Scudder Balanced Fund
Annual Report December 31, 1996
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.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
23 Report of Independent Accountants
24 Tax Information
25 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder
In Brief
o Scudder Balanced Fund provided a total return of 11.54% for the 12 months
ended December 31, 1996.
o At the end of the period, the Fund's assets were allocated 60% in equities
and 40% in fixed income securities (including cash equivalents).
o The equity portion of the Fund was concentrated on companies with
consistent, above-average growth potential in areas such as health care,
consumer staples, and technology.
o In the bond portion of the portfolio, the Fund's duration was shortened in
an effort to limit the effects of rising interest rates.
2-SCUDDER BALANCED FUND
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to present the newly redesigned annual report for Scudder
Balanced Fund. The new format is designed to enhance the attractiveness and
readability of our shareholder reports. We hope you find it an improvement; let
us know what you think.
This annual report for Scudder Balanced Fund covers a period of continued
strength for U.S. stocks and modest total returns for bonds. A generally
favorable atmosphere contributed to the Fund's 11.54% total return for the 12
months ended December 31, 1996. The management discussion which begins on page 6
describes the environment and the Fund's positioning in detail.
Scudder Balanced Fund is designed to provide growth through the ownership
of stocks and relative stability and income from fixed-income securities. Thus,
in a rising stock market the Fund's 60% allocation in growth stocks and 40% in
quality bonds provided especially valuable diversification, appreciation, and
balance at a time when investors were questioning how much further the U.S.
stock market might rise. We continue to believe that Scudder Balanced Fund is an
appropriate long- term holding that can provide consistent performance in
varying market conditions.
As part of Scudder's ongoing efforts to meet the needs of investors, we
recently launched an innovative new product called Scudder Pathway Series.
Pathway Series is a "fund of funds," consisting of four distinct portfolios:
Conservative, Balanced, Growth, and International. Each portfolio invests in a
select mix of Scudder Funds, providing flexibility, diversification, and
simplicity for regular and retirement plan investors. For more information on
Scudder Fund products and services, please turn to page 26.
Thank you for your continued investment in Scudder Balanced Fund. If you
have any questions about your investment, please call a Scudder Investor
Relations representative at 1-800-225-2470 or visit our Internet Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Balanced Fund
3-SCUDDER BALANCED FUND
<PAGE>
SCUDDER BALANCED FUND
PERFORMANCE UPDATE as of December 31, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER BALANCED FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,154 11.54% 11.54%
Life of
Fund* $14,339 43.39% 9.45%
S&P 500 INDEX (60%)
AND LBAB INDEX (40%)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,496 14.96% 14.96%
Life of
Fund* $16,136 61.36% 12.99%
*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:
YEARLY PERIODS ENDED DECEMBER 31
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
6/96 $13,584
12/96 $14,315
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
6/96 $16,754
12/96 $18,711
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
6/96 $12,235
12/96 $12,835
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.
YEARLY PERIODS ENDED DECEMBER 31
1993* 1994 1995 1996
---------------------------------
NET ASSET VALUE... $12.23 $11.63 $14.12 $14.60
INCOME DIVIDENDS.. $ .26 $ .31 $ .32 $ .34
CAPITAL GAINS
DISTRIBUTIONS..... - - .25 $ .79
FUND TOTAL
RETURN (%)........ 4.12 -2.39 26.48 11.54
INDEX TOTAL
RETURN (%)........ 8.56 -.03 31.34 14.96
All performance is historical, 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 temporarily capped expenses, the average annual
total return for the Fund for the one year and life of Fund
would have been lower.
4 - SCUDDER BALANCED FUND
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Common Stocks 60%
Fixed Income Holdings 36%
Cash Equivalents 4% The Fund's asset allocation of stocks,
---- fixed income holdings, and cash
100% equivalents was maintained.
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
EQUITY HOLDINGS
- --------------------------------------------------------------------------
Consumer Staples 21%
Health 17%
Technology 15% Five Largest Equity Holdings
Manufacturing 12% ------------------------------
Service Industries 9% 1. PHILLIP MORRIS COMPANIES INC.
Financial 9% Tobacco, food products and brewing
Consumer Discretionary 8% 2. COCA-COLA CO., INC.
Media 5% International soft drink company
Durables 3% 3. GENERAL ELECTRIC CO.
