Scudder
World Income
Opportunities
Fund, Inc.
Annual Report
April 30, 1996
A closed-end investment company seeking high current income as its primary
objective and capital appreciation as a secondary objective through investment
principally in global income and, to a limited extent, equity securities.
<PAGE>
Scudder World Income
Opportunities Fund, Inc.
- ------------------------
Investment objectives and policies
o primarily high current income and secondarily capital appreciation through
investment principally in global income and, to a limited extent, equity
securities
Investment characteristics
o closed-end investment company investing principally in a portfolio of
global income and, to a limited extent, equity securities
o a vehicle for international diversification through participation in the
economies of emerging market countries
General Information
- -------------------
Executive offices
Scudder World Income Opportunities Fund, Inc.
345 Park Avenue
New York, NY 10154
For Fund information: 1-800-349-4281
Transfer agent, registrar and dividend
reinvestment plan agent
For account information: 1-800-426-5523
State Street Bank & Trust Company
P.O. Box 8200
Boston, MA 02266-8200
Custodian
Brown Brothers Harriman & Co.
Legal counsel
Willkie Farr & Gallagher
Independent Accountants
Coopers & Lybrand L.L.P.
New York Stock Exchange Symbol -- SWI
Contents
- --------
In Brief 3
Letter to Shareholders 3
Other Information 5
Investment Summary 6
Portfolio Summary 7
Investment Portfolio 8
Financial Statements 11
Financial Highlights 14
Notes to Financial Statements 15
Report of Independent Accountants 19
Dividend Reinvestment Plan 20
Directors and Officers 22
This report is sent to the shareholders of Scudder World Income Opportunities
Fund, Inc. for their information. It is not a prospectus, circular, or
representation intended for use in the purchase or sale of shares of the Fund or
of any securities mentioned in the report.
2
<PAGE>
In Brief
- --------------------------------------------------------------------------------
o Following difficult market conditions in early 1995, emerging market bonds
rebounded strongly as investors responded positively to austerity measures
taken by emerging countries in the wake of the Mexican peso devaluation.
o Reflecting these favorable developments, Scudder World Income Opportunities
Fund posted a total return of 34.53% based on net asset value for its fiscal
year ended April 30, 1996. The Fund's total return based on its share price
on the New York Stock Exchange was 14.40% for the same period.
o The Fund continues to maintain a liquid, diversified portfolio--with bonds
issued in Latin America, central and eastern Europe, the Middle East,
northern Africa, and Asia--that we believe is well positioned to benefit from
improving credit fundamentals while earning a high level of current income.
Letter to Shareholders
- --------------------------------------------------------------------------------
Dear Shareholders:
We are pleased to present the Scudder World Income Opportunities Fund annual
report for the fiscal year ended April 30, 1996. Following difficult market
conditions in early 1995, emerging markets have rebounded strongly from
depressed bond price levels on the basis of improving credit fundamentals. The
adherence of many emerging countries to austerity measures in the aftermath of
the Mexican peso crisis has renewed investors' confidence that these countries
will continue to improve in credit quality. This, in turn, has restored
liquidity to these markets.
During 1996 emerging markets bond prices largely decoupled from those of U.S.
Treasuries. This development reflects the notable structural improvement that
major emerging markets have continued to exhibit since the Mexican devaluation.
In addition, growth around the world is reviving, which for emerging economies
translates into improved growth through an increase in export volumes. Further
improving the outlook for emerging markets is the ample global liquidity, which
has strengthened capital inflows into emerging countries.
Fund performance
Scudder World Income Opportunities Fund benefited from the recovery of
emerging market debt during this period. The Fund finished the annual period
with a net asset value ("NAV") of $14.66, up from $12.11 on April 30, 1995.
Adjusting for distributions totaling $1.392 per share during the year, the
Fund's total return based on NAV was 34.53%. The unmanaged J.P. Morgan Emerging
Markets Bond Index during the same period returned 41.15%. Since its inception
on April 11, 1994, through April 30, 1996, the Fund's total return based on NAV
was 29.97%, compared with the Index's return of 35.47%.
During the fiscal year ended April 30, 1996, the Fund's share price on the
New York Stock Exchange rose from $12.75 to $13.125, contributing to a total
return of 14.40%. The $13.125 price of the shares on April 30,1996, represented
a 10.47% discount to the Fund's NAV.
Benefiting from improving credits
Throughout the Fund's annual period, our strategy has been to maintain a
liquid, diversified portfolio that is well positioned to benefit from improving
credit fundamentals while at the same time earning a high level of current
income. Examples can be found in Poland, which received an investment grade
rating at the beginning of 1996 and saw its bonds appreciate 20.34% through
April. Regional, country, and security selection proved increasingly important
during the year as investors began to discriminate more closely among emerging
markets issuers. The Fund's portfolio benefitted from its overweighting in
Poland and Eastern Europe.
