Scudder
Balanced
Fund
Annual Report
December 31, 1997
Pure No-Load(TM) Funds
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.
SCUDDER (logo)
<PAGE>
Scudder Balanced Fund
- --------------------------------------------------------------------------------
Date of Inception: 1/04/93 Total Net Assets as of Ticker Symbol: SCBAX
12/31/97: $158.7 million
- --------------------------------------------------------------------------------
o For the 12-month period ended December 31, 1997, Scudder Balanced Fund
returned 22.78%, which ranked it in the top 15% (54th) of 350 balanced funds
tracked by Lipper Analytical Services.
o Portfolio asset allocation strategy remained virtually unchanged over the
year, closing the period with 58% invested in equities and 42% invested in fixed
income securities (including cash equivalents).
o The Fund's equity holdings of quality growth companies benefited from the
stock market's positive performance over most of the year and from careful stock
selection.
o The Fund's fixed income holdings were structured with a duration that was
close to the Lehman Aggregate Bond Index for most of the 12 months, but was
lengthened toward the end of the period to take advantage of rising bond prices.
Table of Contents
3 Letter from the Fund's President 20 Notes to Financial Statements
4 Performance Update 23 Report of Independent Accountants
5 Portfolio Summary 24 Tax Information
6 Portfolio Management Discussion 25 Shareholder Meeting Results
9 Glossary of Investment Terms 28 Officers and Trustees
10 Investment Portfolio 29 Investment Products and Services
16 Financial Statements 30 Scudder Solutions
19 Financial Highlights
2 - Scudder Balanced Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The 12-month period was particularly rewarding for Scudder Balanced Fund,
as the U.S. stock market posted yet another year of strong returns and bonds
provided income and price appreciation. However, the market environment changed
over the last few months of the period, as bonds began to outperform stocks.
We believe the Fund's investments in quality growth stocks and investment
grade bonds were particularly well-suited to this changing environment. While
the investment climate in the United States continues to remain healthy, we
think a return to performance that is closer to the 10% average long-run return
for stocks is more realistic going forward. A detailed discussion of the Fund's
activities begins on page 6.
As you may know, the Fund's investment adviser has changed its name to
Scudder Kemper Investments, Inc., from Scudder, Stevens & Clark, Inc., pursuant
to the acquisition of a majority interest in Scudder, Stevens & Clark by Zurich
Insurance Company, and the combining of Scudder's business with that of Zurich
Kemper Investments, Inc. In addition, the Fund has added two members to its
management team effective January 1, 1998 -- portfolio managers George Fraise
and Stephen Wohler. We think their extensive knowledge and expertise will be an
asset to the Fund.
For those of you who are interested in new Scudder products, we recently
introduced a new industry sector fund, Scudder Financial Services Fund, one of
Scudder's Choice Series funds. The Fund seeks long-term growth by investing in
financial services companies in the U.S. and abroad. In addition, two other
Choice Series funds will be launched on March 2: Scudder Health Care Fund,
seeking long-term growth from health care companies located around the world,
and Scudder Technology Fund, pursuing long-term growth by investing in companies
that develop, produce, or distribute technology. For further information on
these new funds, please call 1-800-225-2470.
