Scudder
Balanced
Fund
Annual Report
December 31, 1995
o A fund that seeks a balance of growth and income, as well as long-term
preservation of capital, from a diversified portfolio of equity and
fixed-income securities.
o A pure no-load(TM) fund with no commissions to buy, sell, or
exchange shares.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
SCUDDER BALANCED FUND
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
17 Financial Statements
20 Financial Highlights
21 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
29 Officers and Trustees
30 Investment Products
and Services
31 How to Contact
Scudder
IN BRIEF
o Scudder Balanced Fund provided a total return of 26.48% for the 12 months
ended December 31, exceeding the 25.16% return of the average balanced fund
tracked by Lipper Analytical Services.
o Stock holdings were 61% of the Fund's assets on December 31, while
fixed-income securities and cash equivalents accounted for 39%.
o Individual stock market sectors that performed particularly well over the
year included technology, consumer staples, healthcare, and financial
services. While the technology sector was slightly underweighted, these
groups were generally well-represented in the equity portion of the
portfolio.
o Entering 1995, duration on the fixed-income side of the portfolio was
extended -- therefore increasing the portfolio's sensitivity to interest
rate changes -- to benefit more fully from the rally in bond prices while
capturing higher yields.
o An environment of slower economic growth and low inflation should be
positive for those companies capable of delivering consistently
above-average earnings growth. Thus we have retained substantial equity
weightings in healthcare, media, and services, as well as select finance
issues.
o On the fixed-income side, given slowing economic growth and benign
inflation, the Fed should remain in an easing mode, and the portfolio at
year-end had a modestly higher duration than the bond market as a whole.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
SCUDDER BALANCED FUND
Dear Shareholders,
Scudder Balanced Fund was the beneficiary of 1995's strong stock and bond
markets, providing a total return of 26.48% for the year. Slow growth, moderate
inflation, and falling interest rates made for a positive economic environment.
The biggest investment story of the year was the stunning advance in the U.S.
equity market, which rose 37.58% as measured by the unmanaged S&P 500 Index. The
broad domestic bond market provided a total return of 18.47% as measured by the
unmanaged Lehman Brothers Aggregate Bond Index, which reflects the performance
of a mix of corporate, government, and mortgage-backed securities.
Despite the impressive gains in 1995 of the domestic stock market, U.S.
equities appear to be reasonably valued based on 1996 earnings forecasts. On the
fixed-income side, the prospect of slow growth and low inflation provides a
favorable backdrop. While a repeat in the coming year of 1995's exceptional
performance is unlikely, the outlook for U.S. financial assets is positive.
In addition, we see a number of long-term trends underway that support a
positive outlook for investment in the U.S. and around the world. Technology is
bringing efficiencies to every stage of the product cycle, from design to
distribution. Globalization has widened the competitive universe, making
inflationary price increases less likely. Deregulation is subjecting major
industries to market discipline, increasing capacity and reducing supply
bottlenecks. While investing will always involve uncertainties and market
fluctuation, the net result of these forces may well be an era of
disinflationary growth that benefits investors and raises living standards
worldwide. We look forward to the challenges and opportunities afforded by the
evolving economic landscape, and believe Scudder Balanced Fund is well
positioned to benefit from these trends.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Balanced Fund
3
<PAGE>
SCUDDER BALANCED FUND
PERFORMANCE UPDATE as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER BALANCED FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,648 26.48% 26.48%
Life of
Fund* $12,855 28.55% 8.77%
S&P 500 INDEX (60%)
and LBAB Index (40%)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $13,134 31.34% 31.34%
Life of
Fund* $14,257 42.57% 12.96%
*The Fund commenced operations on
January 4, 1993. Index comparisons
begin January 31, 1993.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Scudder Balanced Fund
Year Amount
- ----------------------
1/31/93 $10,000
6/93 $ 9,876
12/93 $10,395
6/94 $ 9,823
12/94 $10,147
6/95 $11,705
12/95 $12,834
LBAB Index
Year Amount
- ----------------------
1/31/93 $10,000
6/93 $10,488
12/93 $10,768
6/94 $10,352
12/94 $10,454
6/95 $11,651
12/95 $12,386
S&P 500 Index
Year Amount
- ----------------------
1/31/93 $10,000
6/93 $10,401
12/93 $10,917
6/94 $10,547
12/94 $11,061
6/95 $13,296
12/95 $15,217
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-The-Counter
market and The Lehman Brothers Aggregate Bond (LBAB) Index is an
unmanaged market value-weighted measure of treasury issues, agency
issues, corporate bond issues and mortgage securities. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
PERIODS ENDED DECEMBER 31
1993* 1994 1995
-------------------------
NET ASSET VALUE... $12.23 $11.63 $14.12
INCOME DIVIDENDS.. $ .26 $ .31 $ .32
CAPITAL GAINS
DISTRIBUTION...... -- -- .25
FUND TOTAL
RETURN (%)........ 4.12 -2.39 26.48
INDEX TOTAL
RETURN (%)........ 8.56 -.03 31.34
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased. If
the Adviser had not maintained the Fund's expenses, the average annual
total return for the 1 Year and Life of Fund periods would have been lower.