In terms of regional and country distribution, Latin America represented 67%
of the portfolio at the end of the Fund's fiscal year, a reduction from 82% in
January. We reduced our Latin America holdings to take some profits and also
because of our concern that Latin America as a region would be most negatively
3
<PAGE>
affected by higher U.S. interest rates. The Fund's core holdings in Latin
America continue to be in Brazil (25% of investments) followed by Mexico (13%),
Argentina (10%), and Venezuela (10%). Brazil's debt remains relatively
inexpensive versus other emerging markets given its high level of international
reserves and the positive direction of policy. Although the pace of progress in
enacting constitutional changes to shrink government expenditures and enhance
the performance of its capital markets has been slow, the direction is positive,
making Brazilian debt relatively attractive. With $55 billion in foreign
currency reserves, Brazil is well positioned to defend the Real while pursuing
the necessary internal reforms.
Venezuela's prospects continue to brighten. The country recently completed
the initial measures necessary to secure an agreement with the IMF, including a
reduction in the country's budget deficit, the lifting of exchange and interest
controls, and sharply increasing gasoline prices. This has allowed the
government to continue to build foreign exchange reserves. Yields of
uncollateralized Venezuelan bonds are roughly 10 percentage points higher than
those of comparable Treasuries, yet are substantially lower than prior to the
above-mentioned reforms.
Meanwhile, we increased our holdings in Eastern Europe to 16% of the
portfolio by April 30. Polish bonds were 10% of investments while Russian
holdings comprised 6%. Polish exposure included Zloty instruments which provided
solid returns for the Fund. The Fund also held 4% of its portfolio in Asia and a
12% position in Morocco where yields are roughly 7 percentage points higher than
U.S. Treasuries, and where economic growth is returning.
One of our more recent strategies was to decrease the interest rate
sensitivity of the portfolio because of our concerns over the direction of U.S.
interest rates. As of April 30, 1996, we had reduced fixed-rate instruments to
36% of the portfolio from 47% on December 31, 1995, and increased floating-rate
instruments (assets with coupons that reset every six months in relation to the
London Interbank Offered Rate or LIBOR) to 55% of the portfolio from 39% over
the same time period. This strategy worked to the Fund's advantage as
floating-rate securities outperformed fixed-rate securities through the first
four months of 1996, with average total returns of 13.60% and 4.54%
respectively. The majority of Fund assets continues to be invested in sovereign
debt obligations because of their attractive yields and higher credit quality
versus many emerging market corporate bonds. As of April 30, 1996, sovereign
securities constituted 87% of the portfolio and corporate debt 9% with the
remainder of the portfolio invested in stocks and cash instruments.
Outlook
We believe that improving balance sheets will continue to be the dominant
theme in our market for the remainder of 1996. Poland set the example as the
first emerging market country to receive an investment grade rating on its Brady
bonds. Other emerging countries could benefit similarly in the near future.
Significant potential for further gains in bond prices exists in emerging
countries that demonstrate the commitment to address budget imbalances and
continue on the path of fiscal reform. We believe that ample global liquidity
and moderate economic growth will continue to create a positive environment for
emerging market debt over the coming months.
We are pleased that you are an investor in Scudder World Income Opportunities
Fund. We would be happy to receive any questions or comments. You can reach us
at 1-800-349-4281.
Respectfully,
/s/Lynn S. Birdsong /s/Edmond D. Villani
Lynn S. Birdsong Edmond D. Villani
President Chairman of the Board
Other Information
4
<PAGE>
Other Information
- --------------------------------------------------------------------------------
Investment Manager and Administrator
The investment manager and administrator of Scudder World Income
Opportunities Fund, Inc. (the "Fund") is Scudder, Stevens & Clark, Inc., one of
the most experienced investment management and investment counsel firms in the
United States. Established in 1919, the firm provides investment counsel for
individuals, investment companies and institutions. Scudder has offices
throughout the United States and subsidiaries in London and Tokyo.
Scudder has been a leader in international investment management for over 40
years. It manages Scudder International Fund, which was initially incorporated
in Canada in 1953 as the first foreign investment company registered with the
United States Securities and Exchange Commission. Scudder's investment company
clients include nine other open-end investment companies which invest primarily
in foreign securities.
In addition to the Fund, Scudder also manages the assets of seven other
closed-end investment companies which invest in foreign securities: The
Argentina Fund, The Brazil Fund, The First Iberian Fund, The Korea Fund, The
Latin America Dollar Income Fund, Scudder New Asia Fund, and Scudder New Europe
Fund.
A Team Approach to Investing
Scudder World Income Opportunities Fund is managed by a team of Scudder
investment professionals who each play an important role in the portfolio's
management process. Team members work together to develop investment strategies
and select securities for the portfolio. They are supported by Scudder's large
staff of economists, research analysts, traders, and other investment
specialists who work in Scudder's offices across the United States and abroad.
We believe our team approach benefits Fund investors by bringing together many
disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Susan Gray, who joined Scudder in 1987, sets the
investment strategy for the Fund. Ms. Gray and Portfolio Manager Isabel Saltzman
share responsibility for the day-to-day management of the fixed-income component
of the portfolio. Ms. Saltzman, who joined Scudder in 1990, has been involved in
foreign finance and investing since 1979. Joyce E. Cornell, Portfolio Manager,
is responsible for managing the equity component of the Fund's portfolio. Ms.