Thank you for your continued investment in Scudder Balanced Fund. If you
have any questions about your account, please call Scudder Investor Relations at
the toll-free number above, 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>
PERFORMANCE UPDATE as of December 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
- --------------------------------------------
Period Growth
Ended of Average
12/31/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER BALANCED FUND
- --------------------------------------------
1 Year $ 12,278 22.78% 22.78%
Life of Fund* $ 17,605 76.05% 12.00%
- --------------------------------------------
S&P 500 INDEX (60%) and LBAB Index (40%)
- --------------------------------------------
1 Year $ 12,363 23.63% 23.63%
Life of Fund* $ 19,949 99.49% 15.08%
- --------------------------------------------
* The Fund commenced operations January 4, 1993. Index
comparisons begin January 31, 1993.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
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
6/96 $13,584
12/96 $14,315
6/97 $16,286
12/97 $17,576
S&P 500 INDEX
Year Amount
- ----------------------
1/31/93* $10,000
6/93 $10,399
12/93 $10,915
6/94 $10,546
12/94 $11,059
6/95 $13,293
12/95 $15,214
6/96 $16,749
12/96 $18,707
6/97 $22,564
12/97 $24,951
LBAB INDEX
Year Amount
- ----------------------
1/31/93* $10,000
6/93 $10,489
12/93 $10,768
6/94 $10,351
12/94 $10,454
6/95 $11,650
12/95 $12,386
6/96 $12,234
12/96 $12,833
6/97 $13,232
12/97 $14,075
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 Aggregrate 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 1997
--------------------------------------------
NET ASSET VALUE... $ 12.23 $ 11.63 $ 14.12 $ 14.60 $ 16.85
INCOME DIVIDENDS.. $ .26 $ .31 $ .32 $ .34 $ .36
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .25 $ .79 $ .68
FUND TOTAL
RETURN (%)........ 4.12 -2.39 26.48 11.54 22.78
INDEX TOTAL
RETURN (%)........ 8.56 -.03 31.34 14.96 23.63
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 Fun
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Common Stocks 58%
Fixed Income Holdings 33%
Cash Equivalents 9%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
As stock market volatility increased
in the second half, the Fund's balanced
approach to investing in quality stocks
and investment grade bonds provided
relative stability.
- --------------------------------------------------------------------------
FIXED INCOME HOLDINGS
(Excludes 9% of Cash Equivalents)
- --------------------------------------------------------------------------
Type
- --------------------------------------------
Corporate Bonds 37%
U.S. Government & Agencies 25%
U.S. Government Mortgages 23%
Foreign Bonds - U.S.
$ Denominated 8%
Asset-Backed Securities 7%
- --------------------------------------------
100%
- --------------------------------------------
Quality
- --------------------------------------------
AAA 55%
AA 7%
A 10%
BBB 28%
- --------------------------------------------
100%
- --------------------------------------------
Rather than emphasize asset allocation,
management focused on duration by
maintaining a barbelled maturity
structure until the fourth quarter when
duration was lengthened to take advantage
of declining interest rates.
- --------------------------------------------------------------------------
EQUITY HOLDINGS
- --------------------------------------------------------------------------
Health 22%
Consumer Staples 22%
Technology 15%
Consumer Discretionary 11%
Manufacturing 8%
Media 7%
Financial 6%
Durables 4%
Service Industries 4%
Energy 1%
- ---------------------------------------------
100%
- ---------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Five Largest Equity Holdings
- --------------------------------------------
1. GENERAL ELECTRIC CO.
Leading producer of electrical equipment
2. PROCTER & GAMBLE CO.
Diversified manufacturer of
consumer products
3. PFIZER, INC.
Leading international pharmaceutical company
4. COCA-COLA CO., INC.
International soft drink company
5. MICROSOFT CORP.
Computer operating systems software
The strong performance of high quality, large-cap
stocks--the emphasis of the equity portion of the
portfolio--was an important contributor to the
Fund's solid returns.
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 Scudder Balanced Fun
<PAGE>
Portfolio Management Discussion
An Interview with Valerie Malter
Lead Portfolio Manager,
Scudder Balanced Fund
Q: How would you summarize the 12-month period ended December 31, 1997?
A: Stocks provided another good year of returns, with the unmanaged Russell 1000
Growth Index returning 30.49% and the unmanaged S&P 500 returning 33.35%. Stocks
continued their upward momentum for most of the period, driven by a continuation
of the healthy economic and low inflation environment that has been a staple of
our economy for a number of years. This momentum was supported by the Federal
Reserve's status quo approach to interest rates and solid corporate earnings
reports. Large-cap issues outperformed small-caps during the year, which
coincided well with our increase in the average market-capitalization of the
Fund's equity holdings for the period.
Q: How did the fixed income markets perform over the year?