4
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1995
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Common Stocks 60% The Fund continues to
Fixed Income Holdings 32% provide exposure to both
Preferred Stocks 1% growth stocks and quality
Cash Equivalents 7% bonds.
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
EQUITY HOLDINGS
- --------------------------------------------------------------------------
Consumer Staples 18% Five Largest Equity Holdings
Health 17% ---------------------------------------
Technology 14% 1. PHILLIP MORRIS COMPANIES INC.
Consumer Discretionary 9% Tobacco, food products, and brewing
Financial 9% 2. MERCK & CO. INC.
Service Industries 8% Leading ethical drug manufacturer
Manufacturing 7% 3. PROCTER & GAMBLE CO.
Other 18% Diversified manufacturer of consumer
---- products
100% 4. AMERICAN INTERNATIONAL GROUP, INC.
==== Major international insurance holding
A graph in the form of a pie company
chart appears here, 5. PEPSICO INC.
illustrating the exact data Soft drinks, snack foods, and food
points in the above table. services
Equity holdings are focused on companies we expect to deliver
above-average earnings growth in a slowing economy.
- --------------------------------------------------------------------------
FIXED INCOME HOLDINGS (Excludes Cash Equivalents)
- --------------------------------------------------------------------------
Type Quality
- ---------------------------- ----------------------------
U.S. Gov't & Agencies 58% AAA 83%
U.S. Gov't Mortgages 15% AA 4%
Corporate Bonds 15% A 8%
Foreign - Non U.S. $ BBB 5%
Denominated 6% ----
Asset-Backed Securities 3% 100%
Foreign - U.S. $ ====
Denominated 3% Average quality of
---- fixed-income holdings
100% remains a high AA.
====
- -----------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
5
<PAGE>
SCUDDER BALANCED FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Slow economic growth, low inflation, and falling interest rates boosted
both the U.S. equity and bond markets in 1995. Scudder Balanced Fund provided a
total return of 26.48% for the 12 months ended December 31, exceeding the 25.16%
return of the average balanced fund tracked by Lipper Analytical Services. The
Fund's total return reflects an increase of $2.49 in share price, to $14.12 at
the end of the year, as well as income and capital gain distributions of $0.32
and $0.25, respectively.
Strong Earnings, Low Interest Rates
Drove Portfolio's Equity Strategy
In the equity portion of the Fund, we continued to focus on companies with
strong balance sheets, leading market positions, and solid prospects for
above-average growth. Strong corporate profit growth, declining interest rates,
and low inflation helped make 1995 the U.S. equity market's best year in nearly
two decades. In addition to the very positive economic backdrop, continued
inflows of cash into mutual funds contributed to the stock market's upward
march. Low rates on fixed-income instruments and turmoil in many international
financial markets helped as well, making U.S. equities look more attractive by
comparison.
Individual market sectors that performed particularly well over the year
included technology, consumer staples, healthcare, and financial services. While
the technology sector was slightly underweight, these groups were generally
well-represented in the equity portion of the portfolio. The relatively modest
exposure to technology was a drag on fund performance over the first three
quarters, but also mitigated the impact of that sector's nose-dive towards the
latter part of the year.
The outlook for U.S. equities in 1996 can be best described as "cautiously
optimistic." Economic growth appears to be decelerating, creating a double-edged
sword for investors. Slower growth implies weaker profits for many economically
sensitive industries, which could lead to earnings disappointments. At the same
time, a slowdown could also mean further cutting of short-term rates by the
Federal Reserve, which would be a positive for the stock market.
We expect growth stocks to outperform value stocks in the coming year,
reversing the recent trend. An environment of slower economic growth and low
inflation will be positive for those companies capable of delivering
consistently above-average earnings growth rates. Moreover, we believe that
growth stock prices overall are within a reasonable range. Thus we have retained
6
<PAGE>
substantial weightings in healthcare, media, and services, as well as select
finance issues. The portfolio is underweighted in manufacturing and
retail/consumer discretionary stocks, both of which are more economically
sensitive than other sectors.
With respect to the technology sector, we eliminated several stocks from
the portfolio prior to their disappointing performances towards the latter part
of the year, including Texas Instruments, General Instruments, and Nokia. These
assets were deployed to build new positions in the same sector where we have
more confidence in the long-term fundamentals, including companies such as Atmel
and Informix. These companies tend to operate in less commodity-oriented
segments, and are market leaders in growing niches. In these cases, we took
advantage of recent significant price depreciation to build our positions.