Energy 1% Leading producer of electrical
---- equipment
100% 4. MERCK & CO. INC.
==== Leading drug manufacturer
5. COLGATE-PALMOLIVE CO.
Manufacturer of household and
personal care products
Despite slowing earnings growth rates and rising interest rates in 1996,
stocks of large companies were among the best performers.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
FIXED INCOME HOLDINGS (Excludes 4% Cash Equivalents)
- --------------------------------------------------------------------------
TYPE QUALITY
- ---- -------
Corporate Bonds 36% AAA 60%
U.S. Gov't Pass-Thrus 27% AA 6%
U.S. Gov't Agencies 17% A 12%
Gov't National Mortgage BBB 22%
Association 8% ----
Asset-Backed Securities 8% 100%
Foreign Bonds-U.S $ ====
Denominated 4%
----
100%
Shortening duration helped to limit the effects of higher interest rates.
- -----------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 9.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
5 - SCUDDER BALANCED FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Stocks recorded their second consecutive year of outstanding performance while
bonds provided positive, but more modest, total returns in 1996. Scudder
Balanced Fund's conservative approach to investing in growth stocks and quality
bonds provided a total return of 11.54% for the 12-month period ended December
31, 1996. The Fund's benchmark, which consists of 60% S&P 500 and 40% Lehman
Aggregate Bond Index, returned 14.96% for the same period. The Fund's total
return represents an increase in its net asset value from $14.12 at the end of
1995 to $14.60 on December 31, 1996, as well as per share income and capital
gain distributions of $0.34 and $0.79, respectively.
An Environment of
Increased Volatility
The positive forces that contributed to the excellent performance of stocks in
1995 generally continued in 1996. Relatively low interest rates, benign
inflation, and expanding corporate earnings all had a favorable effect on stock
prices. In addition, 1996 marked a period of record inflows into mutual funds,
which were rapidly invested by portfolio managers, who maintained relatively low
cash holdings.
However, stronger than expected economic growth periodically raised the prospect
of accelerating inflation at several points in 1996, causing interest rates to
rise and bond prices to decline over the first half of the year. While interest
rates remained relatively low by recent standards, higher rates at mid-year
raised concerns about the sustainability of corporate earnings and stock
valuations. The stock market rally was briefly interrupted as a result of these
fears and earnings disappointments at selected companies. However, growth
moderated in the second half of the year, relieving upward pressure on interest
rates, and stocks and bonds recovered.
For stock investors, industry sectors and categories of stocks (cyclicals and
economically sensitive issues) rotated in and out of favor rapidly throughout
the year, in response to conflicting economic reports and shifting earnings
expectations. In this uncertain and changing environment, stocks of large, blue
chip companies generally drove the stock market indices higher. Investors
preferred stocks with solid earnings, industry dominance, and excellent
liquidity characteristics. In addition, value stocks tended to outperform growth
stocks towards the end of the year.
A Focus on Individual
Stock Selection
With respect to the equity portion of the portfolio, which composed 60% of
portfolio assets at the end of the period, our investment strategy is focused on
investing in companies with consistent, above-average earnings growth. We
invested with the expectation that the economic environment would be modest at
best, inflation would remain under control, and rapid earnings growth would be
increasingly hard to sustain for more cyclically sensitive companies and
industries. We held true to our strategy of investing in those companies that we
believed would deliver solid earnings growth, and focused on companies with
solid long-term franchises, experienced management teams, and dominant market
6-SCUDDER BALANCED FUND
<PAGE>
shares in growing industries.
While the Fund's sector weightings in the equity portion of the portfolio
remained close to that of its unmanaged benchmark -- the S&P 500 -- our approach
was to focus on selecting individual stocks, not industry sectors. Any
overweighting of specific sectors was the residual result of our individual
stock selection. The largest industry representations in the equity portion of
the portfolio were in the health care, consumer staples, and technology sectors.
All of these sectors provided a fertile hunting ground for great growth
companies. The weightings in these sectors have remained relatively unchanged
over the past year.