A: Overall, this was also a good period for bond investors. Interest rates
generally declined from May through the end of the year, and (due to the inverse
relationship of interest rates to bond prices) bond prices rose. This trend
occurred in the context of a benign inflation environment, despite robust
economic growth. The yield on the benchmark U.S. Treasury bond began the year at
6.64%, peaked at 7.20% in April, and declined to 5.92% by the close of the
period. Bond holders received not only income, but also price appreciation
during this period. Any year that bond investors receive more than just the
coupon is a pretty good year, in my opinion. Our fixed income benchmark (the
Lehman Aggregate Bond Index) returned 9.65% for the 12 months, reflecting the
generally positive environment for bonds.
Q: ... And the Fund?
A: The Fund's balanced approach benefited from the favorable conditions in both
markets, in addition to value-added by our individual security selections. For
the 12-months ended December 31, 1997, the Fund returned 22.78%. This total
return reflects an increase in net asset value from $14.60 on December 31, 1996
to $16.85 on December 31, 1997, an income distribution of $0.36 per share, and a
capital gain distribution of $0.68 per share. We were pleased with this
performance, which ranked the Fund in the top 15% (54th) of 350 balanced funds
tracked by Lipper Analytical Services.
Q: In the second half, concern over the impact of a strong dollar on earnings of
large multinational companies put pressure on a number of stocks, particularly
those in the consumer staples and pharmaceutical areas. How did this affect the
Fund's equity holdings?
A: Our equity holdings are heavily weighted in these major global companies, and
they were negatively affected by the strong dollar. In addition, profit warnings
from Coca Cola and Gillette, and fears of slowing exports in the wake of
currency devaluations in Southeast Asia, exacerbated the decline. However, many
of these stocks, which had been negatively impacted in the third quarter,
recovered in the fourth quarter.
6 - Scudder Balanced Fund
<PAGE>
Q: Did you change your strategy?
A: Because we know that these issues (i.e. the dollars strength or the Asian
crisis) will come up from time to time, we strongly believe that they are not
reasons to alter our approach. The Fund's equity holdings are selected
stock-by-stock, with a focus on high quality companies which have solid
long-term franchises, outstanding management teams, and sustainable
above-average earnings growth potential. As long as we remain confident in a
company's ability to meet its growth projections, we will continue to hold the
stock.
Q: What were the noteworthy performers in the stock portion of the Fund?
A: In such a good year, we had many. Media stocks Outdoor Systems and Clear
Channel Communications appreciated more than 100% in 1997. These two continued
to benefit from the rapid consolidation taking place in the radio and outdoor
advertising industries. Within the consumer staples group standouts included
Gillette, Procter and Gamble, and Suiza (a dominant consolidator in the highly
fragmented dairy industry). Many of our health care holdings also performed well
for the year, including HBO (up 62%), Pfizer (up 80%), Eli Lilly (up 91%), and
Tenet Healthcare (up 51%).
Q: What about stocks that held back performance?
A: There were several, including a number of stocks in the technology sector
such as National Semiconductor, Teradyne (crushed by concerns about 1998
semiconductor capital spending from Korea, Taiwan and Japan), and 3Com.
Elsewhere, Corporate Express, which we trimmed early in the fourth quarter, was
negatively impacted by a slower than expected recovery from a recent
acquisition, despite continued robust growth in its core businesses. Compaq was
the lone exception in the technology area, appreciating 90% for the year.
Q: What equity sectors did you emphasize?
A: Our weightings remained close to the same proportions as the Russell 1000
Growth Index. While we may over- or underweight specific sectors from time to
time, we focus primarily on individual stock selection, where we believe we can
add the most value. We believe this diversified approach helps to control risk.
As a result, the Fund's largest equity weightings remained in the health care,
consumer staples, and technology sectors. At the beginning of the fourth
quarter, we made a decision to trim exposure to semiconductor capital equipment
to reflect our declining confidence in expected growth rates, considering the
expanding crisis in Asia. We also swapped other technology holdings into
computer services stocks to reduce portfolio risk/volatility brought on by the
same concerns. In the financial services area, we also continued to maintain our
neutral position and remained focused on the insurance sector (AIG and Conseco)
as well as on "super regional" banks (NationsBank and First Union).
Q: How did you position the Fund's fixed income holdings?