Cornell, who joined Scudder in 1991, has nine years of experience as a
securities analyst.
Dividend Reinvestment Plan
The Fund's Dividend Reinvestment Plan (the "Plan") offers you a convenient
way to have your dividends and capital gains distributions reinvested in the
shares of the Fund. Your participation is automatic unless you or the bank,
broker or other nominee holding shares beneficially owned by you specifies
otherwise. We believe this Plan is attractive for shareholders. Its features are
more fully described on page 20.
Net Asset Value
The Fund's NAV is published every Monday in The Wall Street Journal under the
heading "Closed End Funds." The Fund's NAV is also published in The New York
Times and Barron's.
As a service to overseas shareholders, the Fund's NAV is listed daily in The
Financial Times ("FT"). For your information the NAV of the Fund and other
Scudder managed closed-end funds can be found in the "FT Managed Funds Service"
section under the heading "Other Offshore Funds" below the Scudder, Stevens, &
Clark, Inc. banner.
5
<PAGE>
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
INVESTMENT SUMMARY AS OF APRIL 30, 1996
- -----------------------------------------------------------------
HISTORICAL
INFORMATION TOTAL RETURN (%)
LIFE OF FUND ---------------------------------------------------------------
MARKET VALUE NET ASSET VALUE (b) INDEX (a)
------------------- -------------------- -------------------
AVERAGE AVERAGE AVERAGE
CUMULATIVE ANNUAL CUMULATIVE ANNUAL CUMULATIVE ANNUAL
------------------- -------------------- -------------------
CURRENT QUARTER -3.94 -- 1.50 -- 0.16 --
ONE YEAR 14.40 14.40 34.53 34.53 41.15 41.15
LIFE OF FUND* 10.16 4.82 29.97 13.61 35.47 15.92
- -----------------------------------------------------------------
PER SHARE INFORMATION AND RETURNS (b)
YEARLY PERIODS ENDED APRIL 30
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) with the exact
data points listed in the table below.
1994* 1995 1996
------------------------
NET ASSET VALUE... $13.91 $12.11 $14.66
INCOME DIVIDENDS.. $ -- $ 1.24 $ 1.39
CAPITAL GAINS
AND OTHER
DISTRIBUTIONS..... $ -- $ 0.38 $ --
TOTAL RETURN (%).. -2.04 -1.37 34.53
(a) J.P. Morgan Emerging Markets Bond Index
(b) Total investment return reflect changes in net asset value per share
and assume that dividends and capital gains distributions, if any,
were reinvested. These percentages are not an indication of the
performance of a shareholder's investment in the Fund based on market
price.
* The fund commenced operations on April 11, 1994.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE OF THE
FUND.
6
<PAGE>
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
PORTFOLIO SUMMARY AS OF APRIL 30, 1996
- ---------------------------------------------------------------------------
INVESTMENT ALLOCATION (Excludes 4% Cash Equivalents)
Sovereign Bonds 87%
Corporate Bonds 9%
Equities 4%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
INTEREST RATE SENSITIVITY (Excludes 4% Cash Equivalents)
Floating Rate Bonds 55%
Fixed Rate Bonds 36%
Non-Performing 5%
Equities 4%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
- ---------------------------------------------------------------------------
GEOGRAPHICAL (Excludes 4% Cash Equivalents)
Brazil 26%
Mexico 13%
Morocco 12%
Argentina 11%
Venezuela 11%
Poland 10%
Russia 6%
Ecuador 3%
Panama 3%
Other 5%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the
above table.
7
<PAGE>
Scudder World Income Opportunities Fund, Inc.