In another key sector, financial services, we are avoiding exposure to
increasingly problematic consumer credit and focusing instead on the
fast-growing asset gathering business, holding Charles Schwab. In the retail
sector, we replaced slow-growth May Companies with Nordstrom, which in our
opinion has strong upside potential, and consolidated our drugstore exposure
into one stock, Rite Aid. In the consumer area, General Mills was eliminated,
which we expected to have disappointing future results, and Carnival
Corporation, where we anticipate earnings growth to decelerate moving into 1996.
Portfolio sector weightings are generally in line with those of the broad
market, and our focus in the year ahead will be on stock selection, where we
believe we can truly add value.
Bond Portfolio Holdings Benefit
From Slow Growth and Low Inflation
On the fixed-income side, the U.S. bond markets benefited from 1995's
declining interest rate environment. Slowing economic growth and low inflation
prompted the Federal Reserve to reverse course and cut short-term rates on two
occasions in 1995. At the same time, rates on long-term bonds ended the year
nearly two percentage points lower, falling from 7.87% to 5.95% as measured by
the 30-year U.S. Treasury.
Throughout the period, we managed the bond portfolio actively, seeking to
capitalize upon shifts in relative valuation among the Treasury, mortgage, and
corporate sectors, as well as changes in the yield curve. Entering 1995, we
extended duration -- and therefore the portfolio's sensitivity to interest rate
changes -- to benefit more fully from the rally in bond prices while capturing
7
<PAGE>
higher yields. In addition, although the yields on bonds with differing
maturities generally go up and down together, this adjustment is not always
simultaneous, and throughout the year we felt that intermediate maturities had
the most potential for rate declines and price appreciation. This led to the
implementation of a more "bulleted" portfolio configuration focused on
intermediate-term securities, rather than a "barbell" structure where a long
bond is balanced with a short position to achieve the desired overall interest
rate sensitivity.
Early in the year, we began to trim the weighting in mortgage-backed
securities, particularly in high-coupon issues trading at a premium, in favor of
Treasuries. This reflects that mortgage-backeds tend to underperform in periods
of falling interest rates, as investors become wary of prepayments and seek to
maintain durations in order to benefit from bond market strength. Those
mortgage-backeds that the Fund continued to hold were for the most part
low-coupon, discounted securities where prepayment at par would result in a gain
to the portfolio. Finally, significant holdings in the corporate sector were
maintained.
Going forward, it is unlikely that 1996 will see fixed-income prices rally
to the extent they did in 1995. However, we believe the recent decline in
interest rates was fully justified by underlying economic fundamentals.
Moreover, economic growth is expected to continue to slow, implying a benign
inflation rate and a Fed policy of continuing to reduce interest rates,
especially if progress towards fiscal restraint in Washington remains on course.
The Fund's fixed-income position has a duration of 5.4 years entering 1996,
which is mostly higher than the bond market as a whole.
In terms of fixed-income sectors, we will look for the opportunity to
rebuild our position in mortgage-backed securities as they become more
attractive. The yield advantage offered by corporates has diminished somewhat,
and the slowing economy could lead to credit concerns for cyclical issuers in
particular. However, certain industries such as airlines and cable are
attractive in view of restructuring efforts, and we will continue to maintain
corporate exposure on a company-specific basis.
8
<PAGE>
Scudder Balanced Fund:
A Team Approach to Investing
Scudder Balanced Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's 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 Valerie F. Malter assumed responsibility for the
Fund's day-to-day management and investment strategies in September 1995.
Valerie has 10 years of experience as an analyst covering a wide range of
industries, and three years of portfolio management experience focusing on the
stocks of companies with medium- to large-sized market capitalizations. Bruce F.
Beaty, Portfolio Manager, specializes in the quality growth discipline of equity
investing and has been a portfolio manager at Scudder since joining the firm in
1991. Prior to joining Scudder in 1991, Bruce spent 11 years in the securities
brokerage business. Portfolio Manager William M. Hutchinson heads up the Fund's
fixed-income investment strategy and security selection. Bill, who has been with
the Fund since its introduction and Scudder since 1986, has over 20 years of
investment experience. Michael K. Shields, Portfolio Manager, focuses on the
Fund's healthcare stocks. Mike joined the Fund in 1995 and Scudder in 1992 and
has 12 years of experience in the financial industry.
Average quality of portfolio holdings remains a high "AA." We remain
focused on identifying areas of the fixed-income market that represent strong
relative value and on providing competitive yields.
With portfolio assets allocated roughly 60% in equities and 40% in
fixed-income, we believe Scudder Balanced Fund is an excellent vehicle for
investors seeking the benefits of asset class diversification. We feel this
exposure to growth stocks and quality bonds will serve shareholders well over
time, and we appreciate your continued investment in Scudder Balanced Fund.