A: We managed this sector actively throughout the 12 months, seeking to
capitalize on shifts in relative valuation among the Treasury, mortgage, and
corporate bond sectors. Given the uncertainties surrounding the level of
economic growth and inflation over the first half of the year, we maintained a
7 - Scudder Balanced Fund
<PAGE>
neutral portfolio duration compared to our benchmark, the Lehman Aggregate Bond
Index. Instead, we focused on sector allocations. We de-emphasized mortgage
securities which typically have intermediate term (3-5 year) maturities, and
increased our "barbelled" maturity strategy by adding to holdings at the short
and long ends of the maturity spectrum. The barbelled strategy made a neutral
contribution to performance during the first half. As the Asian crisis deepened
and reports of accelerating inflation remained nonexistent, we lengthened the
portfolio's duration slightly to take advantage of declining interest rates and
rising bond prices. At the end of the period, the Fund's duration was 4.9 years.
Q: What is your outlook, given prospects for slowing profit growth rates and the
uncertainty in Asia?
A: Change usually creates opportunities for investors. We intend to take
advantage of those opportunities as they come along, while continuing to manage
the Fund with the same investment discipline we have outlined here. We will
continue to monitor developments closely, but we believe the Fund is especially
well suited to weather periods of uncertainty, given its balanced approach to
investing in quality growth companies and investment grade fixed income
securities.
Scudder Balanced Fund:
A Team Approach to Investing
Scudder Balanced Fund is managed by a team of Scudder Kemper Investments, Inc.
(SKI) 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 a large
staff of economists, research analysts, traders, and other investment
specialists who work in our offices across the United States and abroad. We
believe our team approach benefits Fund investors by bringing together many
disciplines and leveraging SKI'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 SKI since 1986, has over 20 years of investment experience.
8 - Scudder Balanced Fund
<PAGE>
Glossary of Investment Terms
COUPON The interest rate the bond issuer promises to
pay to the bondholder until maturity,
expressed as an annual percentage of face
value. As an example, a bond with a 10%
coupon and a $1,000 face value pays $100 a
year.
DURATION A measure of the portfolio's sensitivity to
changes in interest rates. If an investment
portfolio has a duration of 4.9 years and
interest rates decline by 1% from present
levels, the value of the portfolio would rise
by about 4.9% and vice versa.
FUNDAMENTAL RESEARCH Analysis of a company's financial statements
to project future stock price changes.
Considers past records of sales and earnings,
as well as the future impact of products,
consumer markets, and management in weighting
a company's prospects. Distinct from
technical analysis, which evaluates the
attractiveness of a stock based on historical
price and trading volume movements.
MARKET CAPITALIZATION The value of a company's outstanding shares
of common stock, determined by multiplying
the number of shares outstanding by the share
price (shares x price = market
capitalization). The universe of
publicly-traded companies is frequently
divided into large-, mid-, and
small-capitalizations. "Large-cap" stocks
tend to be more liquid and less volatile,
while "small-cap" stocks in the aggregate
have more potential for earnings growth and
are typically more volatile.
OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually
by sector, industry, or country -- within an
investment portfolio relative to a benchmark
index or investment universe.
PRICE/EARNINGS RATIO A widely used gauge of a stock's valuation
(P/E or earnings multiple) that indicates what investors are paying for
a company's earning power at the current
stock price. Often based on a company's
projected earnings for the coming 12 months.
A higher "earnings multiple" indicates higher
expected earnings growth and greater risk; a
lower multiple is usually associated with
mature or out-of-favor companies, and lower
stock price volatility.