Although the health care sector was a weak performer during most of the period,
we maintained our exposure at 17% of equity portfolio assets because we believed
in the strength of our individual holdings. Towards the end of the period,
health care stocks rebounded to become one of the Fund's best performing
sectors. During the year, we established a number of new health care positions,
including SmithKline Beecham and Pfizer. We were able to buy what we believe is
the highest quality provider of information technology to hospitals, HMO's and
doctors' practices -- HBO & Company -- at a seemingly bargain price. HBO has
been a stellar performer, as was Merck and SmithKline Beecham.
In the financial sector, which composed 9% of equity portfolio assets at the end
of the period, the Fund was relatively overweight for most of 1996, even though
we reduced selected holdings during the year. We lightened these holdings due to
increased concerns that the Federal Reserve might raise rates. We held shares of
some of what we believe are excellent companies, including NationsBank, State
Street Boston, and MBIA, which benefited from the consolidation that is
continuing in this industry.
An area of significantly decreased emphasis was the consumer discretionary, or
retail, sector. We believe that fundamental support for these stocks going
forward is not strong at this point in the economic cycle, with personal income
stagnating and consumer debt near all time highs. In addition, the Fund had no
exposure to domestic communications stocks for most of the year. The intense
competition between local access providers, long distance companies, and
Regional Bell Operating Companies in the U.S. made for very interesting reading,
but not very rewarding investing, in our opinion. However, towards the end of
the period we added Nokia, the Finnish provider of cellular telephone equipment
and handsets.
A Defensive Strategy
for Bonds
Total returns for bonds were modest in 1996, as rising interest rates eroded
bond prices. During this period we managed the fixed income portion of the
portfolio actively, seeking to capitalize on shifts in relative valuation among
the Treasury, mortgage, and corporate sectors. At the end of the period, 40% of
portfolio assets was invested in fixed income securities, including short-term
cash equivalents. Our strategy in this changing environment was a defensive one.
We attempted to reduce sensitivity to changes in interest rates by shortening
duration. Shorter duration securities tend to be less sensitive to changes in
7-SCUDDER BALANCED FUND
<PAGE>
interest rates and experience more limited price changes than longer duration
securities. We achieved a shorter portfolio duration primarily by reducing
holdings of Treasury securities from 58% to 17% of fixed income portfolio
assets, with most of the reduction occurring during the first half of the year.
We redeployed assets in several areas, including corporate bonds, mortgage
securities, and short-term cash equivalents.
Corporate bonds turned out to be the strongest performing sector of the bond
market in 1996. We held an overweighted position in corporates at the beginning
of the year and continued to add to our position throughout 1996. In selecting
corporate bonds for the portfolio, we carefully evaluate the quality of each
bond, giving consideration to the issuer's financial condition and ability to
make interest payments. We maintained a strong emphasis on quality in the bond
portfolio, closing the year with an average quality rating of AA.
Mortgage securities also became an increasing proportion of the portfolio during
the year. These securities, which typically offer a yield premium over
Treasuries, became more attractive values as interest rates rose in the first
half of the year. Mortgage securities played a significant role in providing
stability, diversification, and attractive income to the Fund.
Looking Ahead
Last year we underestimated the durability of the economic cycle, anticipating
that the expansion was waning. We are now entering our seventh year of economic
8-SCUDDER BALANCED FUND
<PAGE>
expansion and the economy seems to be growing at a reasonable and
non-inflationary 2-3% clip. It is hard to find evidence that the economy will do
anything other than stay on its current path. And, while the stock market
expansion is clearly entering old age, the factors which typically lead to a
significant correction have not been evident. As a result, we are relatively
sanguine about the direction of stock market leadership in 1997, and have not
built any specific cyclical assumptions into the Fund's equity holdings.
On the fixed income side, we expect a favorable environment. Without more
concrete signs of accelerating inflation, we believe the Federal Reserve will
not raise short-term interest rates. In this portion of the portfolio, we will
continue to focus on attractive values in the corporate, mortgage, and Treasury
sectors that meet our requirements for quality and creditworthiness.
While it is hard to predict exactly how the markets will perform in 1997, we
believe that Scudder Balanced Fund's all-weather approach will provide
relatively consistent returns in varying market conditions.
Sincerely,
Your Portfolio Management Team
/s/Valerie F. Malter /s/William M. Hutchinson
Valerie F. Malter William M. Hutchinson
Lead Portfolio
Manager
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. 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.
