC Latin America Investable Total Return Index, an unmanaged,
capitalization-weighted measure of stock performance in seven Latin American
markets.
*Since 12/8/1992. Index comparison begins 12/31/1992.
In the chart, total returns from 1993 through 1995 would have been lower if
operating expenses hadn't been reduced.
In the table, total returns from inception through 1995 would have been lower if
operating expenses hadn't been reduced.
The table includes the effects of maximum sales loads.
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 5.75% None None
on Purchases (as % of offering price)
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Maximum Deferred Sales Charge (Load)
(as a % of redemption proceeds) None* 4.00% 1.00%
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee % % %
--------------------------------------------------------------------------------
Other Expenses** % % %
--------------------------------------------------------------------------------
Total Annual Operating Expenses % % %
--------------------------------------------------------------------------------
* 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 __%, __% and __% for Class
A, Class B and Class C shares, respectively.
Information in the table has been restated to reflect a new fixed rate
administrative fee which became effective on ____.
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 $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
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Class C shares
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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 money market securities. This could
prevent losses, but would mean that the fund was not pursuing its goal.
o The fund may trade securities more actively than many funds, which
could mean higher expenses (thus lowering return) and 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 already 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 X.XX% 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 as of
---------------------------------------------------------------------
Average Daily Net Assets Fee Rate
---------------------------------------------------------------------
first $500 million %
---------------------------------------------------------------------
next $500 million %
---------------------------------------------------------------------
more than $1 billion %
---------------------------------------------------------------------
The portfolio managers
The following people handle the day-to-day management of the fund.
Edmund B. Games, Jr. Tara C. Kenney
Lead Portfolio Manager o Began investment career in
o Began investment career in 1994
1960 o Joined the advisor in 1995
o Joined the advisor in 1960 o Joined the fund team in 1996
o Joined the fund team in 1992
Paul Rogers
o Began investment career in
1985
o Joined the advisor in 1994
o Joined the fund team in 1996
9
<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
----------------------------------------------------------------------------------------------------
<S> <C>
Class A
o Sales charges of up to 5.75%, charged when o Some investors may be able to reduce or
you buy shares eliminate their 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 o Shares automatically convert to Class A
bought within the last six years after six 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,
o Deferred sales charge of 1.00%, charged so annual expenses remain higher
when you sell shares you bought within the
last year
o 1.00% distribution/service fee
----------------------------------------------------------------------------------------------------
</TABLE>
11
<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
Sales charge as a % of as a % of your net
Your investment offering price 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.
12
<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 Shareholder Services
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. ("Large Order NAV
Purchase Privilege"). This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial representative or Shareholder
Services can answer your questions and help you determine if you're eligible.
13
<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, which don't have a 12b-1 fee.
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 Shareholder Services 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 in exchange.
14
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and 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 this fee, 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 Shareholder Services 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 (due to 12b-1 fees) 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.
15
<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 that's most convenient for you
o Contact your representative using the
method that's 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 a Kemper investment slip to us at the
o Send it to us at the appropriate address, appropriate address below
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)
16
<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 ($250 Some transactions, including most for over
for IRAs) $50,000, can only be ordered in writing with
a signature guarantee; if you're in doubt,
$100 or more for exchanges between existing see page 20
accounts
------------------------------------------------------------------------------------------------------------
Through a financial representative o Contact your representative by the method
that's most convenient for you
o Contact your representative by the method
that's most 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 o the fund, class and account number from
exchanging out of which you want to sell shares
o the dollar amount or number of shares you o the dollar amount or number of shares you
want to exchange want to sell
o the name and class of the fund you want to o your name(s), signature(s) and address, as
exchange into they 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 a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a fund o To set up regular cash payments from a
account, call (800) 621-1048 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>
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 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.
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.
18
<PAGE>
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
Kemper or Scudder 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 Kemper or 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. 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.
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 funds 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.
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.
19
<PAGE>
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.
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
o For Class C shares, redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on an omnibus
record-keeping system, provided the dealer of record has waived the
advance of the first year administrative services and distribution fees
applicable to such shares and has agreed to receive such fees
quarterly.
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.
20
<PAGE>
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
Shareholder Services can answer your questions and help you determine if you are
eligible.
If you sell shares in a Scudder 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
Shareholder Services 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.
How the fund calculates share price
For each share class, 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 each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
------------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
21
<PAGE>
For the fund and each share class, the price at which you sell shares is also
the NAV, although CDSC 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 a 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.
Other rights we reserve
For this fund, you should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$800 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
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
22
<PAGE>
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its shareholders in
December, and if necessary may do so at other times as well.
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.
23
<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 your 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.
24
<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 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].
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 Latin America Fund 811-0000
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
Investments (SM)
[LOGO]
March 1, 2001
Prospectus
Scudder Pacific Opportunities 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
5 The Fund's Investment Strategy 14 Choosing a Share Class
6 The Main Risks of Investing 19 How to Buy Shares
in the Fund
20 How to Exchange or Sell Shares
8 The Fund's Performance History
21 Policies You Should Know
9 How Much Investors Pay About
10 Other Policies and Risks 26 Understanding Distributions
and Taxes
11 Who Manages and Oversees
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
|
ticker symbol | XXXXX XXXXX XXXXX
fund number | 000 000 000
Scudder Pacific Opportunities Fund
--------------------------------------------------------------------------------
The Fund's Investment Strategy
The fund seeks long-term growth of capital by investing at least 65% of total
assets in Pacific Basin common stocks and other equities (equities that are
traded mainly on Pacific Basin markets, issued by companies organized under the
laws of a Pacific Basin country or issued by any company with more than half of
its business in the Pacific Basin). Examples of Pacific Basin countries include
China, Malaysia, Sri Lanka, Australia and India. The fund generally intends to
focus on common stocks from the region's smaller emerging markets and does not
invest in Japan.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for companies that appear to have
effective management, competitive positioning, vigorous development efforts and
sound balance sheets.
Growth orientation. The managers generally look for companies that have
above-average potential for sustainable earnings growth and whose market value
appears reasonable in light of their business prospects.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, seeking to identify stocks that may benefit
from them.
--------------------------------------------------------------------------------
OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 35% of total assets in foreign or domestic debt securities
in the top three credit grades. It may also invest up to 35% of total assets in
non-Pacific Basin equities, excluding Japan.
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, currencies or securities), the
managers don't intend to use them as principal investments, and may not use them
at all.
5
<PAGE>
The managers may favor different securities at different times, while still
maintaining variety in terms of the companies and industries represented.
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 when 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, Pacific Basin markets. When Pacific Basin stock
prices fall, you should expect the value of your investment to fall as well.
Stocks of emerging markets, a category that includes most Pacific Basin
countries, 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. 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. The fact that the fund focuses on a single
geographical region could affect fund performance. For example, Pacific Basin
companies could be hurt by such factors as regional economic downturns (most
Pacific Basin economies are currently in recessions), currency devaluations, or
difficulties in achieving economic reforms or trade barriers on exports.
--------------------------------------------------------------------------------
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
This fund is designed for investors interested in a fund that invests for
long-term growth in a higher risk region of the world.
--------------------------------------------------------------------------------
6
<PAGE>
A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of 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
7
<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 share classes offered in this prospectus -- Classes A, B and C -- were
created after the fund began. Because of this, the performance figures shown in
the bar chart and table for the period before a class existed are based on the
historical performance of the fund's original share class (Class S), adjusted to
reflect the higher operating expenses of the new class. All classes of the fund
are shares of the same investment portfolio, but each has its own expenses and
sales charges. Class S shares are offered in a different prospectus.
Scudder Pacific Opportunities Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------------
2000 Total Return as of _______: 0.00%
Best Quarter: 0.00%, Q0 0000 Worst Quarter -0.00%, Q0 0000
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/2000
--------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
--------------------------------------------------------------------------------
Class A 0.00 0.00 0.00
--------------------------------------------------------------------------------
Class B 0.00 0.00 0.00
--------------------------------------------------------------------------------
Class C 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index: The Morgan Stanley Capital International (MSCI) All Country Asia Free
Index, an unmanaged capitalization-weighted measure of stock markets in the
Pacific Region, excluding Japan.
* Since 12/8/1992. Index comparison begins 12/31/1992.
In the chart, total returns for 1993 would have been lower if operating expenses
hadn't been reduced.
In the table, total returns from inception through 1993 would have been lower if
operating expenses hadn't been reduced.
The table includes the effects of maximum sales loads.
8
<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 (as % of offering price) 5.75% None None
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a % of redemption proceeds) None* 4.00% 1.00%
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee % % %
--------------------------------------------------------------------------------
Other Expenses** % % %
--------------------------------------------------------------------------------
Total Annual Operating Expenses % % %
--------------------------------------------------------------------------------
* 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 __%, __% and __% for Class
A, Class B Class C shares, respectively.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These fees became
effective on October 2, 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 $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
9
<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 money market securities. This could
prevent losses, but would mean that the fund was not pursuing its goal.
o The fund may trade securities more actively than many funds, which
could mean higher expenses (thus lowering return) and 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.
10
<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 X.XX% 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 as of October 2, 2000
---------------------------------------------------------------------
Average Daily Net Assets Fee Rate
---------------------------------------------------------------------
first $500 million 1.10%
---------------------------------------------------------------------
more than $500 million 1.05%
---------------------------------------------------------------------
As of September 1, 2000, Scudder Investments Singapore Limited, 30 Cecil Street,
Prudential Tower #24-01/02, Singapore, an affiliate of Zurich Scudder
Investments, Inc., is the sub-advisor for the fund. Scudder Investments
Singapore Limited has served as both sub-advisor for mutual funds and investment
advisor for certain institutional accounts since September 2000. Scudder
Investments Singapore Limited renders investment advisory and management
services including services related to foreign securities, foreign currency
transactions and related investments with regard to the portion of the fund's
portfolio that is allocated to it by Zurich Scudder Investments, Inc. from
time-to-time for management. The advisor has agreed to pay a sub-advisory fee of
0.385% of its average weekly net assets to Scudder Investments Singapore Limited
for the services provided by the sub-advisor.
11
<PAGE>
The portfolio managers
The following people handle the day-to-day management of the fund.
Tien-Yu Sieh Nicholas Bratt
Lead Portfolio Manager
o Began investment career in
o Began investment career in 1974
1990
o Joined the advisor in 1976
o Joined the advisor in 1996
o Joined the fund team in 1992
o Joined the fund team in 1999
Jennifer Bloomfield
Theresa Gusman
o Began investment career in
o Began investment career in ____
1985
o Joined the advisor in ____
o Joined the advisor in 1992
o Joined the fund team in ____
o Joined the fund team in 1996
Elizabeth J. Allan
o Began investment career in
1982
o Joined the advisor in 1987
o Joined the fund team in 1994
12
<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.
--------------------------------------------------------------------------------
Classes and features Points to help you compare
--------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, charged o Some investors may be able to reduce
when you buy shares or eliminate their sales charges;
see next page
o In most cases, no charges when you
sell shares o Total annual 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 o Shares automatically convert to
bought within the last six years Class A after six 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
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you bought remain higher
within the last year
o 1.00% distribution/service fee
--------------------------------------------------------------------------------
14
<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
Sales charge as a % of as a % of your net
Your investment offering price 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.
--------------------------------------------------------------------------------
15
<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 Shareholder Services
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. ("Large Order NAV
Purchase Privilege"). This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial representative or Shareholder
Services can answer your questions and help you determine if you're eligible.
16
<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, which don't have a 12b-1 fee.
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 Shareholder Services 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 in exchange.
--------------------------------------------------------------------------------
17
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and 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 this fee, 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 Shareholder Services 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 (due to 12b-1 fees) 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.
--------------------------------------------------------------------------------
18
<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 o Contact your representative using
method that's most convenient for you the method that's 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 a Kemper investment slip to
o Send it to us at the appropriate us at the appropriate address below
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)
19
<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
($250 for IRAs) over $50,000, can only be ordered in
writing with a signature guarantee; if
$100 or more for exchanges between you're in doubt, see page 22
existing accounts
----------------------------------------------------------------------------------
Through a financial representative o Contact your representative by the
method that's most convenient for you
o Contact your representative by the
method that's most 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 out of o the fund, class and account number
from which you want to sell shares
o the dollar amount or number of shares
you want to exchange o the dollar amount or number of
shares you want to sell
o the name and class of the fund you
want to exchange into o your name(s), signature(s) and
address, as they appear on your
account
o your name(s), signature(s) and
address, as they appear on your account o a daytime telephone number
o a daytime telephone number
----------------------------------------------------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments from
fund account, call (800) 621-1048 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>
20
<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 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.
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.
21
<PAGE>
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
Kemper or Scudder 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 Kemper or 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. 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.
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 funds 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
22
<PAGE>
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.
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
o For Class C shares, redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on an omnibus
record-keeping system, provided the dealer of record has waived the
advance of the first year administrative services and distribution fees
applicable to such shares and has agreed to receive such fees
quarterly.
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
Shareholder Services 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.
--------------------------------------------------------------------------------
23
<PAGE>
If you sell shares in a Scudder 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
Shareholder Services 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.
How the fund calculates share price
For each share class, 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 each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For the fund and each share class, the price at which you sell shares is also
the NAV, although CDSC may be taken out of the proceeds (see "Choosing A Share
Class").
24
<PAGE>
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 a 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.
Other rights we reserve
For this fund, you should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$800 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
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 in
December, and if necessary may do so at other times as well.
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 receivefrom the fund
----------------------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes your 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>
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 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].
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 Pacific Opportunities Fund 811-0000
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
Investments (SM)
[LOGO]
March 1, 2001
Prospectus
Scudder Greater Europe Growth 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 11 Choosing a Share Class
5 The Main Risks of Investing 16 How to Buy Shares
in the Fund
17 How to Exchange or Sell Shares
6 The Fund's Performance History
18 Policies You Should Know
7 How Much Investors Pay About
8 Other Policies and Risks 23 Understanding Distributions
and Taxes
9 Who Manages and Oversees
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
|
ticker symbol | XXXXX XXXXX XXXXX
fund number | 000 000 000
Scudder Greater Europe Growth Fund
--------------------------------------------------------------------------------
The Fund's Investment Strategy
The fund seeks long-term growth of capital by investing at least 80% of its
total assets in European common stocks and other equities (equities that are
traded mainly on European markets or are issued by companies organized under the
laws of Europe or do more than half of their business there). Although the fund
may invest in equities of any size or European country, it tends to focus on
common stocks of multinational companies in industrialized Western and Southern
European countries such as France, Italy, Spain and Greece.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for companies that have effective
management, competitive positioning and leading products or technologies and
that appear able to make the most of local, regional and global opportunities.
Growth orientation. The managers generally look for companies that have
above-average potential for sustainable earnings growth and whose market value
appears reasonable in light of their business prospects.
Analysis of regional themes. The managers look for significant social, economic,
industrial and demographic changes, seeking to identify stocks that may benefit
from them.
The managers may favor different securities at different times, while still
maintaining variety in terms of the companies and industries represented.
--------------------------------------------------------------------------------
OTHER INVESTMENTS While most of the fund's equities are common stocks, some may
be other types of equities, such as convertible stocks or preferred stocks. The
fund may invest up to 20% of total assets in European debt securities, including
junk bonds (i.e., grade BB and below). Compared to investment-grade bonds, junk
bonds may pay higher yields and have higher volatility and higher risk of
default on payments.
Although the fund is permitted to use various types of derivatives (contracts
whose value is based on, for example, indices, 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 when 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, European markets. When European stock prices
fall, you should expect the value of your investment to fall as well. European
stocks 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. 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. The fact that the fund concentrates on a single
geographical region could affect fund performance. For example, European
companies could be hurt by such factors as regional economic downturns or
difficulties with the European Economic and Monetary Union (EMU). Eastern
European companies can be very sensitive to political and economic developments.
A second major factor is currency exchange rates. When the dollar value of a
foreign currency falls, so does the value of any investments the fund owns that
are denominated in that currency. This is separate from market risk, and may add
to market losses or reduce market gains.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of economic trends,
geographical areas, industries, companies or other matters
o 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 are comfortable with above-average
swings in the value of their investment and are interested in gaining exposure
to European markets.
--------------------------------------------------------------------------------
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 share classes offered in this prospectus -- Classes A, B and C -- were
created after the fund began. Because of this, the performance figures shown in
the bar chart and table for the period before a class existed are based on the
historical performance of the fund's original share class (Class S), adjusted to
reflect the higher operating expenses of the new class. All classes of the fund
are shares of the same investment portfolio, but each has its own expenses and
sales charges. Class S shares are offered in a different prospectus.
Scudder Greater Europe Growth Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
--------------------------------------------------------------------------------
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------------
2000 Total Return as of _______: 0.00%
Best Quarter: 0.00%, Q0 0000 Worst Quarter: -0.00%, Q0 0000
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/2000
--------------------------------------------------------------------------------
1 Year 5 Years Since Inception*
--------------------------------------------------------------------------------
Class A 0.00 0.00 0.00
--------------------------------------------------------------------------------
Class B 0.00 0.00 0.00
--------------------------------------------------------------------------------
Class C 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index: The Morgan Stanley Capital International (MSCI) Europe Index, an
unmanaged capitalization-weighted measure of 14 stock markets in Europe.
* Since 10/10/1994. Index comparison begins 10/31/1994.
In the chart, total returns from 1995 through 1997 would have been lower if
operating expenses hadn't been reduced.
In the table, total returns from inception through 1997 would have been lower if
operating expenses hadn't been reduced.
The table includes the effects of maximum sales loads.
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 5.75% None None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None* 4.00% 1.00%
(as a % of redemption proceeds)
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee % % %
--------------------------------------------------------------------------------
Other Expenses** % % %
--------------------------------------------------------------------------------
Total Annual Operating Expenses % % %
--------------------------------------------------------------------------------
* 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 __%, __% and __% for Class
A, Class B and Class C shares, respectively.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management agreement. These fees became
effective on ______.
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 $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
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 money market securities. This could
prevent losses, but would mean that the fund was not pursuing its goal.
o The fund may trade securities more actively than many funds, which
could mean higher expenses (thus lowering return) and 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 X.XX% 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 as of October 2, 2000
---------------------------------------------------------------------
Average Daily Net Assets Fee Rate
---------------------------------------------------------------------
first $1 billion 1.00%
---------------------------------------------------------------------
next $500 million 0.90%
---------------------------------------------------------------------
next $500 million 0.85%
---------------------------------------------------------------------
more than $2 billion 0.80%
---------------------------------------------------------------------
The portfolio managers
The following people handle the day-to-day management of the fund.
Carol L. Franklin Nicholas Bratt
Lead Portfolio Manager
o Began investment career in
o Began investment career in 1974
1975
o Joined the advisor in 1976
o Joined the advisor in 1981
o Joined the fund team in 1994
o Joined the fund team in 1999
9
<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.
--------------------------------------------------------------------------------
Classes and features Points to help you compare
--------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, charged o Some investors may be able to reduce
when you buy shares or eliminate their sales charges;
see next page
o In most cases, no charges when you
sell shares o Total annual 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 o Shares automatically convert to
bought within the last six years Class A after six 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
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you bought remain higher
within the last year
o 1.00% distribution/service fee
--------------------------------------------------------------------------------
11
<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 a percent percent of your
Your investment of offering price 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.
--------------------------------------------------------------------------------
12
<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 Shareholder Services
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. ("Large Order NAV
Purchase Privilege"). This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial representative or Shareholder
Services can answer your questions and help you determine if you're eligible.
13
<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, which don't have a 12b-1 fee.
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 Shareholder Services 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 in exchange.
--------------------------------------------------------------------------------
14
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and 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 this fee, 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 Shareholder Services 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 (due to 12b-1 fees) 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.
--------------------------------------------------------------------------------
15
<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 o Contact your representative using
method that's most convenient for you the method that's 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 a Kemper investment slip to
o Send it to us at the appropriate us at the appropriate address below
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)
16
<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
($250 for IRAs) over $50,000, can only be ordered in
writing with a signature guarantee; if
$100 or more for exchanges between you're in doubt, see page 20
existing accounts
----------------------------------------------------------------------------------
Through a financial representative o Contact your representative by the
method that's most convenient for you
o Contact your representative by the
method that's most 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 out of o the fund, class and account number
from which you want to sell shares
o the dollar amount or number of shares
you want to exchange o the dollar amount or number of
shares you want to sell
o the name and class of the fund you
want to exchange into o your name(s), signature(s) and
address, as they appear on your
account
o your name(s), signature(s) and
address, as they appear on your account o a daytime telephone number
o a daytime telephone number
----------------------------------------------------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments from
fund account, call (800) 621-1048 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>
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 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.