Sincerely,
Your Portfolio Management Team
/s/Bruce F. Beaty /s/William M. Hutchinson
Bruce F. Beaty William M. Hutchinson
/s/Michael K. Shields /s/Valerie F. Malter
Michael K. Shields Valerie F. Malter
9
<PAGE>
<TABLE>
SCUDDER BALANCED FUND
INVESTMENT PORTFOLIO as of December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) (b) Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------------------
6.8% REPURCHASE AGREEMENTS
---------------------------------------------------------------------------
6,117,000 Repurchase Agreement with Donaldson,
Lufkin & Jenrette dated 12/29/95 at 5.85%,
to be repurchased at $6,120,976 on 1/2/96,
collateralized by a $6,183,000 U.S. Treasury
Note, 4.75%, 9/30/98 (Cost $6,117,000) ......... 6,117,000
----------
---------------------------------------------------------------------------
18.6% U.S. GOVERNMENT & AGENCIES
---------------------------------------------------------------------------
1,500,000 U.S. Treasury Bond, 7.25%, 5/15/16 .............. 1,712,805
500,000 U.S. Treasury Bond, 7.875%, 2/15/21 ............. 615,705
500,000 U.S. Treasury Bond, 6.250%, 8/15/23 ............. 514,455
1,500,000 U.S. Treasury Note, 5.5%, 9/30/97 ............... 1,507,740
500,000 U.S. Treasury Note, 5.13%, 4/30/98 .............. 498,985
500,000 U.S. Treasury Note, 6.375%, 1/15/99 ............. 515,545
1,000,000 U.S. Treasury Note, 6.75%, 5/31/99 .............. 1,044,530
2,000,000 U.S. Treasury Note, 6.875%, 7/31/99 ............. 2,100,000
1,750,000 U.S. Treasury Note, 6%, 10/15/99 ................ 1,793,750
3,500,000 U.S. Treasury Note, 5.75%, 10/31/00 ............. 3,550,295
500,000 U.S. Treasury Note, 7.5%, 11/15/01 .............. 550,705
1,000,000 U.S. Treasury Note, 6.375%, 8/15/02 ............. 1,048,590
750,000 U.S. Treasury Note, 5.75%, 8/15/03 .............. 759,023
1,000,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 5/15/09 (5.948% (c)) ... 456,670
----------
TOTAL U.S. GOVERNMENT & AGENCIES
(Cost $16,072,976) ............................. 16,668,798
----------
---------------------------------------------------------------------------
1.0% GOV'T NATIONAL MORTGAGE ASSOCIATION
---------------------------------------------------------------------------
27,012 Government National Mortgage Association
Pass-thru, 9.5%, 8/15/19 ....................... 29,164
777,208 Government National Mortgage Association
Pass-thru, 10%, 2/15/25 ........................ 859,537
----------
TOTAL GOV'T NATIONAL MORTGAGE ASSOCIATION
(Cost $866,012) ................................ 888,701
----------
---------------------------------------------------------------------------
4.0% U.S. GOVERNMENT AGENCY PASS-THRUS
---------------------------------------------------------------------------
1,086,378 Federal National Mortgage Association,
6.5%, 10/1/25 .................................. 1,073,472
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) (b) Value ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,228,740 Federal National Mortgage Association,
7%, 7/1/25 ................................... 1,238,718
1,247,548 Federal National Mortgage Association, 7%,
8/1/25 ....................................... 1,257,678
---------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS
(Cost $3,500,431) ............................ 3,569,868
---------
--------------------------------------------------------------------------
0.9% FOREIGN BONDS - U.S. $ DENOMINATED
--------------------------------------------------------------------------
750,000 Abbey National PLC Global Medium Term
Note, 6.69%, 10/17/05 (Cost $749,783) ........ 771,562
---------
--------------------------------------------------------------------------
2.0% FOREIGN BONDS - NON U.S. $ DENOMINATED
--------------------------------------------------------------------------
DEM 1,200,000 Federal Republic of Germany, 6.5%, 7/15/03 ... 872,209
FRF 4,100,000 Government of France OAT, 7.5%, 4/25/05 ...... 887,062
---------
TOTAL FOREIGN BONDS - NON U.S. $
DENOMINATED (Cost $1,701,845) ............... 1,759,271
---------
-------------------------------------------------------------------------
0.9% ASSET-BACKED SECURITIES
-------------------------------------------------------------------------
750,000 Sears Credit Account Master Trust Series
1995-4, 6.25%, 1/15/03 (Cost $749,063) ...... 764,063
---------
-------------------------------------------------------------------------
4.9% CORPORATE BONDS
-------------------------------------------------------------------------
CONSUMER STAPLES 0.6%
500,000 Seagram Co., Ltd., 8.35%, 1/15/22 ............ 582,485