<TABLE>
Investment Portfolio as of April 30, 1996
==========================================================================================================
<CAPTION>
Principal Market
Amount($)(e) Value($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER - 3.9%
1,700,250 Associates Corp. of North America, 5.3%, 5/1/96 (d) .. 1,700,250
329,530 Ford Motor Credit Co., 5.3%, 5/1/96 (d) .............. 329,530
----------
TOTAL COMMERCIAL PAPER (Cost $2,029,780) ............. 2,029,780
----------
- ----------------------------------------------------------------------------------------------------------
U.S. DOLLAR-DENOMINATED DEBT - 86.2%
ARGENTINA - 10.4% 1,761,137 Argentine Republic, Bonos de Consolidacion de
Deudas Previsionales Pre 2 (BOCON), Variable
Rate Interest Bond, LIBOR, 5.422%, 4/1/01 .......... 1,526,512
2,970,000 Argentine Republic, Floating Rate Bond, Series L,
LIBOR plus .8125%, (6.312%), 3/31/05 ............... 2,266,496
2,875,000 Argentine Republic, Collateralized Par Bond,
Series L, Step-up-Coupon, 5.25%, 3/31/23 ........... 1,565,093
----------
5,358,101
----------
BRAZIL - 25.4% 1,000,000 Companhia Energetica de Minas Gerais, Series A,
Without Warrants, 7.875%, 2/10/99 .................. 905,000
1,000,000 Companhia Energetica de Minas Gerais, Series B,
Without Warrants, 8.250%, 2/10/00 .................. 885,000
465,000 Federative Republic of Brazil, IDU Bond, Floating
Rate Bond, LIBOR plus .8125%, (6.375%), 1/1/01 ..... 426,928
4,465,033 Federative Republic of Brazil C Bond, 4.5% with
3.5% Interest Capitalization, 4/15/14 .............. 2,676,251
8,250,000 Federative Republic of Brazil, Collateralized
Discount Bond, Floating Rate Bond, LIBOR
plus .8125%, (6.5%), 4/15/24 ....................... 5,579,063
5,000,000 Federative Republic of Brazil, Collateralized Par
Bond, Series Z, Step-up Coupon, 5%, 4/15/24 ........ 2,625,000
----------
13,097,242
----------
BULGARIA - 0.9% 1,500,000 Republic of Bulgaria, Front Loaded Interest
Reduction Bond, Series A, Step-up Coupon,
2%, 7/28/12 ........................................ 446,250
----------
ECUADOR - 3.3% 3,904,763 Republic of Ecuador (Bearer), Past Due Interest Bond,
Floating Rate Bond, LIBOR plus .8125%, 3% with
3.0625% Interest Capitalization, 2/27/15 ........... 1,693,691
----------
MEXICO - 11.7% 2,750,000 Banco Nacional de Comercio Exterior S.N.C.,
7.25%, 2/2/04 ...................................... 2,275,625
1,500,000 Tubos de Acero de Mexico, 7.5%, 6/12/97 .............. 1,455,000
500,000 United Mexican States, 9.75%, 2/6/01 ................. 495,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
==========================================================================================================
<CAPTION>
Principal Market
Amount($)(e) Value($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,250,000 United Mexican States Collateralized Discount Bond,
Floating Rate Bond, Series C, LIBOR plus .8125%,
(6.609%), 12/31/19 ................................. 999,225
1,000,000 United Mexican States, Collateralized Discount
Bond, Floating Rate Bond, Series D, LIBOR plus
.8125%, (6.547%), 12/31/19 ......................... 799,380
----------
6,024,230
----------
MOROCCO - 11.7% 8,400,000 Kingdom of Morocco, Tranche A, Restructuring and
Consolidation Agreement, LIBOR plus .8125%,
(6.594%), 1/1/09 (f) ............................... 6,016,500
----------
PANAMA - 2.6% 2,500,000 Republic of Panama, 6/30/16 (c) ...................... 1,359,375
----------
PHILIPPINES - 2.5% 1,500,000 Central Bank of the Philippines, Class B, Step-up
Coupon, 5%, 6/1/08 ................................. 1,306,875
----------
POLAND - 5.5% 2,500,000 Republic of Poland, Past Due Interest Bond, Step-up
Coupon, 3.75%, 10/27/14 ............................ 1,909,375
1,000,000 Republic of Poland, Collateralized Discount Bond,
Floating Rate Bond, LIBOR plus .8125%,
(6.438%), 10/27/24 ................................. 927,500
----------
2,836,875
----------
RUSSIA - 5.5% 7,000,000 Vnesheconombank, Bilateral Non-Performing Loan
Agreement, 12/31/96* (f) ........................... 2,808,750
----------
VENEZUELA - 6.7% 5,250,000 Republic of Venezuela, Debt Conversion Bond,
Floating Rate Bond, Series DL, LIBOR plus .875%,
(6.563%), 12/18/07 ................................. 3,428,933
----------
TOTAL U.S. DOLLAR-DENOMINATED DEBT
(Cost $41,893,222) ................................. 44,376,822
----------
- ----------------------------------------------------------------------------------------------------------
U.S. DOLLAR-DENOMINATED CONVERTIBLE DEBT - 1.3%
KOREA - 1.1% 700,000 Ssangyong Oil Refining Co., 3%, 12/31/04 ............. 542,500
----------
MALAYSIA - 0.2% 125,000 Telekom Malaysia Berhad, 4%, 10/3/04 ................. 134,688
----------
TOTAL U.S. DOLLAR-DENOMINATED CONVERTIBLE DEBT
(Cost $796,638) .................................... 677,188
----------
- ----------------------------------------------------------------------------------------------------------
FOREIGN-DENOMINATED DEBT - 5.1%
MEXICO - 0.8% MXN 3,441,560 Certificados de la Tesoreria, 8/22/96 ................ 418,862
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Scudder World Income Opportunities Fund, Inc.