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.
18
<PAGE>
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
Kemper or Scudder 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 Kemper or 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. 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.
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 funds 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
19
<PAGE>
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.
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
o For Class C shares, redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on an omnibus
record-keeping system, provided the dealer of record has waived the
advance of the first year administrative services and distribution fees
applicable to such shares and has agreed to receive such fees
quarterly.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
20
<PAGE>
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
Shareholder Services can answer your questions and help you determine if you are
eligible.
If you sell shares in a Scudder 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
Shareholder Services 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.
How the fund calculates share price
For each share class, 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 each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
21
<PAGE>
For the fund and each share class, the price at which you sell shares is also
the NAV, although CDSC 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 a 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.
Other rights we reserve
For this fund, you should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$800 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
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
22
<PAGE>
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its shareholders in
December, and if necessary may do so at other times as well.
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.
--------------------------------------------------------------------------------
23
<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 receivefrom the fund
----------------------------------------------------------------------
You may be able to claim a tax credit or deduction for your share of any foreign
taxes your 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.
24
<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 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].
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 Greater Europe Growth Fund 811-0000
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
INVESTMENTS(SM)
[LOGO]
March 1, 2001
Prospectus
Scudder Emerging Markets Growth 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 Shares
7 The Fund's Performance History
19 Policies You Should Know
8 How Much Investors Pay About
9 Other Policies and Risks 25 Understanding Distributions
and Taxes
10 Who Manages and Oversees
the Fund
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.
<PAGE>
--------------------------------------------------------------------------------
Class A Class B Class C
ticker symbol XXXXX XXXXX XXXXX
fund number 000 000 000
Scudder Emerging Markets Growth Fund
--------------------------------------------------------------------------------
The Fund's Investment Strategy
The fund seeks long-term growth of capital. It does this by investing at least
65% of total assets in emerging market equities (equities traded mainly in
emerging markets, or issued by companies that are based in emerging markets or
have most of their business there). The fund invests primarily in common stocks.
Examples of emerging markets are Latin America, Southeast Asia, Eastern Europe
and Africa.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for companies that have strong finances
and management.
Growth orientation. The managers primarily invest in companies that offer the
potential for sustainable above-average earnings growth and whose market value
appears reasonable in light of their business prospects.
Analysis of regional themes. The managers look for significant social, economic
and political changes, seeking to identify the regions and countries that may
benefit from these changes.
The managers intend to keep the fund's holdings diversified across countries and
regions, 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 35% of total assets in equities from
the U.S. or other developed markets. The fund may also invest up to 35% of total
assets in U.S. or emerging market debt securities when it believes they may
perform at least as well as equities. 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, emerging markets. When emerging market stock
prices fall, you should expect the value of your investment to fall as well. The
fact that the fund is not diversified and may invest in relatively few companies
increases this risk, because any factors affecting a given company could affect
performance. Similarly, if the fund emphasizes a given market, such as Latin
America, factors affecting that market will affect performance.
These risks tend to be greater in emerging markets (such as Latin America and
most Pacific Basin countries). it takes on greater risks. Because a stock
represents ownership in its issuer, stock prices can be hurt by poor management,
shrinking product demand, and other business risks.
A second major factor is the fluctuation of 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.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
This fund is designed for investors who can accept above-average risks and are
interested in an aggressive investment for long-term growth
5
<PAGE>
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
o at times, it could be hard to value some investments or to get an
attractive price for them
6
<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 share classes offered in this prospectus -- Classes A, B and C -- were
created after the fund began. Because of this, the performance figures shown in
the bar chart and table for the period before a class existed are based on the
historical performance of the fund's original share class (Class S), adjusted to
reflect the higher operating expenses of the new class. All classes of the fund
are shares of the same investment portfolio, but each has its own expenses and
sales charges. Class S shares are offered in a different prospectus.
Scudder Emerging Markets Growth Fund
--------------------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class ____
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
2000 Total Return as of _______: 0.00%
Best Quarter: 0.00%, Q0 0000 Worst Quarter -0.00%, Q0 0000
--------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/2000
--------------------------------------------------------------------------------
1 Year 5 Years Since Inception
--------------------------------------------------------------------------------
Class A 0.00 0.00 0.00
--------------------------------------------------------------------------------
Class B 0.00 0.00 0.00
--------------------------------------------------------------------------------
Class C 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index 0.00 0.00 0.00
--------------------------------------------------------------------------------
Index: IFC Emerging Markets Investable Index, an unmanaged
capitalization-weighted measure of stock markets in emerging market countries
worldwide.
* Fund inception: 5/8/1996. Index comparison begins 5/31/1996.
In both the chart and the table, total returns from date of inception through
1998 would have been lower if operating expenses hadn't been reduced.
The table includes the effects of maximum sales loads.
7
<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 5.75% None None
on Purchases (as % of offering price)
--------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None* 4.00% 1.00%
(as a % of redemption proceeds)
--------------------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
--------------------------------------------------------------------------------
Management Fee % % %
--------------------------------------------------------------------------------
Distribution (12b-1) Fee % % %
--------------------------------------------------------------------------------
Other Expenses** % % %
--------------------------------------------------------------------------------
Total Annual Operating Expenses % % %
--------------------------------------------------------------------------------
* 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 --%, --% and --% for Class
A, Class B and Class C shares respectively.
Information in the table has been restated to reflect a new fixed rate
administrative fee which became effective on ----.
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 $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
Expenses, assuming you kept your shares
--------------------------------------------------------------------------------
Class A shares $ $ $ $
--------------------------------------------------------------------------------
Class B shares
--------------------------------------------------------------------------------
Class C shares
--------------------------------------------------------------------------------
8
<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 money market securities. This could
prevent losses, but would mean that the fund was not pursuing its goal.
o The fund may trade securities more actively than many funds, which
could mean higher expenses (thus lowering return) and 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 already 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 (see back cover).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
9
<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 X.XX% 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 as of October 2, 2000
--------------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
--------------------------------------------------------------------------------
first $500 million 1.25%
--------------------------------------------------------------------------------
more than $500 million 1.20%
--------------------------------------------------------------------------------
The portfolio managers
The following people handle the day-to-day management of the fund.
Joyce E. Cornell Tara C. Kenney
Lead Portfolio Manager o Began investment career in
o Began investment career in 1994
1987 o Joined the advisor in 1995
o Joined the advisor in 1991 o Joined the fund team in 1996
o Joined the fund team in 1996
Andre J. DeSimone
o Began investment career in
1981
o Joined the advisor in 1997
o Joined the fund team in 1997
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.
--------------------------------------------------------------------------------
Classes and features Points to help you compare
--------------------------------------------------------------------------------
Class A
o Sales charges of up to 5.75%, charged o Some investors may be able to reduce
when you buy shares or eliminate their 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
o 0.25% service fee Class C
--------------------------------------------------------------------------------
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 o Shares automatically convert to
you bought within the last six years Class A after six 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
o Deferred sales charge of 1.00%, to Class A, so annual expenses
charged when you sell shares you remain higher
bought within the last year
o 1.00% distribution/service fee
--------------------------------------------------------------------------------
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:
Your investment Sales charge as a % of Sales charge
offering price as a % of 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 Shareholder Services
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. ("Large Order NAV
Purchase Privilege"). This CDSC is waived under certain circumstances (see
"Policies You Should Know About"). Your financial representative or Shareholder
Services 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, which don't have a 12b-1 fee.
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 Shareholder Services 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 in exchange.
15
<PAGE>
Class C shares
Like Class B shares, Class C shares have no up-front sales charges and 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 this fee, 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 Shareholder Services 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 (due to 12b-1 fees) 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.
--------------------------------------------------------------------------------
First investment Additional investments
--------------------------------------------------------------------------------
$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
o Contact your representative using the the method that's most convenient
method that's most convenient for you 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 a Kemper investment slip
o Send it to us at the appropriate to us at the appropriate address
address, along with an investment check below
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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Exchanging into another fund Selling shares
--------------------------------------------------------------------------------
$1,000 or more to open a new account Some transactions, including most for
($250 for IRAs) over $50,000, can only be ordered in
writing with a signature guarantee;
$100 or more for exchanges between if you're in doubt, see page 21
existing accounts
--------------------------------------------------------------------------------
Through a financial representative
o Contact your representative by the o Contact your representative by the
method that's most convenient for you method that's most 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 o the fund, class and account number
you're exchanging out of from which you want to sell shares
o the dollar amount or number of shares o the dollar amount or number of
you want to exchange shares you want to sell
o the name and class of the fund you o your name(s), signature(s) and
want to exchange into address, as they appear on your
account
o your name(s), signature(s) and
address, as they appear on your account o a daytime telephone number
o a daytime telephone number
--------------------------------------------------------------------------------
With a systematic exchange plan With a systematic withdrawal plan
o To set up regular exchanges from a o To set up regular cash payments from
fund account, call (800) 621-1048 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
--------------------------------------------------------------------------------
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 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 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.
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.
19
<PAGE>
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
Kemper or Scudder 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 Kemper or 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. 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.
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 funds 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.
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>
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.
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
o For Class C shares, redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on an omnibus
record-keeping system, provided the dealer of record has waived the
advance of the first year administrative services and distribution fees
applicable to such shares and has agreed to receive such fees
quarterly.
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>
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
Shareholder Services can answer your questions and help you determine if you are
eligible.
If you sell shares in a Scudder 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
Shareholder Services 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.
22
<PAGE>
How the fund calculates share price
For each share class, 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 each fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
For the fund and each share class, the price at which you sell shares is also
the NAV, although CDSC 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 a 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.
23
<PAGE>
Other rights we reserve
For this fund, you should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have
been notified by the IRS that you are subject to backup withholding, or
if you fail to provide us with a correct taxpayer ID number or
certification that you are exempt from backup withholding
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been
opened, we may give you 30 days' notice to provide the correct number
o charge you $9 each calendar quarter if your account balance is below
$800 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
o change, add or withdraw various services, fees and account policies
(for example, we may change or terminate the exchange privilege at any
time)
24
<PAGE>
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. A fund can earn money in two ways: by receiving
interest, dividends or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's earnings are separate from
any gains or losses stemming from your own purchase of shares.) A fund may not
always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its shareholders in
December, and if necessary may do so at other times as well.
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.
25
<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 your 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.
26
<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 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].
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 Emerging Markets Growth 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>
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2001
Scudder Latin America Fund (Class A, B and C 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, Class B and Class C Shares (the
"Shares") of Scudder Latin America Fund (the "Fund"), a non-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 March 1, 2001. 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 Latin America Fund offers the following classes of shares: Class
AARP, Class S, Class A, Class B and Class C shares (the "Shares"). Only Class A,
Class B and Class C shares of Scudder Latin America Fund are offered herein.
TABLE OF CONTENTS
Investment Restrictions........................................................2
Investment Policies and Techniques.............................................4
Dividends, Distributions and Taxes.............................................4
Performance...................................................................21
Investment Manager and Underwriter............................................25
Portfolio Transactions........................................................33
Purchase, Repurchase and Redemption of Shares.................................35
Purchase of Shares............................................................35
Redemption or Repurchase of Shares............................................40
Special Features..............................................................43
Officers and Directors........................................................47
Shareholder Rights............................................................50
Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's investment
manager.
The financial statements appearing in the Fund's October 31, 2000 Annual Report
to Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.
<PAGE>
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, "majority of the Fund's outstanding
shares" means the lesser of (1) more than 50% of the outstanding shares of the
Fund or (2) 67% or more of the shares present at such meeting, if the holders of
more than 50% of the outstanding shares are present or represented by proxy.
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 has elected to be classified as a non-diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund may not:
(1) borrow money, except as permitted under the Investment Company Act
of 1940, as amended, ("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, as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;
(6) purchase physical commodities or contracts relating to physical
commodities; or
(7) make loans except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
The Directors of the Corporation have voluntarily adopted certain policies
and restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Directors based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice to or approval
of 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
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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.
As stated above, 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 objectives.
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 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.
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
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<PAGE>
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
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
General Investment Objective and Policies
Scudder Latin America Fund's investment objective is to seek long-term
capital appreciation through investment primarily in the securities of Latin
American issuers.
The Fund seeks to benefit from economic and political trends emerging
throughout Latin America. These trends are supported by governmental initiatives
designed to promote freer trade and market-oriented economies. The Advisor
believes that efforts by Latin American countries to, among other things, reduce
governmental spending and deficits, control inflation, lower trade barriers,
stabilize currency exchange rates, increase foreign and domestic investment and
privatize state-owned companies, will set the stage for attractive investment
returns over time.
The Fund involves above-average investment risk. It is designed as a
long-term investment and not for short-term trading purposes, and should not be
considered a complete investment program.
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.
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.
Investments
At least 65% of the Fund's total assets will be invested in the securities
of Latin American issuers, and 50% of the Fund's total assets will be invested
in Latin American equity securities. To meet its objective to provide long-term
capital appreciation, the Fund normally invests at least 65% of its total assets
in equity securities. Latin America is defined as Mexico, Central America, South
America and the Spanish-speaking islands of the Caribbean. The Fund defines
securities of Latin American issuers as follows:
o Securities of companies organized under the laws of a Latin American
country or for which the principal securities trading market is in
Latin America;
o Securities issued or guaranteed by the government of a country in
Latin America, its agencies or instrumentalities, political
subdivisions or the central bank of such country;
o Securities of companies, wherever organized, when at least 50% of an
issuer's non-current assets, capitalization, gross revenue or profit
in any one of the two most recent fiscal years represents (directly
or indirectly through subsidiaries) assets or activities located in
Latin America; or
o Securities of Latin American issuers, as defined above, in the form
of depositary shares.
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Although the Fund may participate in markets throughout Latin America,
under present conditions the Fund expects to focus its investments in Argentina,
Brazil, Chile, Colombia, Mexico and Peru. In the opinion of the Advisor, these
six countries offer the most developed capital markets in Latin America. The
Fund may invest in other countries in Latin America when the Advisor deems it
appropriate. The Fund intends to allocate investments among at least three
countries at all times.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
illiquid securities and may also be purchased through rights. Securities may be
listed on securities exchanges, traded over-the-counter, or have no organized
market.
The Fund may invest in debt securities when the Advisor anticipates that
the potential for capital appreciation is likely to equal or exceed that of
equity securities. Capital appreciation in debt securities may arise from a
favorable change in relative foreign exchange rates, in relative interest rate
levels, or in the creditworthiness of issuers. Receipt of income from such debt
securities is incidental to the Fund's objective of long-term capital
appreciation. Most debt securities in which the Fund invests are not rated. When
debt securities are rated, it is expected that such ratings will generally be
below investment grade; that is, rated below Baa by Moody's Investors Service,
Inc. ("Moody's") or below BBB by Standard & Poor's Ratings Services ("S&P"), a
division of The McGraw-Hill Companies, Inc.
The Fund may invest up to 35% of its total assets in the equity securities
of U.S. and other non-Latin American issuers. In evaluating non-Latin American
investments, the Advisor seeks investments where an issuer's Latin American
business activities and the impact of developments in Latin America may have a
positive effect on the issuer's business results.
In selecting companies for investment, the Fund typically evaluates
industry trends, a company's financial strength, its competitive position in
domestic and export markets, technology, recent developments and profitability,
together with overall growth prospects. Other considerations generally include
quality and depth of management, government regulation, and availability and
cost of labor and raw materials. Investment decisions are made without regard to
arbitrary criteria as to minimum asset size, debt-equity ratios or dividend
history of portfolio companies.
The allocation between equity and debt, and among countries in Latin
America, varies based on a number of factors, including: expected rates of
economic and corporate profit growth; past performance and current and
comparative valuations in Latin American capital markets; the level and
anticipated direction of interest rates; changes or anticipated changes in Latin
American government policy; and the condition of the balance of payments and
changes in the terms of trade. The Fund, in seeking undervalued markets or
individual securities, also considers the effects of past economic crises or
ongoing financial and political uncertainties.
To provide for redemptions, or in anticipation of investment in Latin
American securities, the Fund may hold cash or cash equivalents (in U.S. dollars
or foreign currencies) and other short-term securities, including money market
securities denominated in U.S. dollars or foreign currencies. The Fund may
assume a defensive position when, due to political or other factors, the Advisor
determines that opportunities for capital appreciation in Latin American markets
would be significantly limited over an extended period or that investing in
those markets poses undue risk to investors. The Fund may, for temporary
defensive purposes, invest without limit in cash or cash equivalents and money
market instruments, or invest all or a portion of its assets in securities of
U.S. or other non-Latin American issuers 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. The
Fund may also invest in closed-end investment companies investing primarily in
Latin America. In addition, the Fund may invest in loan participations and
assignments, when-issued securities, convertible securities, illiquid
securities, repurchase agreements, reverse repurchase agreements and may engage
in strategic transactions, including derivatives.
Under exceptional economic or market conditions abroad, the Fund may, for
temporary defensive purposes, until normal conditions return, invest without
limit in cash or cash equivalents and money market instruments, or invest all or
a portion of its assets in securities of U.S. or other non-Latin American
issuers when the Advisor deems such a position advisable in light of economic or
market conditions.
Foreign securities such as those purchased by the Fund may be subject to
foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
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From time to time, the Fund may be a purchaser of illiquid debt or equity
securities (i.e., securities which may require registration under the Securities
Act of 1933, or an exemption therefrom, in order to be sold in the ordinary
course of business) in a private placement. The Fund has undertaken not to
purchase or acquire any such securities if, solely as a result of such purchase
or acquisition, more than 15% of the value of the Fund's net assets would be
invested in such illiquid securities.
Investing in Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many Latin American securities markets and limited
trading volume in the securities of Latin American issuers compared to the
volume of trading in the securities of U.S. issuers could cause prices to be
erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market size may
cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The Fund invests in securities denominated in currencies of Latin American
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Fund's assets denominated in those currencies.
Some Latin American countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain Latin American countries may restrict the free conversion of their
currencies into other currencies. Further, certain Latin American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
The economies of individual Latin American countries may differ favorably
or unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Fund at a higher rate
than those imposed by other foreign countries. This may reduce the Fund's
investment income available for distribution to shareholders.
Certain Latin American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign governments.
At times, certain Latin American countries have declared moratoria on the
payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic
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performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.
Latin America is a region rich in natural resources such as oil, copper,
tin, silver, iron ore, forestry, fishing, livestock and agriculture. The region
has a large population (roughly 300 million) representing a large domestic
market. Economic growth was strong in the 1960's and 1970's, but slowed
dramatically (and in some instances was negative) in the 1980's as a result of
poor economic policies, higher international interest rates, and the denial of
access to new foreign capital. Although a number of Latin American countries are
currently experiencing lower rates of inflation and higher rates of real growth
in gross domestic product than they have in the past, other Latin American
countries continue to experience significant problems, including high inflation
rates and high interest rates. Capital flight has proven a persistent problem
and external debt has been forcibly rescheduled. Political turmoil, high
inflation, capital repatriation restrictions, and nationalization have further
exacerbated conditions.
Governments of many Latin American 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 those countries. As a result, government actions in the future could
have a significant effect on economic conditions, which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect the Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as the North American Free Trade Agreement ("NAFTA"),
privatization, trade reform and fiscal and monetary reform are among the recent
steps taken to renew economic growth. External debt is being restructured and
flight capital (domestic capital that has left home country) has begun to
return. Inflation control efforts have also been implemented. Latin American
equity markets can be extremely volatile and in the past have shown little
correlation with the U.S. market. Currencies are typically weak, but most are
now relatively free floating, and it is not unusual for the currencies to
undergo wide fluctuations in value over short periods of time due to changes in
the market.
The Fund is intended to provide individual and institutional investors
with an opportunity to invest a portion of their assets in a broad range of
securities of Latin American issuers. Management of the Fund believes that
allocation of assets on an international basis decreases the degree to which
events in any one country, including the United States, 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 United States 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, it is not intended to provide a complete
investment program for an investor.
Investing in Foreign Securities
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 United States securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting and 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 stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange, Inc. (the "Exchange"), and securities of some foreign companies
are less liquid and more volatile than securities of domestic companies.