9-SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO AS OF DECEMBER 31, 1996
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 3.6%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 12/31/96 at 6% to be
repurchased at $4,007,335 on 1/2/97, collateralized by a $3,775,000 U.S. Treasury
Note, 7.125%, 2/15/23 (Cost $4,006,000)................................................... 4,006,000 4,006,000
U.S. GOVERNMENT & AGENCIES 6.0%
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond, 7.25%, 5/15/16 ......................................................... 500,000 527,970
U.S. Treasury Bond, 7.875%, 2/15/21 ........................................................ 500,000 565,155
U.S. Treasury Bond, 6.25%, 8/15/23.......................................................... 500,000 468,750
U.S. Treasury Note, 6.875%, 7/31/99......................................................... 1,000,000 1,020,310
U.S. Treasury Note, 5.875%, 11/15/99........................................................ 1,500,000 1,494,135
U.S. Treasury Note, 6.125%, 7/31/00 ........................................................ 1,000,000 1,000,000
U.S. Treasury Note, 5.75%, 10/31/00 ........................................................ 750,000 740,040
U.S. Treasury Note, 5.75%, 8/15/03 ......................................................... 1,000,000 970,000
- ---------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCIES (COST $6,849,586) 6,786,360
- ---------------------------------------------------------------------------------------------------------------------
GOV'T NATIONAL MORTGAGE ASSOCIATION 2.9%
- ---------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-Thru, 9.5%, 8/15/19........................... 26,483 28,751
Government National Mortgage Association Pass-Thru, 8.5% with various maturities to 9/15/26. 2,013,862 2,088,382
Government National Mortgage Association Pass-Thru, 10%, 2/15/25............................ 1,066,620 1,174,775
- ---------------------------------------------------------------------------------------------------------------------
TOTAL GOV'T NATIONAL MORTGAGE ASSOCIATION (COST $3,258,408) 3,291,908
- ---------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AGENCY PASS-THRUS 9.9%
- ---------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 8%, 4/1/08................................................ 1,747,241 1,798,837
Federal National Mortgage Association, 6.5% with various maturities to 1/1/26............... 3,420,975 3,267,031
Federal National Mortgage Association, 7% with various maturities to 9/1/26................. 6,163,558 6,027,516
- ---------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY PASS-THRUS (COST $11,069,122) 11,093,384
- ---------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS - U.S.$ DENOMINATED 1.5%
- ---------------------------------------------------------------------------------------------------------------------
Abbey National PLC Global Medium Term Note, 6.69%, 10/17/05................................. 750,000 736,733
Province of Ontario Global, 6%, 2/21/06..................................................... 1,000,000 951,250
- ---------------------------------------------------------------------------------------------------------------------
TOTAL FOREIGN BONDS - U.S.$ DENOMINATED (COST $1,744,743) 1,687,983
- ---------------------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES 3.0%
- ---------------------------------------------------------------------------------------------------------------------
Automobile Receivables 1.8%
Ford Credit Automobile Trust, Series 1996-A A4, 6.75%, 9/15/00.............................. 1,000,000 1,014,560
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/00............... 1,000,000 1,011,250
------------
2,025,810
------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
10 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CREDIT CARD RECEIVABLES 1.2%
Sears Credit Account Master Trust, Series 1995-4, 6.25%, 1/15/03............................ 1,400,000 1,405,684
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSET BACKED SECURITIES (COST $3,396,960) 3,431,494
- ---------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS 12.9%
- ---------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.8%
ITT Corp., 7.375%, 11/15/15................................................................. 1,000,000 957,000
CONSUMER STAPLES 0.5% ------------
Seagram Co., Ltd., 8.35%, 1/15/22........................................................... 500,000 545,080
FINANCIAL 5.3% ------------
Associates Corp. of North America, 6.625%, 5/15/01.......................................... 500,000 499,790
Capital One Bank Medium Term Note, 5.95%, 2/15/01........................................... 1,000,000 965,840
Ford Motor Credit Co., 6.25%, 2/26/98....................................................... 250,000 250,623
General Electric Capital Services Inc., 7.5%, 8/21/35....................................... 250,000 259,603
Highwoods/Forsyth L.P., 7%, 12/1/06......................................................... 1,500,000 1,479,330
Southern National Corp., 7.05%, 5/23/03..................................................... 1,000,000 1,009,060
Spieker Properties, Inc., 7.875%, 12/1/16 .................................................. 750,000 744,375
Wells Fargo & Co., 6.875%, 4/1/06........................................................... 750,000 737,497
------------
5,946,118
------------
MEDIA 2.1%
News America Holdings Inc., 8.5%, 2/15/05................................................... 750,000 803,212