<TABLE>
Investment Portfolio (continued)
==========================================================================================================
<CAPTION>
Principal Market
Amount($)(e) Value($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
POLAND - 4.3% PLZ 1,330,700 Morgan Guaranty Trust Co., Time Deposit linked to
Polish Zloty, 20.45%, 10/9/96 ...................... 498,809
1,996,050 Morgan Guaranty Trust Co., Time Deposit linked to
Polish Zloty, 20.25%, 4/16/97 ...................... 732,803
2,661,400 Morgan Guaranty Trust Co., Time Deposit linked to
Polish Zloty, 20.3%, 4/23/97 ....................... 988,244
----------
2,219,856
----------
TOTAL FOREIGN-DENOMINATED DEBT
(Cost $2,659,016) .................................. 2,638,718
----------
- ----------------------------------------------------------------------------------------------------------
COMMON STOCKS - 3.5%
Shares
---------
VENEZUELA 417,283 Alambres y Cables Venezolanos "C" (Alcave) (b)*
(Cost $2,350,000)................................... 1,797,750
----------
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $49,728,656) (a).............................. 51,520,258
==========
- -----------------
<FN>
* Non-income producing security.
(a) The cost of the investment portfolio for federal income tax purposes was $49,971,825. At April 30,
1996, net unrealized appreciation for all securities based on tax cost was $1,548,433. This
consisted of aggregate gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $2,355,441 and aggregate gross unrealized depreciation for
all securities in which there was an excess of tax cost over market value of $807,008.
(b) Security valued in good faith by the Valuation Committee of the Board of Directors. The cost of this
security at April 30, 1996 was $2,350,000. See Note A of the Notes to Financial Statements.
(c) When issued or forward delivery securities. See Note A of the Notes to Financial Statements.
(d) At April 30, 1996, these securities, in part or in whole, have been segregated to cover when-issued
or forward delivery securities.
(e) Principal amount is stated in U.S. dollars unless otherwise noted.
(f) These securities represent loan participations which are arranged through private negotiations
between the Fund and a lender. Due to the nature of these securities they are typically purchased
on a forward delivery basis (Note A), some of which remain unsettled, in whole or in part, at
April 30, 1996.
CURRENCY ABBREVIATIONS
MXN Mexican Peso
PLZ Polish Zloty
</FN>
</TABLE>
<TABLE>
Transactions in written call options during the year ended April 30, 1996 were:
<CAPTION>
Principal Premiums
Amount($) Received($)
-------------------------------------
<S> <C> <C>
Outstanding at April 30, 1995 3,000,000 50,000
Contracts exercised........ (3,000,000) (50,000)
-------------------------------------
Outstanding at April 30, 1996 -- --
========== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Scudder World Income Opportunities Fund, Inc.
<TABLE>
Financial Statements
========================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $49,728,656) (Note A) ................ $51,520,258
Receivables:
Loan participations sold (Note A) .......................................... 1,082,813
Interest ................................................................... 850,628
Investments sold ........................................................... 506,536
When-issued and forward delivery securities (Note A) ....................... 261,875
Unrealized appreciation on forward currency exchange contracts (Notes A & E) . 25,377
Deferred organization expenses, net of accumulated amortization of $40,397
(Note A) ................................................................... 57,769
-----------
Total assets ............................................................. 54,305,256
LIABILITIES
Payables:
Loan participations purchased (Note A) ..................................... $1,804,955
When-issued and forward delivery securities (Note A) ....................... 1,211,621
Investments purchased ...................................................... 1,004,211
Dividends .................................................................. 40,909
Accrued management fee (Note C) ............................................ 49,404
Other accrued expenses (Note C) ............................................ 85,492
----------
Total liabilities ........................................................ 4,196,592
-----------
Net assets, at market value .................................................. $50,108,664
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income ........................................ $ 196,128
Accumulated net realized loss .............................................. (427,756)
Unrealized appreciation on:
Investments .............................................................. 1,791,602
Foreign currency related transactions .................................... 18,611
Common stock ............................................................... 34,191
Additional paid-in capital ................................................. 48,495,888
-----------
Net assets, at market value .................................................. $50,108,664
===========
NET ASSET VALUE per share ($50,108,664 [divided by sign]
3,419,143 shares of common stock outstanding,
$.01 par value, 100,000,000 shares authorized) ............................. $14.66
======
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Scudder World Income Opportunities Fund, Inc.