Similarly, volume and liquidity in most foreign bond markets are less than the
volume and liquidity in the United States and at times, volatility of price can
be greater than in the United States. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been
7
<PAGE>
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 stock exchanges are generally higher than
negotiated commissions on U.S. exchanges, 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 remedies and
obtain judgments in foreign courts. There is generally less governmental
supervision and regulation of business and industry practices, stock exchanges,
brokers and listed companies than in the United States. 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 United States and foreign countries may
be less reliable than within the United States, thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. In addition, with respect to certain foreign countries,
there is the possibility of nationalization, expropriation, the imposition of
withholding or confiscatory taxes, political, social, or economic instability,
or diplomatic developments which could affect United States 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 United States economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
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, neither Fund will invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Advisor, are
speculative.
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 futures
contracts on foreign currencies, 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 a Fund may incur
costs in connection with conversions between various currencies. In particular,
many Latin American 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 forward or futures contracts to purchase or sell foreign
currencies.
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 Scudder Kemper 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.
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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.
Depositary Receipts. The Fund may invest directly in securities of emerging
country issuers through sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts
("IDRs") and other types of Depositary Receipts (which, together with ADRs, GDRs
and IDRs are hereinafter referred to as "Depositary Receipts"). Depositary
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 Depositary 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 Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may 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, a Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities. Depositary Receipts other than those denominated in U.S. dollars
will be subject to foreign currency exchange rate risk. Certain Depositary
Receipts may not be listed on an exchange and therefore may be illiquid
securities.
Loan Participations and Assignments. The Fund may invest in fixed and floating
rate loans ("Loans") arranged through private negotiations between an issuer of
emerging market debt instruments and one or more financial institutions
("Lenders"). The Fund's investments in Loans in Latin America are expected in
most instances to be in the form of participations in Loans ("Participations")
and assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Advisor
to be creditworthy.
When the Fund purchases Assignments from Lenders, the Fund will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and Participations.
Because no liquid market for these obligations typically exists, the Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on the Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for the Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
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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 appreciation, the
Fund may invest in debt securities including bonds of foreign governments,
supranational organizations and private issuers. Portfolio debt investments will
be selected on the basis of, among other things, credit quality, and the
fundamental outlooks for currency, economic and interest rate trends, taking
into account the ability to hedge a degree of currency or local bond price risk.
The Fund may purchase "investment-grade" bonds, rated Aaa, Aa or A by Moody's or
AAA, AA or A by S&P or, if unrated, judged to be of equivalent quality as
determined by the Advisor. The Fund may also purchase bonds rated Baa by Moody's
or BBB by S&P. Bonds rated Baa or BBB may have speculative elements as well as
investment-grade characteristics.
The Fund may also purchase debt securities which are rated below
investment-grade, that is, rated below Baa by Moody's or below BBB by S&P and
unrated securities ("high yield/high risk securities", commonly referred to as
junk bonds), which usually entail greater risk (including the possibility of
default or bankruptcy of the issues 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 (subject to a limit of no more than 10% of its total
assets) may purchase bonds rated B or lower by Moody's or S&P, and may invest in
securities which are rated C by Moody's or D by S&P or securities of comparable
quality in the Advisor's judgment. Such securities may be in default with
respect to payment of principal or interest. Such securities carry a high degree
of risk and are considered speculative. 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.
Certain Latin American countries are among the largest debtors to
commercial banks and foreign governments. Trading in debt obligations
("sovereign debt") issued or guaranteed by Latin American governments or their
agencies or instrumentalities ("governmental entities") involves a high degree
of risk. The governmental entity that controls the repayment of sovereign debt
may not be willing or able to repay the principal and/or interest when due in
accordance with the terms of such obligations. A governmental entity's
willingness or ability to repay principal and interest due in a timely manner
may be affected by, among other factors, its cash flow situation, dependence on
expected disbursements from third parties, the governmental entity's policy
towards the International Monetary Fund and the political constraints to which a
governmental entity may be subject. As a result, governmental entities may
default on their sovereign debt. Holders of sovereign debt (including the Fund)
may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
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 Investment
Manager. 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. Within the Fund's 10% limit on investments in bonds
rated B or lower by Moody's or S&P, the Fund may also purchase 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 may invest
in securities which are rated C by Moody's and D by S&P. Such securities may be
in default with respect to payment of principal or interest. See the Appendix to
this Statement of Additional Information for a more complete description of the
ratings assigned by ratings organizations and their respective characteristics.
High-yield, high-risk securities are especially subject to adverse changes
in general economic conditions, to changes in the financial condition of their
issuers and to price fluctuations in response to changes in interest rates. An
economic downturn could disrupt the high yield market and impair the ability of
issuers to repay principal and interest. Also, an increase in interest rates
would have a greater adverse impact on the value of such obligations than on
higher quality debt securities. During an economic downturn or period of rising
interest rates, highly leveraged issues may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations. Prices and yields of high yield securities will fluctuate
over time and, during periods of economic uncertainty, volatility of high yield
securities may adversely affect the
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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. For information concerning tax issues related to high yield/high risk
securities, (see "TAXES.")
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.
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.
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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 generally correspond 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.
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
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."
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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.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the 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
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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, 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 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, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on 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 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
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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.
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 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 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 has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the 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
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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 offsetting positions) to cover its obligations under
swaps, the Advisor and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
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.
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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 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 its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, 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 cash or liquid 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
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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.
Convertible Securities. The Fund will limit its purchases of convertible
securities to debt securities convertible into common stocks. The Fund may
invest in convertible securities which are bonds, notes, debentures, and other
securities which are convertible into common stocks. Investments in convertible
securities can provide income through interest and dividend payments and/or an
opportunity for capital appreciation by virtue of their conversion or exchange
features.
The convertible securities in which the Fund may invest may be converted
or exchanged at a stated or determinable exchange ratio into underlying shares
of common stock. The exchange ratio for any particular convertible security may
be adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions, or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As fixed income securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income 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). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Warrants. The Fund may invest in warrants up to 5% of the value of its total
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.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter
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<PAGE>
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.
Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign 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 other obligations the Fund may
purchase.
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.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
Repurchase Commitments. The Fund may enter into repurchase commitments with any
party deemed creditworthy by the Advisor, including foreign banks and
broker/dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
securities which the Fund may purchase. Such transactions may not provide the
Fund with collateral marked-to-market during the term of the commitment.
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.
Illiquid Securities. The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as
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Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale. This investment practice, therefore, could have the
effect of increasing the level of illiquidity of 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 of
Directors 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.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Advisor will monitor such restricted securities subject to the supervision of
the Board of Directors. Among the factors the Advisor 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).
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.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC, such loans
may be made to member firms of the Exchange, and would be required to be secured
continuously by collateral in cash, U.S. Government securities or other 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
would have 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 would continue
to receive the equivalent of the interest paid by the issuer on the securities
loaned and would 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 would be made only to firms
deemed by the Advisor to be of good standing, and when, in the judgment of the
Advisor, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Fund determines to make
securities loans, 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.
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Dividends, Distributions and Taxes
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute an amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, it may
be subject to such tax. (See "TAXES.") In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than
such an 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 dividend paid deduction on its federal tax return.
The Corporation intends to distribute the Fund's investment company
taxable income and any net realized capital gains in December to avoid federal
excise tax, although an additional distribution may be made if necessary. Both
types of distributions will be made in shares of the Fund and confirmations will
be mailed to each shareholder unless a shareholder has elected to receive cash,
in which case a check will be sent. Distributions of investment company taxable
income and net realized capital gains are taxable (See "TAXES"), whether made in
shares or cash.
The 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.
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. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year the Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such 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 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 the Fund.
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-
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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. If the Fund makes such an
election, it may not be treated as having met the excise tax distribution
requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of 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 shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of 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 IRA contribution of up to
$2,000 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 ($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.
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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
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 shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend. In addition, if 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.
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 property
in the Fund's portfolio similar to the property underlying the put option. 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 relevant 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 capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes the
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<PAGE>
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. The Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time 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
stock would be deductible as ordinary losses to the extent of any net
mark-to-market gains previously included in income in prior years. The effect of
this election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a Fund-level tax when distributed to
shareholders as a dividend. Alternatively, the 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 holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. In addition, if the Fund invests in certain high
yield original issue discount obligations issued by corporations, a portion of
the original issue discount accruing on the obligation may be eligible for the
deduction
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<PAGE>
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 Internal Revenue Service all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if 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.
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 A, B and C shares are newly offered and therefore have no available
performance information. Returns for Class A, B and C shares are derived from
the historical performance of Class S Shares, adjusted to reflect the estimated
operating expenses applicable to Class A, B and C shares, which may be higher or
lower than those of Class S shares.
Performance figures prior to March 1, 2001 for Class A, Class B and C shares are
derived from the historical performance of Class S shares, adjusted to reflect
the operating expenses applicable to Class A, B and C shares, which may be
higher or lower than those of Class S 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.
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
25
<PAGE>
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 period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Average Annual Total Returns for the Period Ended October 31, 2000 (1)(2)
[to be updated]
1 Year 5 Years 10 Years Life of Fund
Scudder Latin America Fund ____% ____% ____% ____%
Class A
Scudder Latin America Fund ____% ____% ____% ____%
Class B
Scudder Latin America Fund ____% ____% ____% ____%
Class C
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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 a hypothetical $1,000 investment made at
the beginning of the applicable period.
Cumulative Total Returns for the Period Ended October 31, 2000 (1)
[to be updated]
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<PAGE>
1 Year 5 Years 10 Years Life of Fund
Scudder Latin America Fund ____% ____% ____% ____%
Class A
Scudder Latin America Fund ____% ____% ____% ____%
Class B
Scudder Latin America Fund ____% ____% ____% ____%
Class C
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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 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 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.
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
27
<PAGE>
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 changed to Scudder Kemper
Investments, Inc. (Scudder Kemper). 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. On [Month Day], 2000 Scudder Kemper Investments, Inc.
changed its name 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.
Pursuant to an investment management agreement with the Fund, the Advisor
acts as the Fund's investment advisor, 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
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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.
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 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.
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.
The present investment management agreement (the "Agreement") was approved
by the Directors on [ ] and became effective [ ]. The Agreement will
continue in effect until September 30, 2001 only if their 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
Corporation, cast in person at a meeting called for the purpose of voting on
such approval, and either by a vote of the Corporation's Directors or of a
majority of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically 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 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 Articles of
Incorporation, 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, the Fund will pay the Advisor an annual fee equal to
1.25% of the Fund's first $1 billion of average daily net assets, and 1.15% of
such assets in excess of $1 billion, 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
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of the Fund and unpaid. During the fiscal years ended October 31, 1998, 1999 and
2000, the Advisor imposed management fees amounting to $9,375,566, $6,006,448
and [$ ], 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'
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." [confirm agreement amended to add "Zurich Scudder 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 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.
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
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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.
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 a 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 0.75%.
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
the fee continues until terminated by KDI or a Fund. KDI also receives any
contingent deferred sales charges.
Administrative Fee. The Fund has entered into an administrative services
agreement with Zurich Scudder (the "Administration Agreement"), pursuant to
which Zurich Scudder will provide or pay others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Zurich Scudder under its investment management agreements with the Fund, as
described above) in exchange for the payment by the Fund of an administrative
services fee
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(the "Administrative Fee") of [0.XX]% for Class A, [0.XX]% for Class B and
[0.XX]% for Class C. One effect of this arrangement 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 Zurich Scudder, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Zurich Scudder, computes net asset value for the
Fund and maintains its accounting records. Kemper Service Company is the
transfer, shareholder servicing and dividend-paying agent for the shares of the
Fund. As custodian, Brown Brothers Harriman & Company holds the portfolio
securities of the Fund, pursuant to a custodian agreement.
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.
Zurich Scudder 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 Zurich
Scudder 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 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 Fund 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, the Fund will
continue to pay the fees required by its investment management agreement with
Zurich Scudder.
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% of average daily
net assets of Class A, B and C shares of the Fund.
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 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 directors or officers of the Fund are also directors or officers
of the Advisor or KDI, as indicated under "Officers and Directors."
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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
Administrative 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, 0.04% of such assets in excess of $150 million and 0.02% of such assets
in excess of $1 billion, plus holding and transaction charges for this service.
For the fiscal years ended October 31, 1998, 1999 and 2000, the Fund incurred
charges of $383,584, $263,036 and [$ ], respectively, of which [$ ] was
unpaid at October 31, 2000.
Custodian, Transfer Agent and Shareholder Service Agent. Brown Brothers Harriman
& Company, 40 Water Street, Boston, Massachusetts 02109, as custodian, has
custody of all securities and cash of the Fund held outside the United States.
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. KSVC
receives 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.
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 financial statements and semi-annual
unaudited financial statements.
PORTFOLIO TRANSACTIONS
Brokerage Commissions. Allocation of brokerage may be placed by the Advisor.
The primary objective of the Advisor in placing orders for the purchase
and sale of securities for the Fund's portfolio 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 Scudder Investor Services, Inc. ("SIS"), a corporation
registered as a broker-dealer and a subsidiary of the Advisor, with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Fund to reported commissions paid by others. The Advisor reviews on a
routine basis commission rates, execution and settlement services performed,
making 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 research, market and statistical information to the
Fund. The term "research, market and statistical information" 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 not authorized when placing portfolio transactions for the Fund
to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction solely on account of the receipt of
research, market or statistical information. 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.
In selecting among firms believed to meet the criteria for handling a
particular transaction, the Advisor may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Advisor.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through SIS. SIS will place orders on behalf
of the Fund with issuers, underwriters or other brokers and dealers. SIS 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.
The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.
For the fiscal years ended October 31, 1998, 1999 and 2000, the Fund paid
total brokerage commissions of $1,705,006, $1,357,999, and [$ ],
respectively. For the fiscal year ended October 31, 2000, [$ ] ([xx]%) 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
information to the Fund or the Advisor. The total amount of brokerage
transactions aggregated [$ ], of which [$ ] ([xx]%) of all brokerage
transactions were transactions which included research commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rates, i.e., the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended October 31, 1998, 1999 and 2000 were 43.6%, 48.4% and [ ]%, respectively.
Higher levels of activity by the Fund result in higher transaction costs and may
also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for the Fund whenever necessary, in
management's opinion, to meet the Fund's objectives.
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.
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") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system will be valued at its most recent sale
price on such system as of the Value Time. Lacking any sales, the security will
be valued at the most recent bid quotation as of the Value Time. 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 if there are any sales of
such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation the security is valued at the
most recent bid quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the
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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 Fund'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.
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 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
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
<S> <C> <C> <C>
Class A Maximum initial sales charge 0.25% (1) Initial sales charge
of 5.75% of the public waived or reduced for
offering price certain purchases
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class B Maximum contingent deferred 1.00% Shares convert to
sales charge of 4% of Class A shares six
redemption proceeds; declines years after issuance
to zero after six years
Class C Contingent deferred sales 1.00% No conversion feature
charge of 1% of redemption
proceeds for redemptions made
during first year after
purchase
</TABLE>
(1) 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.
<TABLE>
<CAPTION>
Sales Charge
------------
Allowed to Dealers
As a Percentage of As a Percentage of As a Percentage of
Amount of Purchase 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
Securities Act of 1933.
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 Zurich
Scudder Funds 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
36
<PAGE>
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 Zurich Scudder
Funds 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 Zurich Scudder 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
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 a 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 [Zurich Scudder
Mutual Fund]s 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 a 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, directors, 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
37
<PAGE>
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.
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."
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 [Zurich Scudder Mutual Fund]s 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
38
<PAGE>
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.
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.
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
39
<PAGE>
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 [Zurich Scudder Mutual Fund]s, 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
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
40
<PAGE>
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 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
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
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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 [Zurich Scudder Mutual Fund]s 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.
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.
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Reinvestment Privilege. A shareholder who has redeemed Class A shares of the
Fund or any other [Zurich Scudder 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 [Zurich Scudder Mutual Fund]s. A
shareholder of the Fund or other [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s. 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 [Zurich Scudder
Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s 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
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 [Zurich Scudder 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 Fund, Global Discovery Fund, Value Fund, and Classic Growth Fund
("[Zurich Scudder Mutual Fund]s"). 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 "[Zurich Scudder 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 [Zurich Scudder
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.
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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 [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s (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 [Zurich
Scudder Mutual Fund]s in accordance with the provisions below.
Class A Shares. Class A shares of the [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder 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
[Zurich Scudder 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
[Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange through
another [Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
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another [Zurich Scudder 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 [Zurich Scudder 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 [Zurich Scudder 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
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 [Zurich Scudder Mutual Fund] or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another such [Zurich Scudder Mutual Fund]. If
selected, exchanges will be made automatically until the shareholder or the
[Zurich Scudder 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 [Zurich Scudder 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 (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.
A Fund may immediately terminate a shareholder's
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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.
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 $100. 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.
The net asset value per Share of the Fund is determined separately for
each class by dividing the value of the Fund's net assets attributable to that
class by the 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. 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, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
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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 so liquid as a redemption entirely in cash.
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,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------- ------------------ -------------------- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Henry P. Becton, Jr. (56) Director President, WGBH Educational --
WGBH Foundation
125 Western Avenue
Allston, MA 02134
------------------------------------------------------------------------------------------------------
Linda C. Coughlin (48)+* Director and Managing Director of Zurich Director and Vice
President Scudder Investments, Inc. Chairman
------------------------------------------------------------------------------------------------------
Dawn-Marie Driscoll (53) Director Executive Fellow, Center for --
4909 SW 9th Place Business Ethics, Bentley
Cape Coral, FL 33914 College; President, Driscoll
Associates (consulting firm)
------------------------------------------------------------------------------------------------------
Edgar R. Fiedler (70) Director Senior Fellow and Economic --
50023 Brogden Counselor, The Conference
Chapel Hill, NC Board, Inc.(not-for-profit
business research
organization)
------------------------------------------------------------------------------------------------------
Keith R. Fox (45) Director Private Equity Investor, --
10 East 53rd Street General Partner, Exeter Group
New York, NY 10022 of Funds
------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------- ------------------ -------------------- ----
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joan E. Spero (55) Director President, Doris Duke --
Doris Duke Charitable Charitable Foundation;
Foundation Department of State -
650 Fifth Avenue Undersecretary of State for
New York, NY 10128 Economic, Business and
Agricultural Affairs (March
1993 to January 1997)
------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg (56) Director Consultant; Director, --
3816 Military Road, NW Financial Institutions
Washington, D.C. Issues, U.S. General
Accounting Office
(1996-1997); Partner,
Fulbright & Jaworski Law Firm
(1978-1996)
------------------------------------------------------------------------------------------------------
Jean C. Tempel (56) Director Managing Director, First --
One Boston Place 23rd Floor Light Capital, LLC (venture
Boston, MA 02108 capital firm)
------------------------------------------------------------------------------------------------------
Steven Zaleznick (45)* Director President and CEO, AARP --
601 E Street Services, Inc.
Washington, D.C. 20004
------------------------------------------------------------------------------------------------------
Thomas V. Bruns (43)# Vice President Managing Director of Zurich President
Scudder Investments, Inc.
------------------------------------------------------------------------------------------------------
William F. Glavin (41)# Vice President Managing Director of Zurich Managing Director
Scudder Investments, Inc.
------------------------------------------------------------------------------------------------------
James E. Masur (40)+ Vice President Senior Vice President of __
Zurich Scudder Investments,
Inc.
------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (47)+ Vice President Managing Director of Zurich Director, Senior
and Assistant Scudder Investments, Inc. Vice President,
Secretary Chief Legal Officer
and Secretary
------------------------------------------------------------------------------------------------------
Howard S. Schneider (43)# Vice President Managing Director of Zurich __
Scudder Investments, Inc.
------------------------------------------------------------------------------------------------------
John R. Hebble (42)+ Treasurer Senior Vice President of __
Zurich Scudder Investments,
Inc.
------------------------------------------------------------------------------------------------------
Brenda Lyons (37)+ Assistant Senior Vice President of __
Treasurer Zurich Scudder Investments,
Inc.
------------------------------------------------------------------------------------------------------
Caroline Pearson (38)+ Assistant Senior Vice President of __
Secretary Zurich Scudder Investments,
Inc.; Associate, Dechert
Price & Rhoads (law firm)
1989 - 1997
------------------------------------------------------------------------------------------------------
John Millette (37)+ Vice President Vice President of Zurich --
and Secretary Scudder Investments, Inc.
------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
ADDITIONAL OFFICERS
-------------------
<TABLE>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
------------------------------------------------------------------------------------------------------
Joan Gregory (55) ++ Vice President Vice President of Zurich __
Scudder Investments, Inc.
------------------------------------------------------------------------------------------------------
Tien Yu Sieh (31) ++ Vice President Senior Vice President of __
Zurich Scudder 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 Investment Company Act
of 1940, as amended.