Tele-Communications, Inc., 8%, 8/1/05....................................................... 750,000 735,330
Time Warner Inc., 9.125%, 1/15/13........................................................... 750,000 818,775
------------
2,357,317
------------
DURABLES 2.3%
Boeing Co., 6.875%, 10/15/43 ............................................................... 250,000 235,505
Comdisco, Inc., Senior Note, 5.75%, 2/15/01................................................. 750,000 725,992
Ford Motor Co., 8.875%, 1/15/22............................................................. 500,000 577,560
Lockheed Martin Corp., 7.75%, 5/1/26........................................................ 500,000 519,340
Northrop Grumman Corp., 7.875%, 3/1/26...................................................... 500,000 501,165
------------
2,559,562
------------
MANUFACTURING 0.5%
Nova Corp. of Alberta, 7.875%, 4/1/23....................................................... 500,000 526,450
TECHNOLOGY 0.5% ------------
Loral Corp., 8.375%, 6/15/24................................................................ 500,000 553,505
------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
11 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 0.9%
PanEnergy Corp., 7.375%, 9/15/03............................................................ 1,000,000 1,027,290
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (COST $14,377,564) 14,472,322
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 60.2%
- ---------------------------------------------------------------------------------------------------------------------
Shares
- ---------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 4.9%
DEPARTMENT & CHAIN STORES 3.3%
Federated Department Stores, Inc.*.......................................................... 18,500 631,312
Home Depot, Inc............................................................................. 13,400 671,675
Price/Costco Inc.*.......................................................................... 50,600 1,271,325
Wal-Mart Stores Inc......................................................................... 47,600 1,088,850
------------
3,663,162
------------
HOTELS & CASINOS 0.7%
Host Marriott Corp.*........................................................................ 51,600 825,600
SPECIALTY RETAIL 0.9% ------------
Corporate Express, Inc.*.................................................................... 34,800 1,024,425
CONSUMER STAPLES 12.5% ------------
ALCOHOL & TOBACCO 3.7%
Anheuser-Busch Companies, Inc. ............................................................. 35,300 1,412,000
Philip Morris Companies Inc................................................................. 23,900 2,691,738
------------
4,103,738
------------
CONSUMER ELECTRONIC & PHOTOGRAPHIC PRODUCTS 0.7%
Duracell International Inc.................................................................. 11,700 817,538
FOOD & BEVERAGE 2.3% ------------
Coca-Cola Co., Inc.......................................................................... 48,400 2,547,050
PACKAGE GOODS/COSMETICS 5.8% ------------
Avon Products Inc........................................................................... 25,300 1,445,263
Colgate-Palmolive Co........................................................................ 18,800 1,734,300
Gillette Co................................................................................. 12,000 933,000
Procter & Gamble Co......................................................................... 16,100 1,730,750
Revlon, Inc. "A"*........................................................................... 24,300 725,962
------------
6,569,275
------------
HEALTH 10.3%
BIOTECHNOLOGY 0.8%
Amgen Inc.*................................................................................. 15,500 842,812
------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
12 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH INDUSTRY SERVICES 1.3%
HBO & Company............................................................................... 12,900 765,938
United Healthcare Corp...................................................................... 15,900 715,500
------------
1,481,438
------------
MEDICAL SUPPLY & SPECIALTY 0.9%
Medtronic Inc............................................................................... 14,700 999,600
PHARMACEUTICALS 7.3% ------------
American Home Products Corp................................................................. 13,200 773,850
Eli Lilly & Co.............................................................................. 10,519 767,887
Johnson & Johnson........................................................................... 30,400 1,512,400
Merck & Co. Inc............................................................................. 24,100 1,909,925
Novartis AG (ADR)*.......................................................................... 13,200 754,875
Pfizer, Inc................................................................................. 17,000 1,408,875
SmithKline Beecham PLC (ADR)................................................................ 16,400 1,115,200
------------
8,243,012
------------
FINANCIAL 5.1%
BANKS 1.7%
NationsBank Corp............................................................................ 7,300 713,575
State Street Boston Corp.................................................................... 18,300 1,180,350
------------
1,893,925
------------
INSURANCE 2.3%
American International Group, Inc........................................................... 14,850 1,607,512