<TABLE>
Financial Statements (continued)
========================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................................ $ 5,631,226
Expenses:
Management fee (Note C) ........................................... $ 549,956
Custodian and accounting fees (Note C) ............................ 119,159
Directors' fees and expenses (Note C) ............................. 73,557
Reports to shareholders ........................................... 58,629
Auditing .......................................................... 76,380
Legal ............................................................. 24,669
Services to shareholders .......................................... 78,044
Amortization of organization expenses (Note A) .................... 19,688
Other ............................................................. 46,217 1,046,299
---------- -----------
Net investment income 4,584,927
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ....................................................... 2,551,312
Foreign currency related transactions ............................. (18,231) 2,533,081
----------
Net unrealized appreciation during the period on:
Investments ....................................................... 6,302,150
Options ........................................................... 40,150
Foreign currency related transactions ............................. 7,765 6,350,065
---------- -----------
Net gain on investments ............................................. 8,883,146
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................... $13,468,073
===========
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
===================================================================================================
- ---------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 4,584,927 $ 4,629,202
Net realized gain (loss) from investment transactions .......... 2,533,081 (1,790,396)
Net unrealized appreciation (depreciation) on investment
transactions during the period ............................... 6,350,065 (3,476,795)
----------- -----------
Net increase (decrease) in net assets resulting from operations .. 13,468,073 (637,989)
----------- -----------
Distributions to shareholders from:
Net investment income ($1.39 and $1.24 per share,
respectively) ................................................ (4,755,994) (4,229,517)
----------- -----------
Net realized gains from investment transactions
($.38 per share) ............................................. -- (1,285,161)
----------- -----------
Fund share transactions:
Reinvestment of distributions .................................. 123,052 30,632
----------- -----------
INCREASE (DECREASE) IN NET ASSETS ................................ 8,835,131 (6,122,035)
Net assets at beginning of period ................................ 41,273,533 47,395,568
----------- -----------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income of $196,128 and $439,493, respectively) ...... $50,108,664 $41,273,533
=========== ===========
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period ........................ 3,409,266 3,406,900
Shares issued to shareholders in reinvestment of distributions ... 9,877 2,366
----------- -----------
Shares outstanding at end of period .............................. 3,419,143 3,409,266
=========== ===========
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Scudder World Income Opportunities Fund, Inc.
<TABLE>
Financial Highlights
========================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS AND MARKET PRICE DATA.
- --------------------------------------------------------------------------------------------------------
FOR THE PERIOD
APRIL 11, 1994
YEARS ENDED APRIL 30, (COMMENCEMENT OF
---------------------- OPERATIONS) TO
1996 1995 APRIL 30, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ................... $12.11 $13.91 $14.20(b)
------ ------ ------
Income from investment operations:
Net investment income (a) ............................ 1.34 1.36 .03
Net realized and unrealized gain (loss) on investment
transactions ....................................... 2.60 (1.54) (.32)
------ ------ ------
Total from investment operations ....................... 3.94 (.18) (.29)
------ ------ ------
Less distributions from:
Net investment income ................................ (1.39) (1.24) --
Net realized gains on investment transactions ........ -- (.38) --
------ ------ ------
Total distributions .................................... (1.39) (1.62) --
------ ------ ------
Net asset value, end of period ......................... $14.66 $12.11 $13.91
====== ====== ======
Market value, end of period ............................ $13.13 $12.75 $14.00
====== ====== ======
TOTAL RETURN
Per share market value (%) ............................. 14.40 3.17 (6.67)**
Per share net asset value (%) (c) ...................... 34.53 (1.37) (2.04)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................. 50 41 47
Ratio of operating expenses to average net assets (%) .. 2.28 2.30 2.74*
Ratio of net investment income to average net assets (%) 9.98 9.94 3.73*
Portfolio turnover rate (%) ............................ 375.6(d) 232.8 266.3*
- ----------
<FN>
* Annualized
** Not annualized
(a) Based on monthly average shares outstanding during the period.
(b) Beginning per share amount reflects $15.00 initial public offering price net of underwriting
discount and offering expenses ($0.80 per share).
(c) Total investment returns reflect changes in net asset value per share during each period and
assume that dividends and capital gains distributions, if any, were reinvested. These
percentages are not an indication of the performance of a shareholder's investment in the Fund
based on market price.
(d) Economic and market conditions necessitated more active trading, resulting in a higher portfolio
turnover rate.
- --------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
14
<PAGE>
Scudder World Income Opportunities Fund, Inc.
Notes to Financial Statements
================================================================================
A. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Scudder World Income Opportunities Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a non-diversified, closed-end
management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost.
All other securities are valued at fair value as determined in good faith by the
Valuation Committee of the Board of Directors although the actual calculation
may be done by others. The securities valued in good faith by the Valuation
Committee of the Board of Directors at fair value amounted to $1,797,750 (3.59%
of net assets) and have been noted in the Investment Portfolio as of April 30,
1996.
OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased put options on securities as a hedge against
potential adverse price movements in the value of portfolio assets. If the Fund
writes an option and the option expires unexercised, the Fund will realize
income, in the form of a capital gain, to the extent of the amount received for
the option (the "premium"). If the Fund elects to close out the option it would
recognize a gain or loss based on the difference between the cost of closing the
option and the initial premium received. If the Fund purchased an option and
allows the option to expire it would realize a loss to the extent of the premium
paid. If the Fund elects to close out the option it would recognize a gain or
loss equal to the difference between the cost of acquiring the option and the
amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange
for the premium, the opportunity to profit during the option period from an
increase in the market value of the underlying security or currency above the
exercise price. When
15
<PAGE>
Scudder World Income Opportunities Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
the Fund writes a put option it accepts the risk of a decline in the market
value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
WHEN-ISSUED AND FORWARD DELIVERY SECURITIES. The Fund may purchase securities on
a when-issued or forward delivery basis, for payment and delivery at a later
date. 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
take place at a later time. 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. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. At the time
of settlement, the market value of the security may be more or less than the
purchase price.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract (forward contract) is a commitment to purchase or sell a foreign
currency at the settlement date at a negotiated rate. During the period, the
Fund utilized forward contracts as a hedge in connection with portfolio
purchases and sales of securities denominated in foreign currencies and as a
hedge against changes in exchange rates relating to foreign currency denominated
assets.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the daily rates of exchange prevailing
on the respective dates of such transactions.