** 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
@ 101 California Street, San Francisco, California
The Directors and Officers of the Corporation also serve in similar
capacities with other Scudder Funds.
[TO BE UPDATED: INSERTION OF SHAREHOLDING INFORMATION]
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.
49
<PAGE>
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 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
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 Trustee fee schedules. The following
table shows the aggregate compensation received by each Independent Directors
during 2000 from the Corporation and from all of the Scudder funds as a group.
[to be updated]
---------------------------------------------------------------------
SCUDDER
INTERNATIONAL ALL SCUDDER
NAME FUND, INC.* FUNDS
---------------------------------------------------------------------
Henry P. Becton, Jr.** $ $ (30 funds)
---------------------------------------------------------------------
Dawn-Marie Driscoll** (30 funds)
---------------------------------------------------------------------
Edgar R. Fiedler**+ (29 funds)
---------------------------------------------------------------------
Keith R. Fox (23 funds)
---------------------------------------------------------------------
Joan E. Spero (23 funds)
---------------------------------------------------------------------
Jean Gleason Stromberg** (16 funds)
---------------------------------------------------------------------
Jean C. Tempel** (30 funds)
---------------------------------------------------------------------
* Scudder International Fund, Inc. consists of five funds: Scudder Emerging
Markets Growth Fund, Scudder Greater Europe Growth Fund, Scudder
International Fund, Scudder Latin America Fund and Scudder Pacific
Opportunities 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 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 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
50
<PAGE>
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.
Shares of the Corporation have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are charged
with the liabilities in respect to such series and with 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.
The assets of the Corporation received for the issue or sale of the shares
of each series and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Corporation. If a series were unable to meet its obligations,
the assets of all other series may in some circumstances be available to
creditors for that purpose, in which case the assets of such other series could
be used to meet liabilities which are not otherwise properly chargeable to them.
Expenses with respect to any two or more series are to be allocated in
proportion to the asset value of the respective series except where allocations
of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series and by class on matters affecting an individual class. For
example, a change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Directors 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.
Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall not be liable for
51
<PAGE>
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: [INSERT CUSIP NUMBER]
Class B: [INSERT CUSIP NUMBER]
Class C: [INSERT CUSIP NUMBER]
The Fund has a fiscal year ending October 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 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.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, Brown Brothers Harriman & Company,
40 Water Street, Boston, Massachusetts 02109. Brown Brothers Harriman & Company
have entered into agreements with foreign subcustodians approved by the
Directors of the Corporation pursuant to Rule 17f-5 of the 1940 Act.
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 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. 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 October 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.
52
<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
<PAGE>
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.
2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2001
Scudder Pacific Opportunities Fund (Class A, B and C 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, Class B and Class C Shares (the
"Shares") of Scudder Pacific Opportunities Fund (the "Fund"), a non-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 March 1, 2001. 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 Pacific Opportunities Fund offers the following classes of shares:
Class AARP, Class S, Class A, Class B and Class C shares (the "Shares"). Only
Class A, Class B and Class C shares of Scudder Pacific Opportunities Fund are
offered herein.
TABLE OF CONTENTS
Investment Restrictions................................................2
Investment Policies and Techniques.....................................4
Dividends, Distributions and Taxes.....................................4
Performance...........................................................21
Investment Manager and Underwriter....................................21
Portfolio Transactions................................................28
Purchase, Repurchase and Redemption of Shares.........................30
Purchase of Shares....................................................30
Redemption or Repurchase of Shares....................................35
Special Features......................................................38
Officers and Directors................................................41
Shareholder Rights....................................................45
Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's investment
manager.
The financial statements appearing in the Fund's October 31, 2000 Annual Report
to Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.
<PAGE>
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, "majority of the Fund's outstanding
shares" means the lesser of (1) more than 50% of the outstanding shares of the
Fund or (2) 67% or more of the shares present at such meeting, if the holders of
more than 50% of the outstanding shares are present or represented by proxy.
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 has elected to be classified as a non-diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund may not:
(1) borrow money, except as permitted under the Investment Company Act
of 1940, as amended, ("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, as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;
(6) purchase physical commodities or contracts relating to physical
commodities; or
(7) make loans except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
The Directors of the Corporation have voluntarily adopted certain policies
and restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Directors based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice to or approval
of 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;
2
<PAGE>
(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.
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.
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.
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 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 other than temporary
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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
The Fund's investment objective is to seek long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
The Fund's investment program focuses on the smaller, emerging markets in
this region of the world. The Fund may be appropriate for no-load investors
seeking to benefit from economic growth in the Pacific Basin, but who do not
want direct exposure to the Japanese market. An investment in the Fund entails
above-average investment risk.
As stated above, except as otherwise indicated, the Fund's investment
objective and policies are not fundamental and may be changed without a vote of
shareholders. If there is a change in investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs. There can be no assurance that the
Fund's objective will be met.
The Fund invests, under normal market conditions, at least 65% of its
total assets in the equity securities of Pacific Basin companies. Pacific Basin
countries include Australia, the Peoples Republic of China, India, Indonesia,
Malaysia, New Zealand, the Philippines, Sri Lanka, Pakistan and Thailand, as
well as Hong Kong, Singapore, South Korea and Taiwan--the so-called "four
tigers." The Fund may invest in other countries in the Pacific Basin when their
markets become sufficiently developed. The Fund will not, however, invest in
Japanese securities. The Fund intends to allocate investments among at least
three countries at all times.
The Fund defines securities of Pacific Basin companies as follows:
o Securities of companies organized under the laws of a Pacific Basin
country or for which the principal securities trading market is in
the Pacific Basin; or
o Securities of companies, wherever organized, when at least 50% of a
company's non-current assets, capitalization, gross revenue or
profit in any one of the two most recent fiscal years represents
(directly or indirectly through subsidiaries) assets or activities
located in the Pacific Basin.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depositary receipts and warrants. These may be
illiquid securities. Equity securities may also be purchased through rights.
Securities may be listed on securities exchanges, traded over-the-counter or
have no organized market.
The Fund may invest up to 35% of its total assets in foreign and domestic
debt securities if the Advisor determines that the capital appreciation of debt
securities is likely to equal or exceed the capital appreciation of equity
securities. The Fund may purchase bonds rated Aaa, Aa or A by Moody's, or AAA,
AA or A by S&P or, if unrated, of equivalent quality as determined by the
Advisor. Should the rating of a security in the Fund's portfolio be downgraded,
the Advisor will determine whether it is in the best interest of the Fund to
retain or dispose of such security.
Under normal market conditions, the Fund may invest up to 35% of its
assets in equity securities of U.S. and other non-Pacific Basin issuers
(excluding Japan). In evaluating non-Pacific Basin investments, the Advisor
seeks investments where an issuer's Pacific Basin business activities and the
impact of developments in the Pacific Basin may have a positive effect on the
issuer's business results. The Fund may also purchase shares of closed-end
investment companies that invest primarily in the Pacific Basin. In addition,
the Fund may invest in when-issued securities and convertible securities,
illiquid securities, reverse repurchase agreements and may engage in strategic
transactions, including derivatives. For temporary defensive purposes, the Fund
may hold without limit debt instruments as well as cash and cash equivalents,
including foreign and domestic 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.
Foreign securities such as those purchased by the Fund may be subject to
foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
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Investing in the Pacific Basin. Economies of individual Pacific Basin countries
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, interest rate levels, and balance of payments
position. Of particular importance, most of the economies in this region of the
world are heavily dependent upon exports, particularly to developed countries,
and, accordingly, have been and may continue to be adversely affected by trade
barriers, managed adjustments in relative currency values, and other
protectionist measures imposed or negotiated by the U.S. and other countries
with which they trade. These economies also have been and may continue to be
negatively impacted by economic conditions in the U.S. and other trading
partners, which can lower the demand for goods produced in the Pacific Basin.
With respect to the Peoples Republic of China and other markets in which
the Fund may participate, there is the possibility of nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments that could adversely
impact a Pacific Basin country or the Fund's investment in that country.
Trading volume on Pacific Basin stock exchanges outside of Japan, although
increasing, is substantially less than in the U.S. stock market. Further
securities of some Pacific Basin companies are less liquid and more volatile
than securities of comparable U.S. companies. Fixed commissions on Pacific Basin
stock 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 and may be able to purchase securities in which
the Fund may invest on other stock exchanges where commissions are negotiable.
Foreign companies, including Pacific Basin companies, are not generally
subject to uniform accounting, auditing and financial reporting standards,
practices and disclosure requirements comparable to those applicable to U.S.
companies. Consequently, there may be less publicly available information about
such companies than about U.S. companies. Moreover, there is generally less
government supervision and regulation of Pacific Basin stock exchanges, brokers,
and listed companies than in the U.S.
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 the foregoing considerations through continuous professional management.
Recent conditions in the Pacific Basin region include political
uncertainty, economic overheating, erratic trade policies and extreme currency
fluctuations that have resulted in equity market decline. The conditions that
have given rise to these developments, however, are changeable, and there is no
way to predict if they will continue or the speed at which the economies of that
region will recover.
Investing in Foreign Securities. 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 United States
securities and which may favorably or unfavorably affect the Fund's performance.
As foreign companies are not generally subject to uniform accounting and
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 stock markets, while growing in volume of trading activity, have
substantially less volume than the New York Stock Exchange, Inc. (the
"Exchange"), and securities of some foreign companies are less liquid and more
volatile than securities of domestic companies. Similarly, volume and liquidity
in most foreign bond markets are less than the volume and liquidity in the
United States and at times, volatility of price can be greater than in the
United States. 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 stock exchanges are generally higher than
negotiated commissions on U.S. exchanges, 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 business
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and industry practices, stock exchanges, brokers and listed companies than in
the United States. 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 United States and foreign countries may be less reliable than within
the United States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. In addition, with
respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability, or diplomatic developments
which could affect United States 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 United States 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 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.
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 futures
contracts on foreign currencies, 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 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 forward or
futures contracts to purchase or sell foreign currencies.
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 Scudder Kemper 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.
Depositary Receipts. The Fund may invest directly in securities of emerging
country issuers through sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary
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Receipts ("IDRs") and other types of Depositary Receipts (which, together with
ADRs, GDRs and IDRs are hereinafter referred to as "Depositary Receipts").
Depositary 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 Depositary 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 Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may 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. Certain Depositary
Receipts may not be listed on an exchange and therefore may be illiquid
securities.
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 appreciation, the
Fund may invest in debt securities including bonds of foreign governments,
supranational organizations and private issuers. Portfolio debt investments will
be selected on the basis of, among other things, credit quality, and the
fundamental outlooks for currency, economic and interest rate trends, taking
into account the ability to hedge a degree of currency or local bond price risk.
The Fund may purchase "investment-grade" bonds, rated Aaa, Aa or A by Moody's or
AAA, AA or A by S&P or, if unrated, judged to be of equivalent quality as
determined by the Advisor.
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 Investment
Manager. 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.
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 generally correspond 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.
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
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
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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.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Advisor must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
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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, 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 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, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on 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 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.
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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.
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 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 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 has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the 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
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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 offsetting positions) to cover its obligations under
swaps, the Advisor and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
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
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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 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 its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, 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 cash or liquid 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, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Convertible Securities. The Fund may invest in convertible securities which are
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
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The convertible securities in which the Fund may invest may be converted
or exchanged at a stated or determinable exchange ratio into underlying shares
of common stock. The exchange ratio for any particular convertible security may
be adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions, or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As fixed income securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income 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). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Warrants. The Fund may invest in warrants up to 5% of the value of its total
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.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign 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 other obligations the Fund may
purchase.
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
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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.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
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.
Illiquid Securities. The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. This investment
practice, therefore, could have the effect of increasing the level of
illiquidity of 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 of Directors 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.
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<PAGE>
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Advisor will monitor such restricted securities subject to the supervision of
the Board of Directors. Among the factors the Advisor 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).
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.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC, such loans
may be made to member firms of the Exchange, and would be required to be secured
continuously by collateral in cash, U.S. Government securities or other 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
would have 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 would continue
to receive the equivalent of the interest paid by the issuer on the securities
loaned and would 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 would be made only to firms
deemed by the Advisor to be of good standing, and when, in the judgment of the
Advisor, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Fund determines to make
securities loans, 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute an amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, it may
be subject to such tax. (See "TAXES.") In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than
such an 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 dividend paid deduction on its federal tax return.
The Corporation intends to distribute the Fund's investment company
taxable income and any net realized capital gains in December to avoid federal
excise tax, although an additional distribution may be made if necessary. Both
types of distributions will be made in shares of the Fund and confirmations will
be mailed to each shareholder unless a shareholder has elected to receive cash,
in which case a check will be sent. Distributions of investment company taxable
income and net realized capital gains are taxable (See "TAXES"), whether made in
shares or cash.
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The 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.
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. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year the Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such 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 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 the Fund.
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. If the Fund makes such an election, it may not be
treated as having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of 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 shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of 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
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<PAGE>
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 of up to
$2,000 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
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 shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend. In addition, if 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.
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
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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 property in the Fund's portfolio similar
to the property underlying the put option. 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 relevant 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 capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. The Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time 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
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<PAGE>
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
stock would be deductible as ordinary losses to the extent of any net
mark-to-market gains previously included in income in prior years. The effect of
this election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a Fund-level tax when distributed to
shareholders as a dividend. Alternatively, the 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.
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 If the Fund holds zero coupon securities or other securities
which are issued at a discount a portion of the difference between the issue
price and the face value of such securities ("original issue discount") will be
treated as income to the Fund each year, even though the Fund will not receive
cash interest payments from these securities. This original issue discount
(imputed income) will comprise a part of the investment company taxable income
of the Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. In addition, if the Fund invests in certain high
yield original issue discount obligations issued by corporations, a portion of
the original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such event, dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations if so designated by the Fund in a written notice to shareholders.
The Fund will be required to report to the Internal Revenue Service all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if 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.
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.
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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 A, B and C shares are newly offered and therefore have no available
performance information. Returns for Class A, B and C shares are derived from
the historical performance of Class S Shares, adjusted to reflect the estimated
operating expenses applicable to Class A, B and C shares, which may be higher or
lower than those of Class S shares.
Performance figures prior to March 1, 2001 for Class A, Class B and C
shares are derived from the historical performance of Class S shares, adjusted
to reflect the operating expenses applicable to Class A, B and C shares, which
may be higher or lower than those of Class S 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.
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 period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
Average Annual Total Returns for the Period Ended October 31, 2000 (1)(2)
[to be updated]
1 Year 5 Years 10 Years Life of Fund
Scudder Pacific
Opportunities Fund --
Class A ____% ____% ____% ____%
Scudder Pacific
Opportunities Fund --
Class B ____% ____% ____% ____%
Scudder Pacific
Opportunities Fund --
Class C ____% ____% ____% ____%
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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
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<PAGE>
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 a hypothetical $1,000
investment made at the beginning of the applicable
period.
Cumulative Total Returns for the Period Ended October 31, 2000 (1)
[to be updated]
1 Year 5 Years 10 Years Life of Fund
Scudder Pacific
Opportunities Fund --
Class A ____% ____% ____% ____%
Scudder Pacific
Opportunities Fund --
Class B ____% ____% ____% ____%
Scudder Pacific
Opportunities Fund --
Class C ____% ____% ____% ____%
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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 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 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.
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Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and
money market funds seek stability of principal, these investments are considered
to be less risky than investments in either bond or equity funds, which may
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 changed to Scudder Kemper
Investments, Inc. (Scudder Kemper). 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. On [Month Day], 2000 Scudder Kemper Investments, Inc.
changed its name 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.
Pursuant to an investment management agreement with the Fund, the Advisor
acts as the Fund's investment advisor, 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.
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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.
The present investment management agreement (the "Agreement") was approved
by the Directors on [ , 2000] and became effective October 2, 2000. The
Agreement will continue in effect until September 30, 2001 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 Corporation, cast in person at a meeting called for the purpose of voting on
such approval, and either by a vote of the Corporation's Directors or of a
majority of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically 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 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 Articles of
Incorporation, 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, the Fund will pay the Advisor an annual fee equal to
1.10% of the first $500 million of the Fund's average daily net assets, and
1.05% of such assets exceeding $500 million, payable monthly, provided the Fund
will
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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.
Prior to October 2, 2000, for these services the Fund paid the Advisor an
annual fee equal to 1.10% of the Fund's average daily net assets payable
monthly, provided the Fund made interim payments as requested by the Advisor not
to exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. For the fiscal years ended October 31, 1998, 1999 and 2000, the Advisor
imposed management fees which amounted to $1,356,087, $1,408,702 and [$ ],
respectively, of which [$ ] is unpaid at October 31, 2000.
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'
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." [confirm agreement amended to add "Zurich Scudder 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.
Sub-Advisor. Scudder Investments Singapore Limited ("SISL"), 30 Cecil Street,
Prudential Tower #24-01/02, Singapore, an affiliate of Zurich Scudder
Investments, Inc., is the sub-advisor for the Fund. SISL serves as sub-advisor
pursuant to the terms of a Research and Advisory Agreement between it and the
Advisor. SISL has served as sub-advisor to the Fund since September 2000.
Under the terms of the Research and Advisory Agreement, SISL manages the
investment and reinvestment of the Fund's portfolio and will provide such
investment advice, research and assistance as the Advisor may, from time to
time, reasonably request.
The Advisor pays SISL for its services a sub-advisory fee, payable
monthly, at the annual rate of 0.385% of the Fund's average weekly net assets.
The Research and Advisory Agreement provides that SISL will 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 Research and Advisory Agreement relates,
except a loss resulting from willful misconduct, bad faith or gross negligence
on the part of SISL in the performance of its duties or from reckless disregard
by SISL of its obligations and duties under the Research and Advisory Agreement.
The Research and Advisory Agreement remains in effect until September 1,
2001 unless sooner terminated or not annually approved as described below.
Notwithstanding the foregoing, the Research and Advisory Agreement shall
continue in effect until September 1, 2001 and year to year thereafter, but only
as long as such continuance is specifically approved at
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least annually (a) by a majority of the Directors of the Corporation who are not
parties to such agreement or interested persons of any such party except in
their capacity as Directors of the Corporation, and (b) by the shareholders or
the Board of Directors of the Corporation. The Research and Advisory Agreement
may be terminated at any time upon 60 days' notice by the Advisor or by the
Board of Directors of the Corporation or by majority vote of the outstanding
shares of the Fund, and will terminate automatically upon assignment or upon
termination of the Fund's investment management agreement.
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
InvestmentLink(SM) 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
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 a 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
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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 0.75%.
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
the fee continues until terminated by KDI or a Fund. KDI also receives any
contingent deferred sales charges.
Administrative Fee. The Fund has entered into an administrative services
agreement with Zurich Scudder (the "Administration Agreement"), pursuant to
which Zurich Scudder will provide or pay others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Zurich Scudder 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.XX]% for Class A, [0.XX]% for
Class B and [0.XX]% for Class C. One effect of this arrangement 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 Zurich Scudder, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Zurich Scudder, computes net asset value for the
Fund and maintains its accounting records. Kemper Service Company is the
transfer, shareholder servicing and dividend-paying agent for the shares of the
Fund. As custodian, Brown Brothers Harriman & Company holds the portfolio
securities of the Fund, pursuant to a custodian agreement.
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.
Zurich Scudder 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 Zurich
Scudder 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 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 Fund 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, the Fund will
continue to pay the fees required by its investment management agreement with
Zurich Scudder.
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% of average daily
net assets of Class A, B and C shares of the Fund.
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
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<PAGE>
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 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
Administrative 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, 0.04% of such assets in excess of $150 million and 0.02% of such assets
in excess of $1 billion, plus holding and transaction charges for this service.
For the fiscal years ended October 31, 1998, 1999 and 2000, the Fund
incurred charges of $114,392, $114,817 and [$ ], respectively, of which
[$ ] was unpaid at October 31, 2000.
Custodian, Transfer Agent and Shareholder Service Agent. Brown Brothers Harriman
& Company, 40 Water Street, Boston, Massachusetts 02109, as custodian, has
custody of all securities and cash of the Fund held outside the United States.
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. KSVC
receives 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.
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 financial statements and semi-annual
unaudited financial statements.
PORTFOLIO TRANSACTIONS
Brokerage Commissions. Allocation of brokerage may be placed by the Advisor.