MBIA Inc.................................................................................... 9,600 972,000
------------
2,579,512
------------
CONSUMER FINANCE 0.5%
Associates First Capital Corp............................................................... 12,500 551,563
OTHER FINANCIAL COMPANIES 0.6% ------------
Federal National Mortgage Association....................................................... 19,200 715,200
------------
MEDIA 3.1%
ADVERTISING 1.2%
Interpublic Group of Companies Inc.......................................................... 28,500 1,353,750
BROADCASTING & ENTERTAINMENT 1.9% ------------
Clear Channel Communications, Inc.*......................................................... 38,800 1,401,650
Walt Disney Co.............................................................................. 9,700 675,363
------------
2,077,013
------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
13 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SERVICE INDUSTRIES 5.3%
Electronic Data Processing Services 2.3%
Electronic Data Systems Corp................................................................ 36,000 1,557,000
First Data Corp............................................................................. 27,200 992,800
------------
2,549,800
------------
ENVIRONMENTAL SERVICES 0.4%
U.S. Filter Corp.*.......................................................................... 13,100 415,925
MISCELLANEOUS COMMERCIAL SERVICES 0.5% ------------
Sensormatic Electronics Corp................................................................ 33,600 562,800
MISCELLANEOUS CONSUMER SERVICES 1.4% ------------
CUC International Inc.*..................................................................... 29,350 697,063
Service Corp. International................................................................. 33,700 943,600
------------
1,640,663
------------
PRINTING/PUBLISHING 0.7%
Reuters Holdings PLC "B" (ADR).............................................................. 10,400 795,600
------------
DURABLES 2.1%
Telecommunications Equipment
Ascend Communications, Inc.*................................................................ 14,500 900,812
Cascade Communications Corp.*............................................................... 8,900 490,613
Nokia AB Oy (ADR)........................................................................... 16,700 962,337
------------
2,353,762
------------
MANUFACTURING 7.4%
CHEMICALS 1.8%
Monsanto Co................................................................................. 31,600 1,228,450
Praxair Inc................................................................................. 16,300 751,838
------------
1,980,288
------------
DIVERSIFIED MANUFACTURING 2.7%
General Electric Co......................................................................... 23,900 2,363,112
Honeywell, Inc.............................................................................. 11,100 729,825
------------
3,092,937
------------
ELECTRICAL PRODUCTS 1.9%
Emerson Electric Co......................................................................... 15,600 1,509,300
FORE Systems, Inc.*......................................................................... 19,400 637,775
------------
2,147,075
------------
OFFICE EQUIPMENT/SUPPLIES 1.0%
Xerox Corp.................................................................................. 21,800 1,147,225
------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
14 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY 8.9%
COMPUTER SOFTWARE 3.4%
Computer Associates International, Inc...................................................... 15,350 763,662
Informix Corp.*............................................................................. 37,300 759,987
Microsoft Corp.*............................................................................ 20,800 1,718,600
Oracle Systems Corp.*....................................................................... 13,200 551,100
------------
3,793,349
------------
ELECTRONIC DATA PROCESSING 0.7%
Ceridian Corp.*............................................................................. 19,800 801,900
Office/Plant Automation 2.5% ------------
3Com Corp.*................................................................................. 9,600 704,400
Cabletron Systems Inc.*..................................................................... 30,600 1,017,450
Cisco Systems, Inc.*........................................................................ 17,100 1,087,987
------------
2,809,837
------------
SEMICONDUCTORS 2.3%
Advanced Micro Devices Inc.*................................................................ 27,900 718,425
Atmel Corp.*................................................................................ 24,300 804,937
Intel Corp.................................................................................. 7,900 1,034,406
------------
2,557,768
------------
ENERGY 0.6%
Oil/Gas Transmission
Enron Corp.................................................................................. 16,100 694,313
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $52,130,259) 67,631,855
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0% (COST $96,832,642) (A) 112,401,306
- ---------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
(a) The cost for federal income tax purposes was $96,910,745. At December 31, 1996, net unrealized
appreciation for all securities based on tax cost was $15,490,561. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an excess of market value
over tax cost of $16,926,377 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $1,435,816.