16
<PAGE>
================================================================================
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes currency gains and losses between trade and settlement
dates on securities transactions, gains and losses arising from the sales of
foreign currency, and gains and losses between the ex and payment dates on
dividends, interest, and foreign withholding taxes.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies, and to distribute substantially all of its investment company taxable
income to its shareholders. Accordingly, the Fund paid no federal income taxes,
and no federal income tax provision was required.
As of April 30, 1996, the Fund had a net tax basis capital loss carryforward of
approximately $125,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until April 30,
2004.
In addition, from November 1, 1995 through April 30, 1996, the Fund incurred
$84,291 of net realized currency losses. As permitted by tax regulations, the
Fund intends to elect to defer these losses and treat them as arising in the
fiscal year ended April 30, 1997.
DISTRIBUTION OF INCOME AND GAINS. The Fund's policy is to declare and pay
distributions to shareholders of substantially all net investment income of the
Fund quarterly. Net realized gains from investment transactions in excess of
available capital loss carryforwards, which would be taxable to the Fund if not
distributed, will be distributed to shareholders annually. Distributions to
shareholders are recorded on the ex-dividend date. An additional distribution
may be made to the extent necessary to avoid the payment of a four percent
federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences relate primarily to foreign currency denominated investments and
certain securities sold at a loss. As a result, net investment income (loss) and
net realized gain (loss) on investment transactions for a reporting period may
differ significantly from distributions during such period. Accordingly, the
Fund may periodically make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
OTHER. Investment securities transactions are accounted for on a trade-date
basis. Interest income is recorded on the accrual basis. Discount on securities
purchased is accreted on an effective yield basis over the life of the security.
Dividend income is recorded on the ex-dividend date.
B. PURCHASES AND SALES OF SECURITIES
---------------------------------
During the year ended April 30, 1996, purchases and sales of investment
securities (excluding short-term investments) aggregated $170,371,153 and
$163,879,692, respectively.
17
<PAGE>
Scudder World Income Opportunities Fund, Inc.
Notes to Financial Statements (continued)
================================================================================
C. RELATED PARTIES
---------------
Under the Fund's Investment Advisory, Management and Administration Agreement
(the "Management Agreement") with Scudder, Stevens & Clark, Inc. (the
"Manager"), the Manager directs the investments of the Fund in accordance with
the Fund's investment objectives, policies, and restrictions and under the
direction and control of the Fund`s Board of Directors. In addition to portfolio
management services, the Manager provides certain administrative services in
accordance with the Management Agreement. The Fund pays to the Manager a monthly
fee at an annualized rate of 1.20% of the average weekly net assets of the Fund.
For the year ended April 30, 1996, the fee pursuant to such agreement amounted
to $549,956, of which $49,404 is unpaid at April 30, 1996.
Effective January 5, 1996, Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Manager, assumed responsibility for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund. For the year ended April 30, 1996, the amount charged to
the Fund by SFAC aggregated $18,499, of which $4,543 is unpaid at April 30,
1996.
The Fund pays each Director not affiliated with the Manager $6,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended April 30, 1996, Directors' fees and expenses aggregated $73,557.
D. CREDIT RISK
-----------
The yields of emerging country debt obligations reflect perceived credit risk,
the need to compete with other local investments in potentially illiquid
domestic financial markets and the difficulty in raising hard currencies to meet
external debt servicing requirements. The consequences of political, social,
economic or diplomatic changes may have disruptive effects on the market prices
of investments held by the Fund.
E. COMMITMENTS
-----------
<TABLE>
As of April 30, 1996, the Fund had entered into the following forward currency
exchange contracts resulting in net unrealized appreciation of $25,377.
<CAPTION>
NET UNREALIZED
APPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE (U.S.$)
- -------------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
DEM 407,880 USD 275,000 10/9/96 5,977
DEM 591,578 USD 400,000 4/16/97 9,339
DEM 817,630 USD 550,000 4/23/97 10,061
------
25,377
======
</TABLE>
18
<PAGE>
Scudder World Income Opportunities Fund, Inc.
Report of Independent Accountants
================================================================================
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SCUDDER WORLD INCOME OPPORTUNITIES
FUND, INC.:
We have audited the accompanying statement of assets and liabilities of Scudder
World Income Opportunities Fund, Inc., including the investment portfolio, as of
April 30, 1996, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the two years in the period then
ended and for the period April 11, 1994 (commencement of operations) to April
30, 1994. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.