The primary objective of the Advisor in placing orders for the purchase
and sale of securities for the Fund's portfolio 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 Scudder Investor Services, Inc. ("SIS"), a corporation
registered as a broker-dealer and a subsidiary of the Advisor, with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Fund to reported commissions paid by others. The Advisor reviews on a
routine basis commission rates, execution and settlement services performed,
making 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 research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing
28
<PAGE>
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 not authorized when placing
portfolio transactions for the Fund to pay a brokerage commission in excess of
that which another broker might charge for executing the same transaction solely
on account of the receipt of research, market or statistical information. 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.
In selecting among firms believed to meet the criteria for handling a
particular transaction, the Advisor may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Advisor.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through SIS. SIS will place orders on behalf
of the Fund with issuers, underwriters or other brokers and dealers. SIS will
not receive any commission, fee or other remuneration from the Fund for this
service.
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.
The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.
For the fiscal years ended October 31, 1998, 1999 and 2000, the Fund paid
total brokerage commissions of $1,280,957, $1,380,594 and [$_________],
respectively. For the fiscal year ended October 31, 2000, [$_________] ([xx]%)
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
information to the Fund or the Advisor. The total amount of brokerage
transactions aggregated $[_________], of which $[_________] ([xx]%) of all
brokerage transactions were transactions which included research commissions.
For the fiscal year ended October 31, 1999, $1,099,565 (79.64%) 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
information to the Fund or the Advisor. The total amount of brokerage
transactions aggregated $310,507,275, of which $261,964,265 (84.37%) of all
brokerage transactions were transactions which included research commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rates, i.e., the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended October 31, 1998, 1999 and 2000 were 140.9%, 121.9% and [xx]%,
respectively. Higher levels of activity by the Fund result in higher transaction
costs and may also result in taxes on realized capital gains to be borne by the
Fund's shareholders. Purchases and sales are made for the Fund whenever
necessary, in management's opinion, to meet the Fund's objectives.
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
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<PAGE>
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.
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") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system will be valued at its most recent sale
price on such system as of the Value Time. Lacking any sales, the security will
be valued at the most recent bid quotation as of the Value Time. 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 if there are any sales of
such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation the security is valued at the
most recent bid quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the 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 Fund'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.
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
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<PAGE>
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 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.
Annual 12b-1 Fees
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
Class A Maximum initial sales 0.25%(1) Initial sales
charge of 5.75% charge waived or
of the public reduced for
offering price certain purchases
Class B Maximum contingent 1.00% Shares convert
deferred sales charge of to Class A
4% of redemption shares six years
proceeds; declines to after issuance
zero after six years
Class C Contingent deferred 1.00% No conversion
sales charge of 1% of feature
redemption proceeds for
redemptions made during
first year after purchase
(1) 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.
<TABLE>
<CAPTION>
Sales Charge
------------
Allowed to Dealers
As a Percentage of As a Percentage of As a Percentage of
Amount of Purchase 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
Securities Act of 1933.
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<PAGE>
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 Zurich
Scudder Funds 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 Zurich Scudder
Funds 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 [and including purchases of
Class R shares of certain Scudder Funds. 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 Zurich Scudder 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
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 a 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 [Zurich Scudder
Mutual Fund]s 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 a 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
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<PAGE>
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.
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."
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
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<PAGE>
("KemFlex Plans") will be invested instead in Class A shares at net asset value
where the combined subaccount value in a Fund or other [Zurich Scudder Mutual
Fund]s 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.
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.
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
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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 [Zurich Scudder Mutual Fund]s, 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
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
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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 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
shares. The charge is computed at the following rates applied to the value of
the shares redeemed, excluding amounts not subject to the charge.
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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 [Zurich Scudder Mutual Fund]s 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.
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 [Zurich Scudder 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 [Zurich Scudder Mutual Fund]s. A
shareholder of the Fund or other [Zurich Scudder Mutual Fund]s 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
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<PAGE>
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 [Zurich Scudder Mutual Fund]s. 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 [Zurich Scudder
Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s 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
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 [Zurich Scudder 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 Fund, Global Discovery Fund, Value Fund, and Classic Growth Fund
("[Zurich Scudder Mutual Fund]s"). 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 "[Zurich Scudder 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 [Zurich Scudder
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 [Zurich Scudder Mutual Fund]s 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
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<PAGE>
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 [Zurich
Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s (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 [Zurich
Scudder Mutual Fund]s in accordance with the provisions below.
Class A Shares. Class A shares of the [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder 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
[Zurich Scudder 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
[Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange through
another [Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
another [Zurich Scudder 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 [Zurich Scudder 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 [Zurich Scudder 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
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<PAGE>
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 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 [Zurich Scudder Mutual Fund] or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another such [Zurich Scudder Mutual Fund]. If
selected, exchanges will be made automatically until the shareholder or the
[Zurich Scudder 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 [Zurich Scudder 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 (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.
A 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.
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 $100. 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
40
<PAGE>
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.
The net asset value per Share of the Fund is determined separately for
each class by dividing the value of the Fund's net assets attributable to that
class by the 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. 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, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
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 so liquid as a redemption entirely in cash.
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:
41
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Position with Underwriter,
Name, Age, and Address Position with Fund Principal Occupation** Kemper 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 Chairman
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 Counselor, --
50023 Brogden The Conference Board,
Chapel Hill, NC Inc.(not-for-profit business research
organization)
------------------------------------------------------------------------------------------------------------------------------
Keith R. Fox (45) Director Private Equity Investor, General --
10 East 53rd Street Partner, Exeter Group of Funds
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)
------------------------------------------------------------------------------------------------------------------------------
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.
------------------------------------------------------------------------------------------------------------------------------
James M. Eysenbach (38)@ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
------------------------------------------------------------------------------------------------------------------------------
William F. Glavin (41)# Vice President Managing Director of Zurich Scudder Managing Director
Investments, Inc.
------------------------------------------------------------------------------------------------------------------------------
James E. Masur (40)+ Vice President Senior Vice President of Zurich --
Scudder Investments, Inc.
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Position with Underwriter,
Name, Age, and Address Position with Fund Principal Occupation** Kemper Distributors, Inc.
---------------------- ------------------ -------------------- -------------------------
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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, Senior Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Secretary
------------------------------------------------------------------------------------------------------------------------------
Howard S. Schneider (43)# Vice President Managing Director 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.
------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL OFFICERS
------------------------------------------------------------------------------------------------------------------------------
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.
------------------------------------------------------------------------------------------------------------------------------
Joan Gregory (55) ++ Vice President Vice President of Zurich Scudder --
Investments, Inc.
------------------------------------------------------------------------------------------------------------------------------
Tien Yu Sieh (31) ++ Vice President Senior Vice President of Zurich --
Scudder 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 Investment Company Act of
1940, as amended.
** 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
43
<PAGE>
@ 101 California Street, San Francisco, California
The Directors and Officers of the Corporation also serve in similar
capacities with other Scudder Funds.
[TO BE UPDATED: INSERTION OF SHAREHOLDING INFORMATION]
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 2000 from each Trust and from all of the Scudder funds as a group.
--------------------------------------------------------------------------------
NAME [TRUST NAME]* ALL SCUDDER FUNDS
--------------------------------------------------------------------------------
Henry P. Becton, Jr.** $ $ (30 funds)
--------------------------------------------------------------------------------
Dawn-Marie Driscoll** (30 funds)
--------------------------------------------------------------------------------
Edgar R. Fiedler**+ (29 funds)
--------------------------------------------------------------------------------
Keith R. Fox (23 funds)
--------------------------------------------------------------------------------
Joan E. Spero (23 funds)
--------------------------------------------------------------------------------
Jean Gleason Stromberg** (16 funds)
--------------------------------------------------------------------------------
Jean C. Tempel** (30 funds)
--------------------------------------------------------------------------------
* Scudder International Fund, Inc. consists of five funds: Scudder Emerging
Markets Growth Fund, Scudder Greater Europe Growth Fund, Scudder
International Fund, Scudder Latin America Fund and Scudder Pacific
Opportunities 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 of Directors.
44
<PAGE>
+ 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 Trust, 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 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.
Shares of the Corporation have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are charged
with the liabilities in respect to such series and with 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.
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.
45
<PAGE>
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series and by class on matters affecting an individual class. For
example, a change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Directors 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.
Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall 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: [INSERT CUSIP NUMBER]
Class B: [INSERT CUSIP NUMBER]
Class C: [INSERT CUSIP NUMBER]
The Fund has a fiscal year ending October 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 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.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, Brown Brothers Harriman & Company,
40 Water Street, Boston, Massachusetts 02109.
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 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. 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 October 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.
46
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2001
Scudder Greater Europe Growth Fund (Class A, B and C 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, Class B and Class C Shares (the
"Shares") of Scudder Greater Europe Growth 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 March 1, 2001. 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 Greater Europe Growth Fund offers the following classes of shares:
Class AARP, Class S, Class A, Class B and Class C shares (the "Shares"). Only
Class A, Class B and Class C shares of Scudder Greater Europe Growth Fund are
offered herein.
TABLE OF CONTENTS
Investment Restrictions.......................................................2
Investment Policies and Techniques............................................4
Dividends, Distributions and Taxes............................................4
Performance..................................................................21
Investment Manager and Underwriter...........................................25
Portfolio Transactions.......................................................33
Purchase, Repurchase and Redemption of Shares................................35
Purchase of Shares...........................................................35
Redemption or Repurchase of Shares...........................................39
Special Features.............................................................42
Officers and Directors.......................................................46
Shareholder Rights...........................................................49
Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's investment
manager.
The financial statements appearing in the Fund's October 31, 2000 Annual Report
to Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.
<PAGE>
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, "majority of the Fund's outstanding
shares" means the lesser of (1) more than 50% of the outstanding shares of the
Fund or (2) 67% or more of the shares present at such meeting, if the holders of
more than 50% of the outstanding shares are present or represented by proxy.
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 has elected to be classified as a non-diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund may not:
(1) borrow money, except as permitted under the Investment Company Act
of 1940, as amended, ("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, as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;
(6) purchase physical commodities or contracts relating to physical
commodities; or
(7) make loans except as permitted under the Investment Company Act of
1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
The Directors of the Corporation have voluntarily adopted certain policies
and restrictions which are observed in the conduct of the Fund's affairs. These
represent intentions of the Directors based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Directors without requiring prior notice to or approval
of 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;
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(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.
As stated above, 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 objectives.
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 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.
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 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 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.
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INVESTMENT POLICIES AND TECHNIQUES
The Fund's investment objective is to seek long-term growth of capital
through investments primarily in the equity securities of European companies.
Although its focus is on long-term growth, the Fund may provide current income
principally through holdings in dividend-paying securities.
Greater Europe includes both the industrialized nations of Western Europe
and the less wealthy or developed countries in Southern and Eastern Europe.
Within this diverse area, the Fund seeks to benefit from accelerating economic
growth transformation and deregulation taking hold. These developments involve,
among other things, increased privatizations and corporate restructurings, the
reopening of equity markets and economies in Eastern Europe, further broadening
of the European Community, and the implementation of economic policies to
promote non-inflationary growth. The Fund invests in companies it believes are
well placed to benefit from these and other structural and cyclical changes now
underway in this region of the world.
As stated above, except as otherwise indicated, the Fund's investment
objective and policies are not fundamental and may be changed without a vote of
shareholders. If there is a change in investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs. There can be no assurance that the
Fund's objective will be met.
The Fund will invest, under normal market conditions, at least 80% of its
total assets in the equity securities of European companies. The Fund defines a
European company as follows:
o A company organized under the laws of a European country or for
which the principal securities trading market is in Europe; or
o A company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in its
most recent fiscal year represents (directly or indirectly through
subsidiaries) assets or activities located in Europe.
The Fund expects the majority of its equity assets to be in the more
established and liquid markets of Western and Southern Europe. These more
established Western and Southern European countries include: Austria, Belgium,
Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Spain, Sweden, Switzerland, and the United Kingdom. To
enhance return potential, however, the Fund may pursue investment opportunities
in the less wealthy nations of Southern Europe, currently Greece, Portugal and
Turkey, and the former communist countries of Eastern Europe, including
countries once part of the Soviet Union. The Fund may invest in other countries
of Europe when their markets become sufficiently developed, in the opinion of
the Advisor.
The Fund intends to allocate its investments among at least three
countries at all times. The Fund's equity investments are common stock,
preferred stock (convertible or non-convertible), depositary receipts (sponsored
or unsponsored) and warrants. These may be illiquid securities. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter or have no organized market. In
addition, the Fund may engage in strategic transactions, including derivatives.
The Fund may invest, under normal market conditions, up to 20% of its
total assets in European debt securities. Capital appreciation in debt
securities may arise from a favorable change in relative interest rate levels or
in the creditworthiness of issuers. Within this 20% limit, the Fund may invest
in debt securities which are unrated, rated, or the equivalent of those rated
below investment grade (commonly referred to as "junk bonds"); that is, rated
below Baa by Moody's or below BBB by S&P. Such securities may be in default with
respect to payment of principal or interest. See "Specialized investment
techniques -- Debt securities."
The Fund may invest in when-issued securities, illiquid securities and
convertible securities and may enter into repurchase agreements and reverse
repurchase agreements. The Fund may also invest in closed-end investment
companies that invest primarily in Europe.
When, in the opinion of the Advisor, market conditions warrant, the Fund
may hold foreign or U.S. debt instruments as well as cash or cash equivalents,
including foreign and domestic money market instruments, short-term government
and corporate obligations, and repurchase agreements without limit for temporary
defensive purposes and up to 20% to maintain liquidity. It is impossible to
accurately predict how long such alternative strategies may be utilized.
4
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Foreign securities such as those purchased by the Fund may be subject to
foreign government taxes which could reduce the yield on such securities,
although a shareholder of the Fund may, subject to certain limitations, be
entitled to claim a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the Fund. (See
"TAXES.")
From time to time, the Fund may be a purchaser of restricted debt or
equity securities (i.e., securities which may require registration under the
Securities Act of 1933, or an exemption therefrom, in order to be sold in the
ordinary course of business) in a private placement. The Fund has undertaken not
to purchase or acquire any such securities if, solely as a result of such
purchase or acquisition, more than 15% of the value of the Fund's net assets
would be invested in illiquid securities.
Investing in Greater Europe. Zurich Scudder Investments, Inc. has been managing
European investments for over 35 years. The Advisor employs a dedicated team of
approximately 20 experienced analysts, some of whom have specialized expertise
in Europe, and others of whom focus on one or more industries globally. These
analysts research the diverse European markets and seek to identify companies,
industries and markets which may be undervalued which have outstanding growth
prospects. These two groups of analysts work in teams to create expertise
synergies.
In managing the Fund, the Advisor utilizes reports, statistics and other
investment information from a wide variety of sources, including brokers and
dealers who may execute portfolio transactions for the Fund and for clients of
the Advisor. Investment decisions, however, will be based primarily on critical
analyses and investigations, including visiting companies, touring facilities,
and interviewing suppliers and customers, by the Advisor's own research
specialists and portfolio managers. Field research, including visiting the
companies and/or countries a particular analyst covers, is an important piece of
the research effort.
Market Characteristics. The securities markets of many European countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, the Fund's investment portfolio may experience greater
price volatility and significantly lower liquidity than a portfolio invested in
equity securities of U.S. companies. These markets may be subject to greater
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the U.S.
Securities settlements may in some instances be subject to delays and related
administrative uncertainties.
Investment and Repatriation Restrictions. Foreign investment in the securities
markets of certain European countries is restricted or controlled to varying
degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and expenses of the
Fund. As illustrations, certain countries require governmental approval prior to
investments by foreign persons, or limit the amount of investment by foreign
persons in a particular company, or limit the investment by foreign persons to
only a specific class of securities of a company which may have less
advantageous terms than securities of the company available for purchase by
nationals. In addition, the repatriation of both investment income and capital
from certain of the countries is controlled under regulations, including in some
cases the need for certain advance government notification or authority. The
Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation.
In accordance with the Investment Company Act of 1940 (the "1940 Act"),
the Fund may invest up to 10% of its total assets in securities of closed-end
investment companies. This restriction on investments in securities of
closed-end investment companies may limit opportunities for the Fund to invest
indirectly in certain small capital markets. If the Fund acquires shares in
closed-end investment companies, shareholders would bear both their
proportionate share of expenses in the Fund (including management and advisory
fees) and, indirectly, the expenses of such closed-end investment companies
(including management and advisory fees).
Role of Banks in Capital Markets. In a number of European countries, commercial
banks act as securities brokers and dealers, and as underwriters, investment
fund managers and investment advisors. They also may hold equity participations,
as well as controlling interests, in industrial, commercial or financial
enterprises, including companies whose securities are publicly traded and listed
on European stock exchanges. Investors should consider the potential conflicts
of interest that result from the combination in a single firm of commercial
banking and diversified securities activities.
The Fund is prohibited under the 1940 Act, in the absence of an exemptive
rule or other exemptive relief, from purchasing the securities of any company
that, in its most recent fiscal year, derived more than 15% of its gross
revenues from securities-related activities.
Corporate Disclosure Standards. Issuers of securities in some European
jurisdictions are not subject to the same degree of regulation as are U.S.
issuers with respect to such matters as insider trading rules, restrictions on
market manipulation, shareholder proxy requirements and timely disclosure of
information. The reporting, accounting and auditing standards of
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<PAGE>
European countries differ from U.S. standards in important respects and less
information is available to investors in securities of European companies than
to investors in U.S. securities.
Transaction Costs. Brokerage commissions and transaction costs for transactions
both on and off the securities exchanges in many European countries are
generally higher than in the U.S.
Economic and Political Risks. The economies of individual European countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product or gross national product, as the case may be, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. In addition, securities traded in certain emerging European
securities markets may be subject to risks due to the inexperience of financial
intermediaries, the lack of modern technology, the lack of sufficient capital
base to expand business operations and the possibility of permanent or temporary
termination of trading and greater spreads between bid and asked prices for
securities in such markets. Business entities in many Eastern European countries
do not have any recent history of operating in a market-oriented economy, and
the ultimate impact of Eastern European countries' attempts to move toward more
market-oriented economies is currently unclear. In addition, any change in the
leadership or policies of Eastern European countries may halt the expansion of
or reverse the liberalization of foreign investment policies now occurring and
adversely affect existing investment opportunities.
Other Risks of European Investments. The Fund's investments could in the future
be adversely affected by any increase in taxes or by political, economic or
diplomatic developments. The Fund intends to seek investment opportunities
within the former "east bloc" countries in Eastern Europe. See "Investment
objective and policies" in the Fund's prospectus. All or a substantial portion
of such investments may be considered "not readily marketable" for purposes of
the limitations set forth below.
Most Eastern European countries have had a centrally planned, socialist
economy since shortly after World War II. The governments of a number of Eastern
European countries currently are implementing reforms directed at political and
economic liberalization, including efforts to decentralize the economic
decision-making process and move towards a market economy. There can be no
assurance that these reforms will continue or, if continued will achieve their
goals.
Investing in the securities of the former "east bloc" Eastern European
issuers involves certain considerations not usually associated with investing in
securities of issuers in more developed capital markets such as the U.S., Japan
or Western Europe, including (i) political and economic considerations, such as
greater risks of expropriation, confiscatory taxation, nationalization and less
social, political and economic stability; (ii) the small current size of markets
for such securities and the currently low or non-existent volume of trading,
resulting in lack of liquidity and in price volatility; (iii) certain national
policies which may restrict the Fund's investment opportunities, including,
without limitation, restrictions on investing in issuers or industries deemed
sensitive to relevant national interest; and (iv) the absence of developed legal
structures governing foreign private investments and private property.
Applicable accounting and financial reporting standards in Eastern Europe may be
substantially different from U.S. accounting standards and, in certain Eastern
European countries, no reporting standards currently exist. Consequently,
substantially less information is available to investors in Eastern Europe, and
the information that is available may not be conceptually comparable to, or
prepared on the same basis as that available in more developed capital markets,
which may make it difficult to assess the financial status of particular
companies.
The governments of certain Eastern European countries may require that a
governmental or quasi-governmental authority act as custodian of the Fund's
assets invested in such countries. These authorities may not be qualified to act
as foreign custodians under the 1940 Act and, as a result, the Fund would not be
able to invest in these countries in the absence of exemptive relief from the
Securities and Exchange Commission (the "SEC"). In addition, the risk of loss
through government confiscation may be increased in such countries.
Investing in Emerging Markets. Most emerging securities markets may have
substantially less volume and are subject to less government supervision than
U.S. securities markets. Securities of many issuers in emerging markets may be
less liquid and more volatile than securities of comparable domestic issuers. In
addition, there is less regulation of securities exchanges, securities dealers,
and listed and unlisted companies in emerging markets than in the U.S.