The accompanying notes are an integral part of the financial statements.
</TABLE>
15 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996
ASSETS
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $96,832,642) (Note A)............. $ 112,401,306
Cash...................................................................... 273
Receivable for Fund shares sold........................................... 1,096,112
Dividends and interest receivable......................................... 607,576
Foreign taxes recoverable................................................. 143
Deferred organization expenses (Note A)................................... 9,649
-------------
Total assets.............................................................. 114,115,059
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
Payable for investments purchased......................................... 161,428
Payable for Fund shares redeemed.......................................... 4,300,080
Accrued management fee (Note C)........................................... 15,486
Other accrued expenses (Note C)........................................... 96,523
-------------
Total liabilities......................................................... 4,573,517
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE............................................... $ 109,541,542
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income....................................... 94,771
Net unrealized appreciation on investments................................ 15,568,664
Accumulated net realized loss............................................. (78,103)
Paid-in capital........................................................... 93,956,210
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE............................................... $ 109,541,542
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($109,541,542/
7,502,830 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized).................................... $ 14.60
-------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
16 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest.................................................................. $ 2,778,721
Dividends (net of foreign taxes withheld of $6,476)....................... 775,325
-------------
3,554,046
Expenses:
Management fee (Note C)................................................... 727,534
Services to shareholders (Note C)......................................... 449,714
Custodian and accounting fees (Note C).................................... 67,110
Trustees' fees and expenses (Note C)...................................... 37,982
Reports to shareholders................................................... 42,356
Auditing.................................................................. 44,612
Registration fees......................................................... 27,823
Legal..................................................................... 12,736
Amortization of organization expenses (Note A)............................ 9,626
Other..................................................................... 6,965
-------------
Total expenses before reductions.......................................... 1,426,458
Expense reductions (Note C)............................................... (387,170)
-------------
Expenses, net............................................................. 1,039,288
- ---------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME..................................................... 2,514,758
- ---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments............................................................... 4,835,596
Foreign currency related transactions..................................... 71,376
-------------
4,906,972
-------------
Net unrealized appreciation (depreciation) during the period on:
Investments............................................................... 3,889,999
Foreign currency related transactions..................................... (1,248)
-------------
3,888,751
- ---------------------------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS....................................... 8,795,723
- ---------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $ 11,310,481
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
17 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income..................................................... $ 2,514,758 $ 1,928,669
Net realized gain from investment transactions............................ 4,906,972 2,899,315
Net unrealized appreciation on investment transactions during the period.. 3,888,751 12,905,909
------------- -------------
Net increase in net assets resulting from operations...................... 11,310,481 17,733,893
------------- -------------
Distributions to shareholders:
From net investment income................................................ (2,447,716) (1,901,397)
------------- -------------
From net realized gains................................................... (5,755,741) (1,503,700)
------------- -------------
Fund share transactions:
Proceeds from shares sold................................................. 39,011,632 29,440,217
Net asset value of shares issued to shareholders in reinvestment of
distributions.......................................................... 8,015,313 3,318,154
Cost of shares redeemed................................................... (30,743,649) (22,968,196)
------------- -------------
Net increase in net assets from Fund share transactions................... 16,283,296 9,790,175
------------- -------------
Increase in net assets.................................................... 19,390,320 24,118,971
Net assets at beginning of period......................................... 90,151,222 66,032,251
Net assets at end of period (including undistributed net investment income ------------- -------------
of $94,771 and $52,550, respectively)..................................... $ 109,541,542 $ 90,151,222
------------- -------------
OTHER INFORMATION
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period................................. 6,386,156 5,680,135
------------- -------------
Shares sold............................................................... 2,665,524 2,222,129
Shares issued to shareholders in reinvestment of distributions............ 547,246 241,695
Shares redeemed........................................................... (2,096,096) (1,757,803)
------------- -------------
Net increase in Fund shares............................................... 1,116,674 706,021
------------- -------------
Shares outstanding at end of period....................................... 7,502,830 6,386,156
------------- -------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
18 - SCUDDER BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