Our procedures included confirmation of securities owned as of April 30, 1996,
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder World Income Opportunities Fund, Inc. as of April 30, 1996, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the two years in the period then ended and for the period April 11, 1994
(commencement of operations) to April 30, 1994 in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
June 24, 1996
19
<PAGE>
Scudder World Income Opportunities Fund, Inc.
Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
The Plan
The Fund's Dividend Reinvestment Plan (the "Plan") offers you an automatic
way to reinvest your dividends and capital gains distributions in shares of the
Fund.
Automatic Participation
Each shareholder of record is automatically a participant in the Plan unless
the shareholder has instructed the Plan Agent in writing otherwise. Such a
notice must be received by the Plan Agent not less than 10 days prior to the
record date for a dividend or distribution in order to be effective with respect
to that dividend or distribution. A notice which is not received by that time
will be effective only with respect to subsequent dividends and distributions.
Shareholders who do not participate in the Plan will receive all
distributions in cash paid by check in dollars mailed directly to the
shareholder by State Street Bank and Trust Company, as dividend paying agent.
Shares Held by a Nominee
If your shares are held in the name of a brokerage firm, bank, or other
nominee as the shareholder of record, please consult your nominee (or any
successor nominee) to determine whether it is participating in the Plan on your
behalf. Many nominees are generally authorized to receive cash dividends unless
they are specifically instructed by a client to reinvest. If you would like your
nominee to participate in the Plan on your behalf, you should give your nominee
instructions to that effect as soon as possible.
Pricing of Dividends and Distributions
If the market price per share on the payment date for the dividend or
distribution (the "Valuation Date") equals or exceeds net asset value per share
on that date, the Fund will issue new shares to participants at the greater of
the following on the Valuation Date: (a) net asset value, or (b) 95% of the
market price. The Valuation Date will be the dividend or distribution payment
date or, if that date is not a New York Stock Exchange trading date, the next
preceding trading date. If the net asset value exceeds the market price of Fund
shares at such time, participants in the Plan are considered to have elected to
receive shares of stock from the Fund, valued at market price, on the Valuation
Date. In either case, for Federal income tax purposes, the shareholder receives
a distribution equal to the market value on Valuation Date of new shares issued.
State and local taxes may also apply. If the Fund should declare an income
dividend or net capital gains distribution payable only in cash, the Plan Agent
will, as agent for the participants, buy Fund shares in the open market, on the
New York Stock Exchange or elsewhere, for the participants' account on, or
shortly after, the payment date.
Participant Plan Accounts
The Plan Agent maintains all participant accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by participants for personal and tax records. Shares in the account of
each plan participant will be held by the Plan Agent in non-certificated form in
the name of the participant, and each participant will be able to vote those
shares purchased pursuant to the Plan at a shareholder meeting or by proxy.
No Service Fee to Reinvest
There is no service fee charged to participants for reinvesting dividends or
distributions from net realized capital gains. The Plan Agent's fees for the
handling of the reinvestment of dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage commissions with respect to
shares issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, participants will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of any
dividends or capital gains distributions payable only in cash.
20
<PAGE>
Amendment or Termination
The Fund and the Plan Agent each reserve the right to terminate the Plan.
Notice of the termination will be sent to the participants of the Plan at least
30 days before the record date for a dividend or distribution. The Plan also may
be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by giving at least 30 days' written notice to participants in
the Plan.
A participant may terminate his account under the Plan by written notice to
the Plan Agent. If the written notice is received 10 days before the record day
of any distribution, it will be effective immediately. If received after that
date, it will be effective as soon as possible after the reinvestment of the
dividend or distribution.
If a participant elects to sell his shares before the Plan is terminated, the
Plan Agent will deduct a $2.50 fee plus brokerage commissions from the sale
transaction.
Plan Agent Address and Telephone Number
You may obtain more detailed information by requesting a copy of the Plan
from the Plan Agent. All correspondence (including notifications) should be
directed to: Scudder World Income Opportunities Fund, Inc. Dividend Reinvestment
Plan, c/o State Street Bank and Trust Company, P.O. Box 8209, Boston, MA
02266-8209, 1-800-426-5523.
21
<PAGE>
Directors and Officers
- --------------------------------------------------------------------------------
EDMOND D. VILLANI*
Chairman of the Board and Director
LYNN S. BIRDSONG*
President and Director
ROBERT J. BOYD
Director
ROBERT J. CALLANDER
Director
GEORGE M. LOVEJOY, JR.
Director
RONALDO A. DA FROTA NOGUEIRA
Director
DR. SUSAN KAUFMAN PURCELL
Director
JERARD K. HARTMAN*
Vice President
DAVID S. LEE*
Vice President
JURIS PADEGS*
Vice President
M. ISABEL SALTZMAN*
Vice President
PAUL J. ELMLINGER*
Vice President and Assistant Secretary
EDWARD J. O'CONNELL*
Vice President and Assistant Treasurer
KATHRYN L. QUIRK*
Vice President and Assistant Secretary
THOMAS F. McDONOUGH*
Secretary
PAMELA A. McGRATH*
Treasurer
COLEEN DOWNS DINNEEN*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
22