Emerging markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have not kept pace
with the volume of securities transactions. Delays in settlement could result in
temporary periods when a portion of the assets of 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
6
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associated with transactions in U.S. securities. Such transactions also involve
additional costs for the purchase or sale of foreign currency.
Certain emerging markets require prior governmental approval of
investments by foreign persons, limit the amount of investment by foreign
persons in a particular company, limit the investment by foreign persons only to
a specific class of securities of a company that may have less advantageous
rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain emerging markets
may also restrict investment opportunities in issuers in industries deemed
important to national interest.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investments.
In the course of investment in emerging markets, the Fund will be exposed
to the direct or indirect consequences of political, social and economic changes
in one or more emerging markets. While the Fund will manage its assets in a
manner that will seek to minimize the exposure to such risks, there can be no
assurance that adverse political, social or economic changes will not cause the
Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available. The Corporation may suspend redemption of its shares
for any period during which an emergency exists, as determined by the SEC.
Accordingly if the Fund believes that appropriate circumstances exist, it will
promptly apply to the SEC for a determination that an emergency is present.
During the period commencing from the Fund's identification of such condition
until the date of the SEC action, the Fund's securities in the affected markets
will be valued at fair value determined in good faith by or under the direction
of the Corporation's Board of Directors.
Volume and liquidity in most foreign markets are less than in the U.S. and
securities of many foreign companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of business and industry practices, securities exchanges, brokers,
dealers and listed companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the U.S., thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for 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 forth 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. With four exceptions (Panama, Cuba, Costa Rica
and Yugoslavia), no sovereign emerging markets borrower has defaulted on an
external bond issue since World War II.
Income from securities held by the Fund could be reduced by a withholding
tax on the source or other taxes imposed by the emerging market countries in
which the Fund makes its investments. The Fund's net asset value may also be
affected by changes in the rates or methods of taxation applicable to the Fund
or to entities in which the Fund has invested. The 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.
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Many emerging markets have experienced substantial, and in some periods
extremely high rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
Governments of many emerging market countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in any given country. As a result, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Investing in Europe. Most Eastern European nations, including Hungary, Poland,
Czechoslovakia, and Romania have had centrally planned, socialist economies
since shortly after World War II. A number of their governments, including those
of Hungary, the Czech Republic, and Poland are currently implementing or
considering reforms directed at political and economic liberalization, including
efforts to foster multi-party political systems, decentralize economic planning,
and move toward free market economies. At present, no Eastern European country
has a developed stock market, but Poland, Hungary, and the Czech Republic have
small securities markets in operation. Ethnic and civil conflict currently exist
within the former Yugoslavia. The outcome is uncertain.
Both the European Community (the "EC") and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West Germany.
Following reunification, the Federal Republic of Germany has remained a firm and
reliable member of the EC and numerous other international alliances and
organizations. To reduce inflation caused by the unification of East and West
Germany, Germany has adopted a tight monetary policy which has led to weakened
exports and a reduced domestic demand for goods and services. However, in the
long-term, reunification could prove to be an engine for domestic and
international growth.
The conditions that have given rise to these developments are changeable,
and there is no assurance that reforms will continue or that their goals will be
achieved.
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Portugal is a genuinely emerging market which has experienced rapid growth
since the mid-1980s, except for a brief period of stagnation over 1990-91.
Portugal's government remains committed to privatization of the financial system
away from one dependent upon the banking system to a more balanced structure
appropriate for the requirements of a modern economy. Inflation continues to be
about three times the EC average.
Economic reforms launched in the 1980s continue to benefit Turkey in the
1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita GDP increasing more than 6% annually. Agriculture remains
the most important economic sector, employing approximately 55% of the labor
force, and accounting for nearly 20% of GDP and 20% of exports. Inflation and
interest rates remain high, and a large budget deficit will continue to cause
difficulties in Turkey's substantial transformation to a dynamic free market
economy.
Like many other Western economies, Greece suffered severely from the
global oil price hikes of the 1970s, with annual GDP growth plunging from 8% to
2% in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of the
conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance. Once
Greece has sorted out its political situation, it will have to face the
challenges posed by the steadily increasing integration of the EC, including the
progressive lowering of trade and investment barriers. Tourism continues as a
major industry, providing a vital offset to a sizable commodity trade deficit.
Securities traded in certain emerging European securities markets may be
subject to risks due to the inexperience of financial intermediaries, the lack
of modern technology and the lack of a sufficient capital base to expand
business operations. Additionally, former Communist regimes of a number of
Eastern European countries had expropriated a large amount of property, the
claims of which have not been entirely settled. There can be no assurance that
the Fund's investments in Eastern Europe would not also be expropriated,
nationalized or otherwise confiscated. Finally, any change in leadership or
policies of Eastern European countries, or countries that exercise a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and adversely affect
existing investment opportunities.
Investing in Africa. Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the percentage
of people who are over 15 years of age and who can read and write) are
relatively low, ranging from 20% to 60%. The primary industries include crude
oil, natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism and cattle.
Many of the countries are fraught with political instability. There has
been a trend over the past five years toward democratization. Many countries are
moving from a military style, Marxist, or single party government to a
multi-party system. Still, there remain many countries that do not have a stable
political process. Other countries have been enmeshed in civil wars and border
clashes.
Economically, the Northern Rim countries (including Morocco, Egypt and
Algeria) and Nigeria, Zimbabwe and South Africa are the wealthier countries on
the continent. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local companies
start to list on the exchanges. However, religious and ethnic strife has been a
significant source of instability.
On the other end of the economic spectrum are countries, such as Burkina
Faso, Madagascar and Malawi, that are considered to be among the poorest or
least developed in the world. These countries are generally landlocked or have
poor natural resources. The economies of many African countries are heavily
dependent on international oil prices. Of all the African industries, oil has
been the most lucrative, accounting for 40% to 60% of many countries' GDP. A
general decline in oil prices may have an adverse impact on many economies.
Economic Growth. Emerging markets are an increasingly important part of the
world's investment activity. The chief rationale for investing in emerging
markets is the dramatic growth rates that these economies continue to enjoy.
Over the past decade, the annual percentage change in the economic growth rates
of emerging market countries has been climbing above that of the mature markets,
as shown in the chart below.(1)
This growth translates into an average annual percentage change (as
measured by GDP) of [2.53]% for mature economies, compared to [3.89]% for
developing countries.(2) Emerging market economies are projected to grow at a
[6.3]% annual rate -- more than double the expected growth of established
countries in Europe, Asia and North America [(2.4%)].(3)
--------
1 International Monetary Fund, 1997. ^OECD Economic Outlook, October 1997.
2 International Monetary Fund, 1995. ^OECD Economic Outlook, June 1995.
3 IMF World Economic Outlook, 1997.
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Investing in Foreign Securities
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 United States securities and which may
favorably or unfavorably affect the Funds' performance. As foreign companies are
not generally subject to uniform accounting and 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 stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange, Inc. (the "Exchange"), and securities of some foreign companies
are less liquid and more volatile than securities of domestic companies.
Similarly, volume and liquidity in most foreign bond markets are less than the
volume and liquidity in the United States and at times, volatility of price can
be greater than in the United States. 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 stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
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 business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. 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 United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of withholding or confiscatory taxes, political,
social, or economic instability, or diplomatic developments which could affect
United States 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 United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position.
Many of the currencies of Eastern European countries have experienced a
steady devaluation relative to western currencies. Any future devaluation may
have a detrimental impact on any investments made by the Fund in Eastern Europe.
The currencies of most Eastern European countries are not freely convertible
into other currencies and are not internationally traded. The Fund will not
invest its assets in non-convertible fixed income securities denominated in
currencies that are not freely convertible into other currencies at the time the
investment is made.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Advisor, are
speculative.
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 futures
contracts on foreign currencies, 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 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 forward or
futures contracts to purchase or sell foreign currencies.
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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 Scudder Kemper 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.
Depositary Receipts. The Fund may invest directly in securities of emerging
country issuers through sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts
("IDRs") and other types of Depositary Receipts (which, together with ADRs, GDRs
and IDRs are hereinafter referred to as "Depositary Receipts"). Depositary
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 Depositary 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 Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may 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. Certain Depositary
Receipts may not be listed on an exchange and therefore may be illiquid
securities.
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 appreciation, the
Fund may invest in debt securities including bonds of foreign governments,
supranational organizations and private issuers. Portfolio debt investments will
be selected on the basis of, among other things, credit quality, and the
fundamental outlooks for currency, economic and interest rate trends, taking
into account the ability to hedge a degree of currency or local bond price risk.
The Fund may purchase "investment-grade" bonds, rated Aaa, Aa or A by Moody's or
AAA, AA or A by S&P or, if unrated, judged to be of equivalent quality as
determined by the Advisor. The Fund may invest up to 20% of its total assets in
European debt securities and (within its 20% limit) may also purchase bonds
rated Baa by Moody's or BBB by S&P. Bonds rated Baa or BBB may have speculative
elements as well as investment-grade characteristics.
The Fund (subject to its 20% limit) may also purchase debt securities
which are rated below investment-grade, that is, rated below Baa by Moody's or
below BBB by S&P and unrated securities ("high yield/high risk securities",
commonly referred to as junk bonds), which usually entail greater risk
(including the possibility of default or bankruptcy of the issues 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 Fund (subject to its 20% limit) may purchase bonds rated B or
lower by Moody's or S&P, and may invest in securities which are rated C by
Moody's or D by S&P or securities of comparable quality in the Advisor's
judgment. Such securities may be in default with respect to payment of principal
or interest. Such securities carry a high degree of risk and are considered
speculative. 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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<PAGE>
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 Investment
Manager. 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. Within the Fund's 20% limit of investments in
European debt securities, it may also purchase 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 may invest in
securities which are rated C by Moody's and D by S&P. Such securities may be in
default with respect to payment of principal or interest. See the Appendix to
this Statement of Additional Information for a more complete description of the
ratings assigned by ratings organizations and their respective characteristics.
High-yield, high-risk securities are especially subject to adverse changes
in general economic conditions, to changes in the financial condition of their
issuers and to price fluctuations in response to changes in interest rates. An
economic downturn could disrupt the high yield market and impair the ability of
issuers to repay principal and interest. Also, an increase in interest rates
would have a greater adverse impact on the value of such obligations than on
higher quality debt securities. During an economic downturn or period of rising
interest rates, highly leveraged issues may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations. Prices and yields of high yield securities will fluctuate
over time and, during periods of economic uncertainty, volatility of high yield
securities may adversely affect the Fund's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and may be subject
to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market. A thin trading market may
limit the ability of the Fund to accurately value high yield securities in its
portfolio and to dispose of those securities. Adverse publicity and investor
perceptions may decrease the values and liquidity of high yield securities.
These securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high-yield securities market can change suddenly and
unexpectedly, and even recently-issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
the policy of the 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. For information concerning tax issues related to high yield/high risk
securities, (see "TAXES.")
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 generally correspond 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.
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
13
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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.
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
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<PAGE>
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, 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 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, risk management and return enhancement purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on 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 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.
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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. 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
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 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 has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the 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
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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 offsetting positions) to cover its obligations under
swaps, the Advisor and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
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
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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 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
theoption 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 its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, 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 cash or liquid 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
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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.
Convertible Securities. The Fund may invest in convertible securities which are
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest may be converted
or exchanged at a stated or determinable exchange ratio into underlying shares
of common stock. The exchange ratio for any particular convertible security may
be adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions, or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As fixed income securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income 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). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Warrants. The Fund may invest in warrants up to 5% of the value of its total
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.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter
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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.
Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign 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 other obligations the Fund may
purchase.
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.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
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.
Illiquid Securities. The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. This investment
practice, therefore, could have the effect of increasing the level of
illiquidity of 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 of Directors 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
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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. Since it is not possible to predict with assurance that the market
for securities eligible for resale under Rule 144A will continue to be liquid,
the Advisor will monitor such restricted securities subject to the supervision
of the Board of Directors. Among the factors the Advisor 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).
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.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC, such loans
may be made to member firms of the Exchange, and would be required to be secured
continuously by collateral in cash, U.S. Government securities or other 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
would have 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 would continue
to receive the equivalent of the interest paid by the issuer on the securities
loaned and would 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 would be made only to firms
deemed by the Advisor to be of good standing, and when, in the judgment of the
Advisor, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Fund determines to make
securities loans, 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute an amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, it may
be subject to such tax. (See "TAXES.") In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than
such an 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 dividend paid deduction on its federal tax return.
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The Corporation intends to distribute the Fund's investment company
taxable income and any net realized capital gains in December to avoid federal
excise tax, although an additional distribution may be made if necessary. Both
types of distributions will be made in shares of the Fund and confirmations will
be mailed to each shareholder unless a shareholder has elected to receive cash,
in which case a check will be sent. Distributions of investment company taxable
income and net realized capital gains are taxable (See "TAXES"), whether made in
shares or cash.
The 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.
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. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year the Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such 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. 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. If
the Fund makes such an election, it may not be treated as having met the excise
tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are not expected to comprise a
substantial part of 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 shares of the Fund are deemed to have been held by the Fund or the
shareholder, as the case may be, for less than 46 days during the 90-day period
beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term capital
gain over net short-term capital loss are taxable to shareholders as long-term
capital gains, regardless of the length of time the shares of the Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the
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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 of up to
$2,000 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.
The Fund intends to qualify for and may make the election permitted under
Section 853 of the Code so that shareholders may (subject to limitations) be
able to claim a credit or deduction on their federal income tax returns for, and
will be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code except in the case of certain
electing individual shareholders who have limited creditable foreign taxes and
no foreign source income other than passive investment-type income. Furthermore,
the foreign tax credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund are held by
the Fund or the shareholder, as the case may be, for less than 16 days (46 days
in the case of preferred shares) during the 30-day period (90-day period for
preferred shares) beginning 15 days (45 days for preferred shares) before the
shares become ex-dividend. In addition, if 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.
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 property
in the Fund's portfolio similar to the property underlying the put option. 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
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<PAGE>
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 relevant 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 capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.
Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. The Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time 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.
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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
stock would be deductible as ordinary losses to the extent of any net
mark-to-market gains previously included in income in prior years. The effect of
this election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a Fund-level tax when distributed to
shareholders as a dividend. Alternatively, the 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 holds zero coupon securities or other securities which are
issued at a discount a portion of the difference between the issue price and the
face value of such securities ("original issue discount") will be treated as
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount (imputed
income) will comprise a part of the investment company taxable income of the
Fund which must be distributed to shareholders in order to maintain the
qualification of the Fund as a regulated investment company and to avoid federal
income tax at the Fund level. In addition, if the Fund invests in certain high
yield original issue discount obligations issued by corporations, a portion of
the original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such event, dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such portion of accrued original
issue discount, may be eligible for this deduction for dividends received by
corporations if so designated by the Fund in a written notice to shareholders.
The Fund will be required to report to the Internal Revenue Service all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if 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.
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 A, B and C shares are newly offered and therefore have no available
performance information. Returns for Class A, B and C shares are derived from
the historical performance of Class S Shares, adjusted to reflect the estimated
operating expenses applicable to Class A, B and C shares, which may be higher or
lower than those of Class S shares.
Performance figures prior to March 1, 2001 for Class A, Class B and C shares are
derived from the historical performance of Class S shares, adjusted to reflect
the operating expenses applicable to Class A, B and C shares, which may be
higher or lower
25
<PAGE>
than those of Class S 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. 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 period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
Average Annual Total Returns for the Period Ended October 31, 2000 (1)(2)
[to be updated]
1 Year 5 Years 10 Years Life of Fund
Scudder Greater Europe
Growth Fund -- Class A ____% ____% ____% ____%
Scudder Greater Europe
Growth Fund -- Class B ____% ____% ____% ____%
Scudder Greater Europe
Growth Fund -- Class C ____% ____% ____% ____%
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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
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<PAGE>
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 Returns for the Period Ended October 31, 2000 (1)
[to be updated]
1 Year 5 Years 10 Years Life of Fund
Scudder Greater Europe
Growth Fund -- Class A ____% ____% ____% ____%
Scudder Greater Europe
Growth Fund -- Class B ____% ____% ____% ____%
Scudder Greater Europe
Growth Fund -- Class C ____% ____% ____% ____%
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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 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 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.
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
27
<PAGE>
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 changed to Scudder Kemper
Investments, Inc. (Scudder Kemper). 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. On [Month Day], 2000 Scudder Kemper Investments, Inc.
changed its name 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.
Pursuant to an investment management agreement with the Fund, the Advisor
acts as the Fund's investment advisor, 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 directors 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
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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.
The present investment management agreement (the "Agreement") was approved
by the Directors on [ , 2000] and became effective October 2, 2000. The
Agreement will continue in effect until September 30, 2001 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 Corporation, cast in person at a meeting called for the purpose of voting on
such approval, and either by a vote of the Corporation's Directors or of a
majority of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice and automatically 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 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 Articles of
Incorporation, 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, the Fund will pay the Advisor an annual fee equal to
1.00% of the first $1 billion of the Fund's average daily net assets, 0.90% of
the next $500 million of such net assets, 0.85% of the next $500 million of such
net assets and 0.80% of such net assets exceeding $2 billion, 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.
Prior to October 2, 2000, the Fund paid the Advisor a fee equal to 1.00%
of the Fund's first $1 billion average daily net assets, and 0.90% of such
assets in excess of $1 billion, payable monthly, provided the Fund made 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. For the
fiscal years ended October 31, 1998, 1999 and 2000, the Advisor imposed
management fees amounting to $7,269,950, $11,429,428 and $[ ], respectively.
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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'
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." [confirm agreement amended to add "Zurich Scudder 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 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.
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
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.
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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 a 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 0.75%.
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
the fee continues until terminated by KDI or a Fund. KDI also receives any
contingent deferred sales charges.
Administrative Fee. The Fund has entered into an administrative services
agreement with Zurich Scudder (the "Administration Agreement"), pursuant to
which Zurich Scudder will provide or pay others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Zurich Scudder 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.XX]% for Class A, [0.XX]% for
Class B and [0.XX]% for Class C. One effect of this arrangement 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 Zurich Scudder, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Zurich Scudder, computes net asset value for the
Fund and maintains its accounting records. Kemper Service Company is the
transfer, shareholder servicing and dividend-paying agent for the shares of the
Fund. As custodian, Brown Brothers Harriman & Company holds the portfolio
securities of the Fund, pursuant to a custodian agreement.
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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.
Zurich Scudder 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 Zurich
Scudder 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 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 Fund 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, the Fund will
continue to pay the fees required by its investment management agreement with
Zurich Scudder.
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% of average daily
net assets of Class A, B and C shares of the Fund.
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 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 directors 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, 0.04% of such assets in
excess of $150 million and 0.02% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the fiscal years ended
October 31, 1998, 1999 and 2000, the Fund incurred charges of $356,679, $507,241
and $[ ], respectively, of which $[ ] was unpaid at October 31, 2000.
Custodian, Transfer Agent and Shareholder Service Agent. Brown Brothers Harriman
& Company, 40 Water Street, Boston, Massachusetts 02109, as custodian has
custody of all securities and cash of the Fund held outside the United States.
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
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A, B and C shares. KSVC receives 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.
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 financial statements and semi-annual
unaudited financial statements.
PORTFOLIO TRANSACTIONS
Brokerage Commissions. Allocation of brokerage may be placed by the Advisor.
The primary objective of the Advisor in placing orders for the purchase
and sale of securities for the Fund's portfolio 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 Scudder Investor Services, Inc. ("SIS"), a corporation
registered as a broker-dealer and a subsidiary of the Advisor, with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Fund to reported commissions paid by others. The Advisor reviews on a
routine basis commission rates, execution and settlement services performed,
making 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 research, market and statistical information to the
Fund. The term "research, market and statistical information" 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 not authorized when placing portfolio transactions for the Fund
to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction solely on account of the receipt of
research, market or statistical information. 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.
In selecting among firms believed to meet the criteria for handling a
particular transaction, the Advisor may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Advisor.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through SIS. SIS will place orders on behalf
of the Fund with issuers, underwriters or other brokers and dealers. SIS will
not receive any commission, fee or other remuneration from the Fund for this
service.
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.
The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.
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For the fiscal years ended October 31, 1998, 1999 and 2000, the Fund paid
total brokerage commissions of $210,419, $4,154,919 and $[ ], respectively.