---------
COMMUNICATIONS 0.6%
500,000 TCI Communications Inc., 8%, 8/1/05 .......... 530,745
---------
FINANCIAL 0.6%
250,000 General Electric Capital Services, 7.5%,
8/21/35 ..................................... 283,498
200,000 Norwest Financial Inc. Senior Note, 8.875%,
7/1/96 ...................................... 203,092
---------
486,590
---------
MEDIA 0.6%
500,000 Time Warner Inc., 9.125%, 1/15/13 ............ 563,475
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) (b) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DURABLES 1.3%
250,000 Boeing Co., 6.875%, 10/15/43 ..................... 255,565
500,000 Ford Motor Co., 8.875%, 1/15/22 .................. 620,195
250,000 Ford Motor Credit Co., 6.25%, 2/26/98 ............ 253,728
---------
1,129,488
---------
MANUFACTURING 0.6%
500,000 Nova Corp. of Alberta, 7.88%, 4/1/23 ............. 560,250
---------
TECHNOLOGY 0.6%
500,000 Loral Corp., 8.375%, 6/15/24 ..................... 574,165
---------
TOTAL CORPORATE BONDS (COST $4,122,566) .......... 4,427,198
---------
--------------------------------------------------------------------------
0.6% PREFERRED STOCKS
--------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------
TECHNOLOGY
Computer Software 3,400 SAP AG (Cost $ 506,436) .......................... 515,044
---------
--------------------------------------------------------------------------
60.3% COMMON STOCKS
--------------------------------------------------------------------------
CONSUMER DISCRETIONARY 5.4%
Department & Chain
Stores 3.1% 20,700 Nordstrom, Inc. .................................. 838,350
36,500 Rite Aid Corp. ................................... 1,250,125
30,200 Wal-Mart Stores Inc. ............................. 675,725
---------
2,764,200
---------
Restaurants 0.9% 19,100 McDonald's Corp. ................................. 861,888
---------
Specialty Retail 1.4% 22,700 Corporate Express, Inc.* ......................... 683,837
37,300 Intimate Brands, Inc. ............................ 559,500
---------
1,243,337
---------
CONSUMER STAPLES 11.1%
Alcohol & Tobacco 2.0% 19,400 Philip Morris Companies Inc. ..................... 1,755,700
---------
Consumer Electronic &
Photographic Products 0.7% 11,700 Duracell International Inc. ...................... 605,475
---------
Food & Beverage 5.2% 31,100 Albertson's Inc. ................................. 1,022,412
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8,300 CPC International Inc. ............................. 569,587
17,500 ConAgra Inc. ....................................... 721,875
22,600 PepsiCo Inc. ....................................... 1,262,775
35,400 Sara Lee Corp. ..................................... 1,128,375
---------
4,705,024
---------
Package Goods/
Cosmetics 3.2% 5,400 Clorox Co. ......................................... 386,775
6,800 Colgate-Palmolive Co. .............................. 477,700
11,400 Gillette Co. ....................................... 594,225
16,500 Procter & Gamble Co. ............................... 1,369,500
---------
2,828,200
---------
HEALTH 10.6%
Biotechnology 0.8% 16,920 Guidant Corp. ...................................... 714,870
---------
Hospital Management 1.2% 21,400 Columbia/HCA Healthcare Corp. ...................... 1,086,050
---------
Medical Supply &
Specialty 2.0% 16,500 Becton, Dickinson & Co. ............................ 1,237,500
10,200 Medtronic Inc. ..................................... 569,925
---------
1,807,425
---------
Pharmaceuticals 6.6% 6,300 American Home Products Corp. ....................... 611,100
19,444 Eli Lilly Co. ...................................... 1,093,725
14,400 Johnson & Johnson .................................. 1,233,000
22,800 Merck & Co. Inc. ................................... 1,499,100
7,000 Sandoz Ltd. AG (ADR) ............................... 320,688
20,200 Schering-Plough Corp. .............................. 1,105,950
---------
5,863,563
---------
COMMUNICATIONS 1.6%
Cellular Telephone 0.5% 16,200 AirTouch Communications, Inc.* ..................... 457,650
---------
Telephone/
Communications 1.1% 15,400 American Telephone & Telegraph Co. ................. 997,150
---------
FINANCIAL 5.3%
Banks 1.1% 22,700 State Street Boston Corp. .......................... 1,021,500
---------
Insurance 2.8% 13,950 American International Group, Inc. ................. 1,290,375
8,500 EXEL, Ltd. ......................................... 518,500
9,100 MBIA Inc. .......................................... 682,500
---------
2,491,375
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER BALANCED FUND