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
OF OPERATIONS)
YEARS ENDED DECEMBER 31 TO DECEMBER 31,
1996(A) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.................... $14.12 $11.63 $12.23 $12.00
Income from investment operations: ---------------------------------------------------------
Net investment income................................... .36 .32 .31 .26
Net realized and unrealized gain on investments......... 1.25 2.74 (.60) .23
---------------------------------------------------------
Total from investment operations........................ 1.61 3.06 (.29) .49
Less distributions from: ---------------------------------------------------------
Net investment income................................... (.34) (.32) (.31) (.26)
Net realized gains on investment transactions........... (.79) (.25) -- --
---------------------------------------------------------
Total distributions..................................... (1.13) (.57) (.31) (.26)
---------------------------------------------------------
Net asset value, end of period.......................... $14.60 $14.12 $11.63 $12.23
- -----------------------------------------------------------------------------------------------------------------
Total Return (%)........................................ 11.54 26.48 (2.39) 4.12*
Ratios and Supplemental Data
Net assets, end of period ($ millions).................. 110 90 66 64
Ratio of operating expenses, net to average daily net
assets (%)............................................ 1.00 1.00 1.00 1.00
Ratio of operating expenses before expense reductions,
to average daily net assets (%)....................... 1.37 1.40 1.47 1.53
Ratio of net investment income to average daily net
assets (%)............................................ 2.42 2.51 2.66 2.43
Portfolio turnover rate (%)............................. 69.7 103.3 105.4 99.3
Average commission rate paid (b)........................ $0.0551 $ -- $ -- $ --
(a) Based on monthly average shares outstanding during the period.
(b) Average commission rate paid per share of common and preferred stocks is calculated
for fiscal years beginning on or after September 1, 1995.
* Not Annualized
</TABLE>
19 - SCUDDER BALANCED FUND
<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 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 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.
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, 1996, 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.
20 - SCUDDER BALANCED FUND
<PAGE>
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.
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, 1996, purchases and sales of investment
securities (excluding short-term investments and U.S. Government
obligations) aggregated $74,921,734 and $49,705,295 respectively.
Purchases and sales of U.S. Government obligations aggregated
$10,069,606 and $17,986,522, respectively.
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 .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
21 - SCUDDER BALANCED FUND
<PAGE>
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, 1997 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, 1996, the
Adviser imposed fees amounting to $340,364 and the portion not imposed
amounted to $387,170.
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, 1996, the amount charged to the Fund by
SSC aggregated $201,637, of which $21,167 is unpaid at December 31,
1996.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement
and employee benefit plans for the Fund. For the year ended December 31,
1996, the amount charged to the Fund by STC aggregated $188,390, of
which $20,791 is unpaid at December 31, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the
Adviser, is responsible 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, 1996, the amount charged to
the Fund by SFAC aggregated $42,622 of which $3,630 is unpaid at
December 31, 1996.
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, 1996, Trustees' fees and
expenses aggregated $37,982.
22 - SCUDDER BALANCED FUND
<PAGE>
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, 1996, 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 three 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, 1996, by
correspondence with the custodian. 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, 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 three 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 7, 1997
23 - SCUDDER BALANCED FUND
<PAGE>
TAX INFORMATION
The Fund paid distributions of $0.74 per share from net long_term
capital gains during its fiscal year ended December 31, 1996. Pursuant
to section 852 of the Internal Revenue Code, the Fund designates
$4,888,151 as capital gain dividends for its fiscal year ended December
31, 1996.
For corporate shareholders, 29.53% of the income dividends paid during
the Fund's fiscal year ended December 31, 1996 qualified for the
dividends received deduction.
24 - SCUDDER BALANCED FUND
<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
Kelly D. Babson*
Vice President
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
*Scudder, Stevens & Clark, Inc.
25-SCUDDER BALANCED FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U. S. Income
- ------------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
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. +++Funds within categories are listed from expected
least to most risk. +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.
26-SCUDDER BALANCED FUND
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account services and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges,
and an overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment
questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services
- --------------------------------------------------------------------------------
To receive information about this discount brokerage service and
to obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
Please address all correspondence to
- --------------------------------------------------------------------------------
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Funds Center
- --------------------------------------------------------------------------------
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 Chicago San Francisco
Boston New York
For information on Scudder Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds**, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call:
1-800-854-8525.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.
** 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.
27-SCUDDER BALANCED FUND
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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 over 40 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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