For the fiscal year ended October 31, 2000, $[ ] (xx%) 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 information to the Fund
or the Advisor. The total amount of brokerage transactions aggregated $[ ], of
which $[ ] ([xx]%) of all brokerage transactions were transactions which
included research commissions.
For the fiscal year ended October 31, 1999, $3,174,961 (76.41%) 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
information to the Fund or the Advisor. The total amount of brokerage
transactions aggregated $2,063,684,103, of which $1,562,653,347 (75.72%) of all
brokerage transactions were transactions which included research commissions.
Portfolio Turnover
The Fund's average annual portfolio turnover rates, i.e., the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
(excluding from both the numerator and the denominator all securities with
maturities at the time of acquisition of one year or less), for the fiscal years
ended October 31, 1998, 1999 and 2000, were 92.7%, 83.2% and [xx]%,
respectively. Higher levels of activity by the Fund result in higher transaction
costs and may also result in taxes on realized capital gains to be borne by the
Fund's shareholders. Purchases and sales are made for the Fund whenever
necessary, in management's opinion, to meet the Fund's objectives.
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.
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") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system will be valued at its most recent sale
price on such system as of the Value Time. Lacking any sales, the security will
be valued at the most recent bid quotation as of the Value Time. 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 if there are any sales of
such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation the security is valued at the
most recent bid quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Money market instruments
with an original maturity of sixty days or less maturing at par shall be valued
at amortized cost, which the Board believes approximates market value. If it is
not possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the 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.
34
<PAGE>
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 Fund'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.
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 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
(as a % of average
Sales Charge daily net assets) Other Information
------------ ----------------- -----------------
<S> <C> <C>
Class A Maximum initial sales charge of 0.25%(1) Initial sales charge waived or
5.75% of the public offering price reduced for certain purchases
Class B Maximum contingent deferred sales 1.00% Shares convert to Class A
charge of 4% of redemption proceeds; shares six years after issuance
declines to zero after six years
Class C Contingent deferred sales charge of 1% of 1.00% No conversion feature
redemption proceeds for redemptions
made during first year after purchase
</TABLE>
(1) 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
35
<PAGE>
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.
<TABLE>
<CAPTION>
Sales Charge
------------
Allowed to
As a Dealers
As a Percentage of As a
Percentage of Net Asset Percentage of
Amount of Purchase Offering Price 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
Securities Act of 1933.
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 Zurich
Scudder Funds 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 Zurich Scudder
Funds 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 [and including purchases of
Class R shares of certain Scudder Funds. 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 Zurich Scudder 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
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
36
<PAGE>
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 a 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 [Zurich Scudder
Mutual Fund]s 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 a 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.
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."
37
<PAGE>
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."
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 [Zurich Scudder Mutual Fund]s 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.
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.
38
<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 [Zurich Scudder Mutual Fund]s, 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
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
39
<PAGE>
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
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
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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
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)
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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 [Zurich Scudder Mutual Fund]s 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.
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 [Zurich Scudder 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 [Zurich Scudder Mutual Fund]s. A
shareholder of the Fund or other [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s. 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 [Zurich Scudder
Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s 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
following
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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
[Zurich Scudder 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 Fund, Global Discovery Fund, Value Fund, and Classic Growth Fund
("[Zurich Scudder Mutual Fund]s"). 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 "[Zurich Scudder 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 [Zurich Scudder
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 [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s (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 [Zurich
Scudder Mutual Fund]s in accordance with the provisions below.
Class A Shares. Class A shares of the [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder 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
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<PAGE>
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
[Zurich Scudder 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
[Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange through
another [Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
another [Zurich Scudder 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 [Zurich Scudder 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 [Zurich Scudder 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
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 [Zurich Scudder Mutual Fund] or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another such [Zurich Scudder Mutual Fund]. If
selected, exchanges will be made automatically until the shareholder or the
[Zurich Scudder 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 [Zurich Scudder 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
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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 (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.
A 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.
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 $100. 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
45
<PAGE>
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.
The net asset value per Share of the Fund is determined separately for
each class by dividing the value of the Fund's net assets attributable to that
class by the 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. 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, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
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 so liquid as a redemption entirely in cash.
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,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** 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 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 Counselor, --
50023 Brogden The Conference Board,
Chapel Hill, NC Inc.(not-for-profit business research
organization)
----------------------------------------------------------------------------------------------------------------------------
Keith R. Fox (45) Director Private Equity Investor, General --
10 East 53rd Street Partner, Exeter Group of Funds
New York, NY 10022
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------- ------------------ -------------------- ----
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------------
James M. Eysenbach (38)@ Vice President Managing Director of Zurich Scudder --
Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
William F. Glavin (41)# Vice President Managing Director of Zurich Scudder Managing Director
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 (47)+ Vice President and Managing Director of Zurich Scudder Director, Senior Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Secretary
----------------------------------------------------------------------------------------------------------------------------
Howard S. Schneider (43)# Vice President Managing Director 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
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Position with
Underwriter,
Kemper Distributors,
Name, Age, and Address Position with Fund Principal Occupation** Inc.
---------------------- ------------------ -------------------- ----
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
John Millette (37)+ Vice President and Vice President of Zurich Scudder --
Secretary Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONAL OFFICERS
-------------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------------
Joan Gregory (55) ++ Vice President Vice President of Zurich Scudder --
Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Tien Yu Sieh (31) ++ Vice President Senior Vice President of Zurich --
Scudder 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 Investment Company Act
of 1940, as amended.
** 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
@ 101 California Street, San Francisco, California
The Directors and Officers of the Corporation also serve in similar
capacities with other Scudder Funds.
[TO BE UPDATED: INSERTION OF SHAREHOLDING INFORMATION]
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
48
<PAGE>
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 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
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 2000 from the Corporation and from all of the Scudder funds as a group.
[to be updated]
------------------------------ --------------------- --------------------------
SCUDDER INTERNATIONAL
NAME FUND, INC. * ALL SCUDDER FUNDS
------------------------------ --------------------- --------------------------
Henry P. Becton, Jr.** $ $ (30 funds)
------------------------------ --------------------- --------------------------
Dawn-Marie Driscoll** (30 funds)
------------------------------ --------------------- --------------------------
Edgar R. Fiedler**+ (29 funds)
------------------------------ --------------------- --------------------------
Keith R. Fox (23 funds)
------------------------------ --------------------- --------------------------
Joan E. Spero (23 funds)
------------------------------ --------------------- --------------------------
Jean Gleason Stromberg** (16 funds)
------------------------------ --------------------- --------------------------
Jean C. Tempel** (30 funds)
------------------------------ --------------------- --------------------------
* Scudder International Fund, Inc. consists of five funds: Scudder Emerging
Markets Growth Fund, Scudder Greater Europe Growth Fund, Scudder
International Fund, Scudder Latin America Fund and Scudder Pacific
Opportunities 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 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 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
50
<PAGE>
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.
Shares of the Corporation have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are charged
with the liabilities in respect to such series and with 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.
The assets of the Corporation received for the issue or sale of the shares
of each series and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Corporation. If a series were unable to meet its obligations,
the assets of all other series may in some circumstances be available to
creditors for that purpose, in which case the assets of such other series could
be used to meet liabilities which are not otherwise properly chargeable to them.
Expenses with respect to any two or more series are to be allocated in
proportion to the asset value of the respective series except where allocations
of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series and by class on matters affecting an individual class. For
example, a change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Directors 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.
Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall 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
50
<PAGE>
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: [INSERT CUSIP NUMBER]
Class B: [INSERT CUSIP NUMBER]
Class C: [INSERT CUSIP NUMBER]
The Fund has a fiscal year ending October 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 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.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, Brown Brothers Harriman & Company,
40 Water Street, Boston, Massachusetts 02109.
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 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. 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 October 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.
51
<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.
52
<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.
53
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
March 1, 2001
Scudder Emerging Markets Growth Fund (Class A, B and C 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, Class B and Class C Shares (the
"Shares") of Scudder Emerging Markets Growth Fund (the "Fund"), a
non-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 March 1, 2001. 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 Emerging Markets Growth Fund offers the following classes of
shares: Class AARP, Class S, Class A, Class B and Class C shares (the "Shares").
Only Class A, Class B and Class C shares of Scudder Emerging Markets Growth Fund
are offered herein.
TABLE OF CONTENTS
Investment Restrictions.......................................................2
Investment Policies and Techniques............................................5
Dividends, Distributions and Taxes............................................5
Performance..................................................................17
Investment Manager and Underwriter...........................................21
Portfolio Transactions.......................................................29
Purchase, Repurchase and Redemption of Shares................................31
Purchase of Shares...........................................................31
Redemption or Repurchase of Shares...........................................35
Special Features.............................................................38
Officers and Directors.......................................................42
Shareholder Rights...........................................................45
Zurich Scudder Investments, Inc. (the "Advisor") serves as the Fund's investment
manager.
The financial statements appearing in the Fund's October 31, 2000 Annual Report
to Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document.
<PAGE>
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 is non-diversified.
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 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 Fund has no
current intention to hold and sell real estate acquired as a result of the
Fund's ownership.
The Directors of the Corporation have voluntarily adopted certain
non-fundamental policies and restrictions which are observed in the conduct of
the Fund's affairs. These represent intentions of the Directors based upon
current circumstances. They differ from fundamental investment policies in that
they may be changed or amended by action of the Directors without requiring
prior notice to or approval of the shareholders.
As a matter of non-fundamental policy, the Fund does not currently intend
to:
(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
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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 non-fundamental policies are in addition to policies
otherwise stated in the Prospectus or in this Statement of Additional
Information.
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.
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.
General Investment Objective and Policies
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
from foreign equity securities primarily through equity investment in emerging
markets around the globe.
The Fund will invest in the Asia-Pacific region, Latin America, less
developed nations in Europe, the Middle East and Africa, focusing investments in
countries and regions where there appear to be the best value and appreciation
potential, subject to considerations of portfolio diversification and liquidity.
In the opinion of the Advisor, many emerging nations around the globe are likely
to continue to experience economic growth rates well in excess of those found in
the U.S., Japan and other developed markets. In the opinion of the Advisor, this
economic growth should translate into strong stock market performance over the
long term.
While the Fund offers the potential for substantial price appreciation
over time, it also involves above-average investment risk. The Fund is designed
as a long-term investment and not for short-term trading purposes. It should not
be considered a complete investment program. The Fund's net asset value (price)
can fluctuate significantly with changes in stock market levels, political
developments, movements in currencies, investment flows and other factors. [To
encourage a long-term investment horizon, a 2% redemption and exchange fee,
described more fully below, is payable to the Fund for the benefit of remaining
shareholders on shares held less than one year.]
At least 65% of the Fund's total assets will be invested in the equity
securities of emerging market issuers. The Fund considers "emerging markets" to
include any country that is defined as an emerging or developing economy by any
one of the International Bank for Reconstruction and Development (i.e., the
World Bank), the International Finance Corporation or the United Nations or its
authorities. The Fund intends to allocate its investments among at least three
countries at all times,
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and does not expect to concentrate in any particular industry. There is no
limitation, however, on the amount the Fund can invest in a specific country or
region of the world.
The Fund deems an issuer to be located in an emerging market if:
o the issuer is organized under the laws of an emerging market
country;
o the issuer's principal securities trading market is in an emerging
market; or
o at least 50% of the issuer's non-current assets, capitalization,
gross revenue or profit in any one of the two most recent fiscal
years is derived (directly or indirectly through subsidiaries) from
assets or activities located in emerging markets.
The Fund's equity investments are common stock, preferred stock (either
convertible or non-convertible), depository receipts and warrants. Equity
securities may also be purchased through rights. Securities may be listed on
securities exchanges, traded over-the-counter, or have no organized market. The
Fund may invest in illiquid securities.
The Fund may invest up to 35% of its total assets in emerging market and
domestic debt securities if the Advisor determines that the capital appreciation
of debt securities is likely to equal or exceed the capital appreciation of
equity securities. Debt instruments held by the Fund take the form of bonds,
notes, bills, debentures, convertible securities, warrants, bank obligations,
short-term paper, loan participations, loan assignments and trust interests.
Under normal market conditions, the Fund may invest up to 35% of its
assets in equity securities of issuers in the U.S. and other developed markets.
In evaluating the appropriateness of such investments for the Fund, the Advisor
takes into account the issuer's involvement in the emerging markets and the
potential impact of that involvement on business results. The Fund may also
purchase securities on a when-issued or forward delivery basis, enter into
reverse repurchase agreements and may engage in various strategic transactions,
including derivatives.
For temporary defensive purposes, the Fund may hold, without limit, debt
instruments as well as cash and cash equivalents, including foreign and domestic
money market instruments, short-term government and corporate obligations, and
repurchase agreements. It is impossible to accurately predict how long such
alternative strategies will be utilized. The Fund may also invest in closed-end
investment companies investing primarily in the emerging markets. To the extent
the Fund invests in such closed-end investment companies, shareholders will
incur certain duplicate fees and expenses. Such closed-end investment company
investments will generally only be made when market access or liquidity
restricts direct investment in the market.
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, 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 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 SEC that permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Advisor. The
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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 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 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 Scudder Kemper 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 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 POLICIES AND TECHNIQUES
Investing in Emerging Markets. The Fund's investments in foreign securities may
be in developed countries or in countries considered by the Fund's Investment
Manager 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 Investment
Manager believes that these characteristics may be expected to continue in the
future.
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Most emerging securities markets 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. 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 a Fund of any restrictions on investments.
In the course of investment in emerging markets, the Fund will be exposed
to the direct or indirect consequences of political, social and economic changes
in one or more emerging markets. While the Fund will manage its assets in a
manner that will seek to minimize the exposure to such risks, there can be no
assurance that adverse political, social or economic changes will not cause the
Fund to suffer a loss of value in respect of the securities in the Fund's
portfolio.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Fund's securities in such markets may
not be readily available. The Corporation may suspend redemption of its shares
for any period during which an emergency exists, as determined by the 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, 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
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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, government actions in the future
could have a significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private sector, general
market conditions and prices and yields of certain of the securities in the
Fund's portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and diminish its trade account surplus,
if any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and 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. 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 stocks 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.
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
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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. In
particular, the Fund's 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. 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 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.
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 of
Directors has approved guidelines for use by the Advisor in determining whether
a security is illiquid.
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Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; 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.
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 Investment
Manager. 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.
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 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. Reverse repurchase agreements are deemed to be borrowings
subject to the Fund's investment restrictions applicable to that activity. 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.
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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.
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.
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
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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
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
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<PAGE>
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.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the 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, 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 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
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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
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 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 a 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 except as described below. Transaction hedging is entering into a
currency transaction with respect to specific assets or liabilities of
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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 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 has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the 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
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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 its obligations under
swaps, the Advisor and the Fund believe such obligations do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to its borrowing restrictions. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
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 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
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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 its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, 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 cash or liquid 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, 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.")
Convertible Securities. Convertible securities include bonds, notes, debentures,
preferred stocks and other securities which are convertible into common stock.
Investments in convertible securities can provide an opportunity for capital
appreciation and/or income through interest and dividend payments by virtue of
their conversion or exchange features.
The convertible securities in which the Fund may invest are either fixed
income or zero coupon debt securities which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Of course, like all
debt securities, there can be no assurance of income or principal payments
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
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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)).
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.
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.
Dividends, Distributions and Taxes
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute the amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, the
Fund may be subject to that excise tax. (See "TAXES.") In certain circumstances,
the Fund may determine that it is in the interest of shareholders to distribute
less than the required amount.
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividends paid deduction on its federal tax return.
The Fund intends to distribute its investment company taxable income and
any net realized capital gains in November or December to avoid federal excise
tax, although an additional distribution may be made if necessary.
Both types of distributions will be made in shares of the Fund and
confirmations will be mailed to each shareholder unless a shareholder has
elected to receive cash, in which case a check will be sent. Distributions of
investment company taxable income and net realized capital gains are taxable
(See "TAXES"), whether made in shares or cash.
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Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
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
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
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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
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
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able to claim either a credit or a deduction for their pro rata portion of such
taxes paid by the Fund, nor will shareholders be required to treat as part of
the amounts distributed to them their pro rata portion of such taxes paid.
Equity options (including covered call options written on portfolio stock)
and over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any stock in
the Fund's portfolio similar to the stocks on which the index is based. If the
Fund writes an option, no gain is recognized upon its receipt of a premium. If
the option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If a call option is exercised, the character of the gain
or loss depends on the holding period of the underlying stock.
Positions of the Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term, and on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e., treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures and options and
similar financial instruments entered into or acquired by the Fund will be
treated as ordinary income or loss.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though it
had closed the short sale. Future regulations may apply similar treatment to
other transactions with respect to property that becomes substantially
worthless.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition are also treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
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
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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.
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 A, B and C shares are newly offered and therefore have no available
performance information. Returns for Class A, B and C shares are derived from
the historical performance of Class S Shares, adjusted to reflect the estimated
operating expenses applicable to Class A, B and C shares, which may be higher or
lower than those of Class S shares.
Performance figures prior to March 1, 2001 for Class A, Class B and C shares are
derived from the historical performance of Class S shares, adjusted to reflect
the operating expenses applicable to Class A, B and C shares, which may be
higher or lower than those of Class S 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.
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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 period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Returns for the Period Ended October 31, 2000 (1)(2)
[to be updated]
1 Year 5 Years 10 Years Life of Fund
Scudder Emerging Markets ____% ____% ____% ____%
Growth Fund -- Class A
Scudder Emerging Markets ____% ____% ____% ____%
Growth Fund -- Class B
Scudder Emerging Markets ____% ____% ____% ____%
Growth Fund -- Class C
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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 a
hypothetical $1,000 investment made at the
beginning of the applicable period.
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Cumulative Total Returns for the Period Ended October 31, 2000 (1)
[to be updated]
1 Year 5 Years 10 Years Life of Fund
Scudder Emerging Markets ____% ____% ____% ____%
Growth Fund -- Class A
Scudder Emerging Markets ____% ____% ____% ____%
Growth Fund -- Class B
Scudder Emerging Markets ____% ____% ____% ____%
Growth Fund -- Class C
(1) Because Class A, B and C shares were not introduced until March 1, 2001,
the returns for Class A, B and C shares for the period prior to their
introduction is based upon the performance of Class S 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 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 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.
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
23
<PAGE>
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 changed to Scudder Kemper
Investments, Inc. (Scudder Kemper). 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. On [Month Day], 2000 Scudder Kemper Investments, Inc.
changed its name 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.
Pursuant to an investment management agreement with the Fund, the Advisor
acts as the Fund's investment advisor, 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 Directors 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.
24
<PAGE>
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.
The present investment management agreement (the "Agreement") became
effective October 2, 2000, was approved at a shareholder meeting held on [ ]
and was most recently approved by the Directors on [ , 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 the Agreement or interested
persons of the Advisor or the Corporation, cast in person at a meeting called
for the purpose of voting on such approval, and either by a vote of the
Corporation's Directors or of a majority of the outstanding voting securities of
the Fund. The Agreement may be terminated at any time without payment of penalty
by either party on sixty days' written notice and automatically 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 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 Articles of
Incorporation, 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 the Fund pays the Advisor a fee equal to 1.25% of the
first $500 million of its average daily net assets, and 1.20% of the average
daily net assets over $500 million, 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. The
Advisor had agreed until December 31, 2000 to maintain the total annualized
expenses of the Fund at no more than 2.25% of the average daily net assets of
the Fund. [to be updated] For the fiscal years ended October 31, 1998, 1999, and
2000 the Advisor did not impose all of its management fee amounting to $269,707,
$580,913, and [ ] respectively. The Advisor did impose management fees
amounting to $2,003,649, $852,388 and [$ ], respectively.
25
<PAGE>
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'
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." [confirm agreement amended to add "Zurich Scudder 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 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.
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
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.
26
<PAGE>
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 0.75%.
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
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 Zurich Scudder (the "Administration Agreement"), pursuant to
which Zurich Scudder will provide or pay others to provide substantially all of
the administrative services required by the Fund (other than those provided by
Zurich Scudder 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.XX]% for Class A, [0.XX]% for
Class B and [0.XX]% for Class C. One effect of this arrangement 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 Zurich Scudder, provide certain services to the Fund
pursuant to separate agreements with the Fund. Scudder Fund Accounting
Corporation, a subsidiary of Zurich Scudder, computes net asset value for the
Fund and maintains its accounting records. Kemper Service Company is the
transfer, shareholder servicing and dividend-paying agent for the shares of the
Fund. As custodian, Brown Brothers Harriman & Company holds the portfolio
securities of the Fund, pursuant to a custodian agreement.