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other Financial
Companies 1.4%
10,000 Federal National Mortgage Association ............... 1,241,250
---------
MEDIA 4.5%
Advertising 0.6% 12,600 Interpublic Group of Companies Inc. ................. 546,525
---------
Broadcasting &
Entertainment 3.9% 11,400 Broderbund Software Inc.* ........................... 692,550
5,500 Capital Cities/ABC Inc. ............................. 678,562
21,600 Time Warner Inc. .................................... 818,100
16,100 Viacom Inc. "B"* .................................... 762,738
9,200 Walt Disney Co. ..................................... 542,800
---------
3,494,750
---------
SERVICE INDUSTRIES 5.1%
EDP Services 2.3% 12,900 First Data Corp. .................................... 862,688
22,100 General Motors Corp. "E" ............................ 1,149,200
---------
2,011,888
---------
Investment 0.8% 37,400 Charles Schwab Corp. ................................ 752,675
---------
Miscellaneous
Commercial Services 0.6% 31,800 Sensormatic Electronics Corp. ....................... 552,525
---------
Miscellaneous
Consumer Services 0.8% 15,900 Service Corp. International ......................... 699,600
---------
Printing/Publishing 0.6% 9,800 Reuters Holdings PLC "B" (ADR) ...................... 540,225
---------
DURABLES 2.8%
Aerospace 1.4% 15,800 Boeing Co. .......................................... 1,238,325
---------
Telecommunications
Equipment 1.4% 14,400 DSC Communications Corp.* ........................... 531,000
35,200 L.M. Ericsson Telephone Co. "B" (ADR) ............... 686,400
---------
1,217,400
---------
MANUFACTURING 4.5%
Chemicals 0.9% 16,500 Sigma-Aldrich Corp. ................................. 816,750
---------
Diversified
Manufacturing 2.3% 13,600 Dover Corp. ......................................... 501,500
16,200 General Electric Co. ................................ 1,166,400
8,000 Thermo Electron Corp.* .............................. 416,000
---------
2,083,900
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Electrical Products 1.3% 5,700 ASEA AB (ADR) ...................................... 552,187
7,200 Emerson Electric Co. ............................... 588,600
----------
1,140,787
----------
TECHNOLOGY 8.0%
Computer Software 0.9% 10,300 Informix Corp.* .................................... 309,000
5,600 Microsoft Corp.* ................................... 491,400
----------
800,400
----------
Diverse Electronic
Products 1.4% 13,800 Applied Materials, Inc.* ........................... 543,375
13,200 Motorola Inc. ...................................... 752,400
----------
1,295,775
----------
Electronic Data
Processing 1.3% 10,300 Hewlett-Packard Co. ................................ 862,625
12,600 Silicon Graphics Inc.* ............................. 346,500
----------
1,209,125
----------
Military Electronics 1.2% 28,800 Loral Corp. ........................................ 1,018,800
----------
Office/Plant
Automation 1.3% 10,700 3Com Corp.* ........................................ 498,888
9,300 Cisco Systems, Inc.* ............................... 694,012
----------
1,192,900
----------
Semiconductors 1.9% 20,200 Atmel Corp.* ....................................... 451,975
14,200 Intel Corp. ........................................ 805,850
12,800 LSI Logic Corp.* ................................... 419,200
----------
1,677,025
----------
ENERGY 1.4%
Engineering 0.7% 10,000 Fluor Corp. ........................................ 660,000
----------
Oil/Gas Transmission 0.7% 16,100 Enron Corp. ........................................ 613,812
----------
TOTAL COMMON STOCKS (Cost $43,424,572) ............. 54,007,844
----------
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $77,810,684) (a) ............................ 89,489,349
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
SCUDDER BALANCED FUND
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<S> <C>
(a) The cost for federal income tax purposes was $77,888,784. At December 31, 1995,
net unrealized appreciation for all securities based on tax cost was $11,600,565.
This consisted of aggregate gross unrealized appreciation for all securities
in which there was an excess of market value over tax cost of $12,555,289 and
aggregate gross unrealized depreciation for all securities in which there was
an excess tax cost over market value of $954,724.
(b) Principal amount is stated in U.S. dollars unless otherwise noted.
(c) Bond equivalent yield to maturity; not a coupon rate.
* Non-income producing security.
CURRENCY ABBREVIATIONS
----------------------
DEM German Deutschemark
FRF French Franc
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $77,810,684)
(Note A) ......................................................... $89,489,349
Unrealized appreciation on forward currency exchange
contracts (Notes A and D) ........................................ 1,196
Receivables:
Investments sold ................................................. 120,780
Fund shares sold ................................................. 121,007
Dividends and interest ........................................... 548,321
Deferred organization expenses (Note A) ........................... 19,275
-----------
Total assets ..................................................... 90,299,928
LIABILITIES
Payables:
Fund shares redeemed ............................................. $33,328
Accrued management fee (Note C) .................................. 20,600
Other accrued expenses (Note C) .................................. 94,778
-------
Total liabilities ................................................ 148,706
-----------
Net assets, at market value $90,151,222
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income .............................. $ 52,550
Net unrealized appreciation on:
Investments ..................................................... 11,678,665
Foreign currency related transactions ........................... 1,248
Accumulated net realized gain .................................... 745,847
Shares of beneficial interest .................................... 63,862
Additional paid-in capital ....................................... 77,609,050
-----------
Net assets, at market value $90,151,222
===========
NET ASSET VALUE, offering and redemption price per
share ($90,151,222 -:- 6,386,156 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ........................... $14.12
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
SCUDDER BALANCED FUND
- ----------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest .......................................................... $ 1,898,157
Dividends (net of withholding taxes of $7,497) .................... 799,877
-----------
2,698,034
Expenses:
Management fee (Note C) ........................................... $ 540,296
Services to shareholders (Note C) ................................. 315,036
Custodian and accounting fees (Note C) ............................ 63,605
Trustees' fees and expenses (Note C) .............................. 34,920
Reports to shareholders ........................................... 51,999
Auditing .......................................................... 26,976
State registration ................................................ 13,753
Legal ............................................................. 11,735
Amortization of organization expense (Note A) ..................... 9,600
Other ............................................................. 10,322
----------
Total expenses before reductions .................................. 1,078,242
Expense reductions (Note C) ....................................... (308,877)
----------
Expenses, net ..................................................... 769,365
-----------
Net investment income ............................................. 1,928,669
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT
TRANSACTIONS
Net realized gain from:
Investments ...................................................... 2,862,814
Foreign currency related transactions ............................ 36,501 2,899,315
----------
Net unrealized appreciation during the period on:
Investments ...................................................... 12,904,661
Foreign currency related transactions ............................ 1,248 12,905,909
---------- -----------
Net gain on investment transactions ............................... 15,805,224
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............. $17,733,893
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 1,928,669 $ 1,724,357
Net realized gain (loss) from investment
transactions ............................................. 2,899,315 (401,176)
Net unrealized appreciation (depreciation) on
investment transactions during the period ................ 12,905,909 (2,937,217)
----------- -----------
Net increase (decrease) in net assets
resulting from operations ................................ 17,733,893 (1,614,036)
----------- -----------
Distributions to shareholders:
From net investment income ($.32 and $.31
per share, respectively) ................................. (1,901,397) (1,678,241)
----------- -----------
From net realized gains ($.25 per share) .................. (1,503,700) --
----------- -----------
Fund share transactions:
Proceeds from shares sold ................................. 29,440,217 23,615,096
Net asset value of shares issued to
shareholders in reinvestment of distributions ............ 3,318,154 1,621,585
Cost of shares redeemed ................................... (22,968,196) (19,948,276)
----------- -----------
Net increase in net assets from Fund share
transactions ............................................. 9,790,175 5,288,405
----------- -----------
INCREASE IN NET ASSETS .................................... 24,118,971 1,996,128
Net assets at beginning of period ......................... 66,032,251 64,036,123
----------- -----------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$52,550 and accumulated net
investment loss of $11,510 at December 31,
1995 and December 31, 1994,
respectively) ............................................ $90,151,222 $66,032,251
=========== ===========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ................. 5,680,135 5,235,193
----------- -----------
Shares sold ............................................... 2,222,129 1,976,188
Shares issued to shareholders in
reinvestment of distributions ............................ 241,695 139,036
Shares redeemed ........................................... (1,757,803) (1,670,282)
----------- -----------
Net increase in Fund shares ............................... 706,021 444,942
----------- -----------
Shares outstanding at end of period ....................... 6,386,156 5,680,135
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
SCUDDER BALANCED FUND
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.
FOR THE PERIOD
JANUARY 4, 1993
(COMMENCEMENT
YEARS ENDED DECEMBER 31, OF OPERATIONS) TO
------------------------ DECEMBER 31,
1995 1994 1993
------------------------ -----------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................. $11.63 $12.23 $12.00
------ ------ ------
Income from investment operations:
Net investment income (a) ........................................... .32 .31 .26
Net realized and unrealized gain (loss) on investment
transactions ....................................................... 2.74 (.60) .23
------ ------ ------
Total from investment operations ..................................... 3.06 (.29) .49
------ ------ ------
Less distributions:
From net investment income .......................................... (.32) (.31) (.26)
From net realized gains on
investment transactions ............................................ (.25) -- --
------ ------ ------
Total distributions ................................................ (.57) (.31) (.26)
------ ------ ------
Net asset value, end of period ....................................... $14.12 $11.63 $12.23
====== ====== ======
TOTAL RETURN (%) ..................................................... 26.48 (2.39) 4.12*
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ............................... 90 66 64
Ratio of operating expenses, net to average daily net assets (%) (a) . 1.00 1.00 1.00
Ratio of net investment income to average daily net assets (%) ....... 2.51 2.66 2.43
Portfolio turnover rate (%) .......................................... 103.3 105.4 99.3
<FN>
(a) Reflects a per share amount of management fee not imposed
by the Adviser of ............................................... $ .05 $ .06 $ .06
Operating expense ratio before expense reductions (%) .......... 1.40 1.47 1.53
* Not annualized
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Balanced Fund (the "Fund") is a diversified series of Scudder Portfolio
Trust (the "Trust"). The Trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The policies described
below are followed by the Fund in the preparation of its financial statements
in conformity with generally accepted accounting principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system.