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.
27
<PAGE>
Zurich Scudder 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 Zurich
Scudder 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 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 Fund 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, the Fund will
continue to pay the fees required by its investment management agreement with
Zurich Scudder.
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% of average daily
net assets of Class A, B and C shares of the Fund.
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 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 directors 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
Administrative 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.
[to be updated] For the fiscal years ended October 31, 1998, 1999 and 2000, the
Fund incurred charges of $459,710, $125,323 and [$ ], respectively, of which
[$ ] was unpaid at October 31, 2000.
Custodian, Transfer Agent and Shareholder Service Agent. Brown Brothers Harriman
& Company, 40 Water Street, Boston, Massachusetts 02109, as custodian has
custody of all securities and cash of the Fund held outside the United States.
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. KSVC
receives as transfer agent, annual account fees of $5 per account, transaction
and maintenance
28
<PAGE>
charges, annual fees associated with the contingent deferred sales charge (Class
B shares only) and out-of-pocket expense reimbursement.
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 financial statements and semi-annual
unaudited financial statements.
PORTFOLIO TRANSACTIONS
Brokerage Commissions. Allocation of brokerage may be placed by the Advisor.
The primary objective of the Advisor in placing orders for the purchase
and sale of securities for the Fund's portfolio 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 Scudder Investor Services, Inc. ("SIS"), a corporation
registered as a broker-dealer and a subsidiary of the Advisor, with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Fund to reported commissions paid by others. The Advisor reviews on a
routine basis commission rates, execution and settlement services performed,
making 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 research, market and statistical information to the
Fund. The term "research, market and statistical information" 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 not authorized when placing portfolio transactions for the Fund
to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction solely on account of the receipt of
research, market or statistical information. 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.
In selecting among firms believed to meet the criteria for handling a
particular transaction, the Advisor may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Advisor.
To the maximum extent feasible, it is expected that the Advisor will place
orders for portfolio transactions through SIS. SIS will place orders on behalf
of the Fund with issuers, underwriters or other brokers and dealers. SIS will
not receive any commission, fee or other remuneration from the Fund for this
service.
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.
The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.
29
<PAGE>
For the fiscal years ended October 31, 1998, 1999 and 2000, the Fund paid
brokerage commissions of $682,277, $869,718 and [$ ], respectively. For the
fiscal year ended October 31, 2000, [$ ] (xx%) 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 information to the Fund
or the Advisor. The total amount of brokerage transactions aggregated [$ ]
of which [$ ] (xx%) of all brokerage transactions were transactions which
included research commissions.
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 October 31, 2000, 1999, and 1998, the Fund's portfolio turnover
rates were [xx]%, 63.6% and 44.8%, respectively. Purchases and sales are made
for the Fund's portfolio whenever necessary, in management's opinion, to meet
the Fund's objective.
Net Asset Value
The net asset value of shares of the Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading
(the "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.
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.
30
<PAGE>
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 directors, 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.
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 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
(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 price waived or reduced for
certain purchases
Class B Maximum contingent deferred sales 1.00% Shares convert to Class A
charge of 4% of redemption shares six years after
proceeds; declines to zero after issuance
six years
Class C Contingent deferred sales charge of 1.00% No conversion feature
1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
(1) 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.
Sales Charge
------------
31
<PAGE>
<TABLE>
<CAPTION>
Allowed to Dealers
As a Percentage of As a Percentage of As a Percentage of
Amount of Purchase 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
Securities Act of 1933.
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 Zurich
Scudder Funds 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 Zurich Scudder
Funds 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 Zurich Scudder 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
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.
32
<PAGE>
Class A shares of a 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 [Zurich Scudder
Mutual Fund]'s 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 a 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/directors, 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.
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.
33
<PAGE>
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."
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 [Zurich Scudder Mutual Fund]s 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.
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.
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."
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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 [Zurich Scudder Mutual Fund]s, 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
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,
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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
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.
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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
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 [Zurich Scudder Mutual Fund]s and whose dealer of
record has waived
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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.
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 [Zurich Scudder 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 [Zurich Scudder Mutual Fund]s. A
shareholder of the Fund or other [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s. 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 [Zurich Scudder
Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s 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
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
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exchange or conversion from Class A shares of another [Zurich Scudder 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
("[Zurich Scudder Mutual Fund]s"). 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 "[Zurich Scudder 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 [Zurich Scudder
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 [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder Mutual Fund]s (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 [Zurich
Scudder Mutual Fund]s in accordance with the provisions below.
Class A Shares. Class A shares of the [Zurich Scudder Mutual Fund]s 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 [Zurich Scudder 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
[Zurich Scudder Mutual Fund] listed under "Special Features -- Class A Shares --
Combined Purchases" may be exchanged for each other at their relative net asset
39
<PAGE>
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
[Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value in excess of
$1,000,000 (except Kemper Cash Reserves Fund) acquired by exchange through
another [Zurich Scudder 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 [Zurich Scudder Mutual Fund] with a value of
$1,000,000 or less (except Kemper Cash Reserves Fund) acquired by exchange from
another [Zurich Scudder 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 [Zurich Scudder 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 [Zurich Scudder 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
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 [Zurich Scudder Mutual Fund] or Money Market Fund may authorize the
automatic exchange of a specified amount ($100 minimum) of such shares for
shares of the same class of another such [Zurich Scudder Mutual Fund]. If
selected, exchanges will be made automatically until the shareholder or the
[Zurich Scudder 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 [Zurich Scudder 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
40
<PAGE>
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 (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.
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 $100. 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.
41
<PAGE>
The net asset value per Share of the Fund is determined separately for
each class by dividing the value of the Fund's net assets attributable to that
class by the 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. 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, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
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 so liquid as a redemption entirely in cash.
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,
Kemper Distributors
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 --
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 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 Counselor, --
50023 Brogden The Conference Board, Inc.
Chapel Hill, NC (not-for-profit business research
organization)
----------------------------------------------------------------------------------------------------------------------------
Keith R. Fox (46) Director Private Equity Investor, General --
10 East 53rd Street Partner, Exeter Group of Funds
New York, NY 10022
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Position with
Underwriter,
Kemper Distributors
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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, NW
7th Floor
Washington, D.C. 20004
----------------------------------------------------------------------------------------------------------------------------
Thomas V. Bruns (43)# Vice President Managing Director of Zurich Scudder President
Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
William F. Glavin (41)# Vice President Managing Director of Zurich Scudder Managing Director
Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
James E. Masur (40)+ Vice President Senior Vice President of Zurich --
Scudder Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Kathryn L. Quirk (47)+ Vice President and Managing Director of Zurich Scudder Director, Vice
Assistant Secretary Investments, Inc. President, Chief Legal
Officer and Secretary
----------------------------------------------------------------------------------------------------------------------------
Howard S. Schneider (43)# Vice President Managing Director 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>
ADDITIONAL OFFICERS
-------------------
43
<PAGE>
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------------
Joan Gregory (55) ++ Vice President Vice President of Zurich Scudder --
Investments, Inc.
----------------------------------------------------------------------------------------------------------------------------
Tien Yu Sieh (31) ++ Vice President Senior Vice President of Zurich --
Scudder 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 Investment Company Act
of 1940, as amended.
** 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
@ 101 California Street, San Francisco, California
The Directors and Officers of the Corporation also serve in similar
capacities with other Scudder Funds.
[TO BE UPDATED: INSERTION OF SHAREHOLDING INFORMATION]
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 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
directors' educational seminars or conferences, service on industry or
association committees,
44
<PAGE>
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 Directors
during 2000 from each Corporation and from all of the Scudder funds as a group.
[to be updated]
------------------------------------------------------------------------------
SCUDDER
INTERNATIONAL
NAME FUND, INC.* ALL SCUDDER FUNDS
------------------------------------------------------------------------------
Henry P. Becton, Jr.** $ $ (30 funds)
------------------------------------------------------------------------------
Dawn-Marie Driscoll** (30 funds)
------------------------------------------------------------------------------
Edgar R. Fiedler**+ (29 funds)
------------------------------------------------------------------------------
Keith R. Fox (23 funds)
------------------------------------------------------------------------------
Joan E. Spero (23 funds)
------------------------------------------------------------------------------
Jean Gleason Stromberg** (16 funds)
------------------------------------------------------------------------------
Jean C. Tempel** (30 funds)
------------------------------------------------------------------------------
* Scudder International Fund, Inc. consists of five funds: Scudder Emerging
Markets Growth Fund, Scudder Greater Europe Growth Fund, Scudder
International Fund, Scudder Latin America Fund and Scudder Pacific
Opportunities 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 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 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.
45
<PAGE>
Shares of the Corporation have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect 100% of the Directors if they choose to do so, and, in such
event, the holders of the remaining less than 50% of the shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors. The assets of the Corporation received for the issue or sale
of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are charged
with the liabilities in respect to such series and with 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.
The assets of the Corporation received for the issue or sale of the shares
of each series and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Corporation. If a series were unable to meet its obligations,
the assets of all other series may in some circumstances be available to
creditors for that purpose, in which case the assets of such other series could
be used to meet liabilities which are not otherwise properly chargeable to them.
Expenses with respect to any two or more series are to be allocated in
proportion to the asset value of the respective series except where allocations
of direct expenses can otherwise be fairly made. The officers of the
Corporation, subject to the general supervision of the Directors, have the power
to determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Corporation or any series, the holders of the shares of any
series are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Corporation entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series and by class on matters affecting an individual class. For
example, a change in investment policy for a series would be voted upon only by
shareholders of the series involved. Additionally, approval of the investment
advisory agreement is a matter to be determined separately by each series.
Approval by the shareholders of one series is effective as to that series
whether or not enough votes are received from the shareholders of the other
series to approve such agreement as to the other series.
The Directors 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.
Pursuant to the approval of a majority of stockholders, the Corporation's
Directors have the discretion to retain the current distribution arrangement
while investing in a master fund in a master/feeder fund structure if the Board
determines that the objectives of the Fund would be achieved more efficiently
thereby.
The Corporation's Amended and Restated Articles of Incorporation (the
"Articles") provide that the Directors of the Corporation, to the fullest extent
permitted by Maryland General Corporation Law and the 1940 Act, shall not be
liable to the Corporation or its shareholders for damages. Maryland law
currently provides that Directors shall 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:
46
<PAGE>
Class A: [INSERT CUSIP NUMBER]
Class B: [INSERT CUSIP NUMBER]
Class C: [INSERT CUSIP NUMBER]
The Fund has a fiscal year ending October 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 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.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, Brown Brothers Harriman & Company,
40 Water Street, Boston, Massachusetts 02109.
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 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. 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 October 31, 2000, are incorporated herein by reference and are hereby
deemed to be a part of this Statement of Additional Information.
47
<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 Supplementary dated December 23, 1997. (Incorporated by
reference to Post-Effective Amendment No. 65 to the Registration
Statement.)
(a)(10) Articles Supplementary dated March 2,1998. (Incorporated by
reference to Post-Effective Amendment No. 65 to the Registration
Statement.)
Part C - Page 1
<PAGE>
(a)(11) Articles Supplementary dated March 31, 1998. (Incorporated by
reference to Post-Effective Amendment No. 65 to the Registration
Statement.)
(a)(12) Articles of Transfer from Scudder Institutional Fund Inc., dated
April 3, 1998. (Incorporated by reference to Post-Effective
Amendment No. 67 to the Registration Statement.)
(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.
(b) (b)(1) Amended and Restated By-Laws of the Registrant dated March 4,
1991. (Incorporated by reference to Post-Effective Amendment No.
56 to the Registration Statement.)
(b)(2) Amended and Restated By-Laws of the Registrant dated September 20,
1991. (Incorporated by reference to Post-Effective Amendment No.
56 to the Registration Statement.)
(b)(3) Amended and Restated By-Laws of the Registrant dated December 12,
1991. (Incorporated by reference to Post-Effective Amendment No.
56 to the Registration Statement.)
(b)(4) Amended and Restated By-Laws of the Registrant dated September 4,
1996. (Incorporated by reference to Post-Effective Amendment No.
55 to the Registration Statement.)
(b)(5) Amended and Restated By-Laws of the Registrant dated December 3,
1997. (Incorporated by reference to Post-Effective Amendment No.
59 to the Registration Statement.)
(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.
(c) Inapplicable.
Part C - Page 2
<PAGE>
(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.)
(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.)
Part C - Page 3
<PAGE>
(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) Form of Investment Management Agreement between the Registrant, on
behalf of Scudder International Fund, Inc. and Scudder Kemper
Investments, Inc. dated August 28, 2000 is incorporated by
reference to Post-Effective Amendment No. 80 to the Registration
Statement.
(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.
(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.)
Part C - Page 4
<PAGE>
(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) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and Morgan Guaranty Trust Company of New York, Brussels
office, dated November 15, 1976.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(7) Fee schedule for Exhibit (g)(6).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(8) Subcustodian Agreement between Brown Brothers Harriman & Co. and
The Bank of New York, London office, dated January 30, 1979.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(9) Fee schedule for Exhibit (g)(8).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(10) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and The Chase Manhattan Bank, N.A., Singapore office, dated
June 9, 1980.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(11) Fee schedule for Exhibit (g)(10).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.).
(g)(12) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and The Chase Manhattan Bank, N.A., Hong Kong office, dated
June 4, 1979.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(13) Fee schedule for Exhibit (g)(12).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
Part C - Page 5
<PAGE>
(g)(14) Master Subcustodian Agreement between Brown Brothers Harriman &
Co. and Citibank, N.A. New York office, dated July 16, 1981.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(g)(15) Fee schedule for Exhibit (g)(14).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h) (h)(1) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(2) Fee schedule for Exhibit (h)(1).
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(3) Service Agreement between Copeland Associates, Inc. and Scudder
Service Corporation dated June 8, 1995.
(Incorporated by reference to Post-Effective Amendment No. 45 to
the Registration Statement.)
(h)(4) Letter Agreement between the Registrant and Cazenove, Inc. dated
January 23, 1978, with respect to the pricing of securities.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(5) COMPASS and TRAK 2000 Service Agreement between the Registrant and
Scudder Trust Company dated October 1, 1995.
(Incorporated by reference to Exhibit 9(c)(3) to Post-Effective
Amendment No. 47 to the Registration Statement.)
(h)(6) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(7) Administrative Services Agreement between the Registrant and
McGladrey & Pullen, Inc. dated September 30, 1995.
(Incorporated by reference to Exhibit 9(d)(2) to Post-Effective
Amendment No. 47 to the Registration Statement.)
Part C - Page 6
<PAGE>
(h)(8) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Greater Europe Growth Fund, and Scudder Fund
Accounting Corporation dated October 10, 1994.
(Incorporated by reference to Post-Effective Amendment No. 44 to
the Registration Statement.)
(h)(9) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Fund, and Scudder Fund Accounting
Corporation dated April 12, 1995 is
incorporated by reference to Post-Effective Amendment No. 45 to
the Registration Statement.
(h)(10) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Latin America Fund, dated May 17, 1995.
(Incorporated by reference to Exhibit 9(e)(3) to Post-Effective
Amendment No. 47 to the Registration Statement.)
(h)(11) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Pacific Opportunities Fund, dated May 5, 1995.
(Incorporated by reference to Exhibit 9(e)(4) to Post-Effective
Amendment No. 47 to the Registration Statement.)
(h)(12) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder Emerging Markets Growth Fund dated May 8, 1996.
(Incorporated by reference to Exhibit 9(e)(5) to Post-Effective
Amendment No. 49 to the Registration Statement.)
(h)(13) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Growth and Income Fund dated June
3, 1997.
(Incorporated by reference to Post-Effective Amendment No. 56 to
the Registration Statement.)
(h)(14) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Growth Fund dated June 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
Part C - Page 7
<PAGE>
(h)(15) Fund Accounting Services Agreement between the Registrant, on
behalf of Scudder International Value Fund dated June 30, 1998.
(Incorporated by reference to Post-Effective Amendment No. 67 to
the Registration Statement.)
(h)(16) Administrative Services Agreement between Scudder International
Fund, Inc., on behalf of Scudder International Fund, and Scudder
Investors Service Company.
(Incorporated by reference to Post-Effective Amendment No. 72 to
the Registration Statement.)
(h)(17) Fee schedule for Exhibit (h)(16).
(Incorporated by reference to Post-Effective Amendment No. 72 to
the Registration Statement.)
(h)(18) 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)(19) Form of Administrative Agreement between the Registrant on behalf
of Scudder International Fund, Inc. and Scudder Kemper
Investments, Inc. dated October 2, 2000 is incorporated by
reference to Post-Effective Amendment No. 80 to the Registration
Statement.
(i) Opinion and Consent of Counsel to be filed by amendment.
(j) Report of Independent Accountants to be filed by amendment.
(k) Inapplicable.
(l) Inapplicable.
(m) Rule 12(b)-1 and Administrative Services Plan with respect to
Scudder International Fund Class R shares.
(Incorporated by reference to Post-Effective Amendment No. 72 to
the Registration Statement.)
(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.)
Part C - Page 8
<PAGE>
(n)(3) 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)(4) 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)(5) 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)(6) 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)(7) 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)(8) 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)(9) 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)(10) 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)(11) 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)(12) 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.
Part C - Page 9
<PAGE>
(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 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
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
Part C - Page 10
<PAGE>
against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such
liability.
The rights provided to any person by this Article
shall be enforceable against the Corporation by such person
who shall be presumed to have relied upon such rights in
serving or continuing to serve in the capacities indicated
herein. No amendment of these Articles of Amendment and
Restatement shall impair the rights of any person arising at
any time with respect to events occurring prior to such
amendment.
Nothing in these Articles of Amendment and
Restatement shall be deemed to (i) require a waiver of
compliance with any provision of the Securities Act of 1933,
as amended, or the Investment Company Act of 1940, as amended,
or of any valid rule, regulation or order of the Securities
and Exchange Commission under those Acts or (ii) protect any
director or officer of the Corporation against any liability
to the Corporation or its stockholders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of his or
her obligations and duties hereunder.
Article V of Registrant's Amended and Restated By-Laws states
as follows:
ARTICLE V
---------
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 1. Indemnification of Directors and Officers. Any person who
was or is a party or is threatened to be made a party in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, 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
Part C - Page 11
<PAGE>
further that at least one of the following additional conditions is met: (1) the
person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (2) the Corporation is
insured against losses arising by reason of the advance; or (3) a majority of a
quorum of Directors of the Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the 1940 Act, as amended, nor parties to the
proceeding ("disinterested non-party Directors") or independent legal counsel,
in a written opinion, shall determine, based on a review of facts readily
available to the Corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
SECTION 3. Procedure. At the request of any current or former Director
or officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the 1940 Act, as such statutes are now or hereafter in force, whether the
standards required by this Article V have been met; provided, however, that
indemnification shall be made only following: (1) a final decision on the merits
by a court or other body before whom the proceeding was brought that the person
to be indemnified was not liable by reason of disabling conduct or (2) in the
absence of such a decision, a reasonable determination, based upon a review of
the facts, that the person to be indemnified was not liable by reason of
disabling conduct, by (a) the vote of the majority of a quorum of disinterested
non-party Directors or (b) an independent legal counsel in a written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and
agents who are not officers or Directors of the Corporation may be indemnified,
and reasonable expenses may be advanced to such employees or agents, in
accordance with the procedures set forth in this Article V to the extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933 and the 1940 Act, as such statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as may be provided by action
of the Board of Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action by a Director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a Director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
SECTION 6. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a Director,
officer, employee or agent 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.
Part C - Page 12
<PAGE>
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<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 ##
Part C - Page 13
<PAGE>
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
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
Part C - Page 14
<PAGE>
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
@ 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.
Part C - Page 15
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3)
Scudder Investor Services, Inc.
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<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
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
Part C - Page 16
<PAGE>
(1) (2) (3)
Scudder Investor Services, Inc.
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
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
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 Commissions
----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 28. Location of Accounts and Records.
-------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments, Inc., 345 Park Avenue, New York, New York 10154.
Records relating to the duties of the Registrant's custodian
are maintained by Brown Brothers Harriman & Co., 40 Water
Street, 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
Part C - Page 17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant pursuant to Rule 485(a) under the
Securities Act of 1933 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
By /s/John Millete
---------------
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 Director and President (Chief December 22, 2000
Executive Officer)
/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. 82
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 62
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER INTERNATIONAL FUND, INC.
<PAGE>
SCUDDER INTERNATIONAL FUND, INC.
EXHIBIT INDEX
To be filed by amendment.