If there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such
market. If no sale occurred, the security is then valued at the calculated
mean between the most recent bid and asked quotations. If there are no such
bid and asked quotations, the most recent bid quotation shall be used.
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 their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
21
<PAGE>
SCUDDER BALANCED FUND
- --------------------------------------------------------------------------------
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 year
ended December 31, 1995, the Fund utilized forward contracts 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.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
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 all of its taxable income to its shareholders. The
Fund accordingly paid no federal income taxes and no provision for federal
income taxes was required.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made quarterly. During any particular year, net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders. 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 investments in foreign 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 identified cost 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 security transactions are accounted for on a trade date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the year ended December 31, 1995, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $60,267,526 and $57,928,459 respectively. Purchases and sales of
U.S. Government obligations aggregated $21,074,433 and $13,948,800,
respectively.
The face value of futures contracts opened and closed during the year ended
December 31, 1995 amounted to $2,079,202.
23
<PAGE>
SCUDDER BALANCED FUND
- --------------------------------------------------------------------------------
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The
management fee payable under the Agreement is equal to an annual rate of 0.70%
of the Fund's average daily nets assets, computed and accrued daily and
payable monthly. The Agreement also provides that if the Fund's expenses
exceed specified limits, such excess, up to the amount of the management fee,
will be paid by the Adviser. In addition, the Adviser has agreed not to impose
all or a portion of its management fee until April 30, 1996 to maintain the
annualized expenses of the Fund at not more than 1.00% of average daily net
assets. For the year ended December 31, 1995, the Adviser imposed fees
amounting to $231,419 and the portion not imposed amounted to $308,877.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended December 31, 1995, the amount charged to the Fund by SSC aggregated
$277,130, of which $45,576 is unpaid at December 31, 1995.
Effective January 18, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, 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 December 31, 1995, the amount charged
to the Fund by SFAC aggregated $37,704 of which $3,244 is unpaid at December
31, 1995.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended December 31, 1995, Trustees' fees and expenses aggregated $34,920.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. COMMITMENTS
- --------------------------------------------------------------------------------
As of December 31, 1995, the Fund had entered into the following forward
foreign currency exchange contracts resulting in net unrealized appreciation of
$1,196.
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
SETTLEMENT (DEPRECIATION)
CONTRACTS TO DELIVER IN EXCHANGE FOR DATE (U.S.$)
- ------------------------------- ---------------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
German Deutschemark 1,232,774 U.S. Dollar 873,201 1/22/96 11,706
French Franc 4,132,944 U.S. Dollar 834,850 1/22/96 (10,510)
-------
1,196
======
</TABLE>
25
<PAGE>
SCUDDER BALANCED FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER PORTFOLIO TRUST AND THE SHAREHOLDERS OF SCUDDER
BALANCED FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Balanced Fund including the investment portfolio, as of December 31, 1995,
and the related statements of operations for the year then ended, and 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 January 4, 1993 (commencement of operations) to December 31, 1993.
These financial statements and 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 December 31, 1995, 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 Balanced Fund as of December 31, 1995, 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 January 4, 1993
(commencement of operations) to December 31, 1993 in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 2, 1996
26
<PAGE>
TAX INFORMATION
- --------------------------------------------------------------------------------
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$664,885 as capital gain dividends for its fiscal year ended December 31, 1995.
By now shareholders to which year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund. For corporate shareholders, 39.83% of the income dividends paid during
the Fund's fiscal year ended December 31, 1995 qualified for the dividends
received deduction.
In many states the amount of income you received from obligations of the U.S.
Government is exempt from your state income taxes. The percentage of the Fund's
1995 income which was derived from direct obligations of the U.S. Government
was 14.91%.
Please consult a tax adviser if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
27
<PAGE>
(This page intentionally left blank.)
28
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager,
WGBH Educational Foundation
Dudley H. Ladd*
Trustee
David S. Lee*
Vice President and Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration,
Northeastern University, College of Business Administration
Jean C. Tempel
Trustee; Director, General Partner, TL Ventures
Jerard K. Hartman*
Vice President
William M. Hutchinson*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
29
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
<S> <C> <C>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Small Company Value Fund
Scudder Growth and Income Fund Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder Fund, Inc.
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
</TABLE>
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state, and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc. are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust,(TM) an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call 1-800-541-7703.
30
<PAGE>
HOW TO CONTACT SCUDDER
<TABLE>
<CAPTION>
<S> <C>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your
Scudder accounts; exchanges and
redemptions; or information on any
Scudder fund SCUDDER AUTOMATED
INFORMATION LINE (SAIL) 1-800-343-2890
Investment Information
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
To receive information about the
Scudder funds, for additional
applications and prospectuses, or for
investment questions SCUDDER INVESTOR
RELATIONS 1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
-------------------------------------------------------------------------------------------------------------
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Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can
be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
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For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
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Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
31
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 37 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