(Sources: SKI; Barron's Dictionary of Finance and Investment Terms)
9 - Scudder Balanced Fund
<PAGE>
Investment Portfolio as of December 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 8.7%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Salomon Brothers dated 12/31/97 at 6.7% to be
repurchased at $13,677,089 on 1/2/98, collateralized by a $14,555,000 U.S. Treasury -----------
Bill, 10/15/98 (Cost $13,672,000) ..................................................... 13,672,000 13,672,000
-----------
U. S. Government & Agencies 7.8%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.625%, 12/31/99 .................................................... 2,500,000 2,498,825
U.S. Treasury Bond, 7.25%, 5/15/16 ...................................................... 500,000 569,530
U.S. Treasury Bond, 7.875%, 2/15/21 ..................................................... 500,000 613,905
U.S. Treasury Note, 6.875%, 7/31/99 ..................................................... 1,000,000 1,017,810
U.S. Treasury Note, 5.875%, 11/15/99 .................................................... 1,500,000 1,505,385
U.S. Treasury Note, 6.125%, 7/31/00 ..................................................... 1,000,000 1,010,310
U.S. Treasury Note, 5.75%, 10/31/00 ..................................................... 750,000 750,938
U.S. Treasury Note, 6.25%, 1/31/02 ...................................................... 1,500,000 1,526,715
U.S. Treasury Note, 5.625%, 2/15/06 ..................................................... 2,000,000 1,977,500
U.S. Treasury Separate Trading Registered Interest and Principal, Principal only,
11/15/18 .............................................................................. 3,000,000 855,300
- ------------------------------------------------------------------------------------------------------------------------------
Total U. S. Government & Agencies (Cost $12,137,126) 12,326,218
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association 1.7%
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 9.5%, 8/15/19 ....................... 21,007 22,777
Government National Mortgage Association Pass-thru, 10%, 2/15/25 ........................ 830,726 923,817
Government National Mortgage Association Pass-thru, 8.5%, with various maturities
to 9/15/26 ............................................................................ 1,703,788 1,790,386
- ------------------------------------------------------------------------------------------------------------------------------
Total Government National Mortgage Assoc. (Cost $2,674,884) 2,736,980
- ------------------------------------------------------------------------------------------------------------------------------
U. S. Government Agency Pass-Thrus 5.8%
- ------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 6.5%, with various maturities to 1/1/26 .......... 3,233,233 3,204,942
Federal National Mortgage Association, 7%, with various maturities to 9/1/26 ............ 5,809,697 5,865,815
- ------------------------------------------------------------------------------------------------------------------------------
Total U. S. Government Agency Pass-Thrus (Cost $8,752,135) 9,070,757
- ------------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 0.9%
- ------------------------------------------------------------------------------------------------------------------------------
-----------
Federal Home Loan Mortgage Corp., 8%, 4/1/08 (Cost $1,441,916) .......................... 1,405,676 1,440,565
-----------
Foreign Bonds - U.S.$ Denominated 2.8%
- ------------------------------------------------------------------------------------------------------------------------------
Abbey National PLC Global Medium Term Note, 6.69%, 10/17/05 ............................. 750,000 756,519
Deutsche Bank, 7.5%, 4/25/09 ............................................................ 1,500,000 1,615,620
Province of Ontario Global, 6%, 2/21/06 ................................................. 1,000,000 984,570
Saga Petroleum A/S, 7.25%, 9/23/27 ...................................................... 1,000,000 1,020,060
- ------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds - U.S.$ Denominated (Cost $4,241,533) 4,376,769
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset Backed Securities 2.2%
- ------------------------------------------------------------------------------------------------------------------------------
Automobile Receivables 1.3%
Ford Credit Automobile Trust Series 1996-A A4, 6.75%, 9/15/00 ........................... 1,000,000 1,008,750
Premier Auto Trust Asset Backed Certificate Series 1996-3 A4, 6.75%, 11/6/00 ............ 1,000,000 1,010,620
-----------
2,019,370
-----------
Credit Card Receivables 0.9%
Sears Credit Account Master Trust, Series 1995-A4, 6.25%, 1/15/03 ....................... 1,400,000 1,401,302
- ------------------------------------------------------------------------------------------------------------------------------
Total Asset Backed (Cost $3,396,960) 3,420,672
- ------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds 12.5%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.6%
ITT Corp., 7.375%, 11/15/15 ............................................................. 1,000,000 943,140
-----------
Consumer Staples 0.4%
Seagram Co., Ltd., 8.35%, 1/15/22 ....................................................... 500,000 580,795
-----------
Financial 5.1%
Associates Corp. of North America, 6.625%, 5/15/01 ...................................... 500,000 506,110
Capital One Bank Medium Term Note, 5.95%, 2/15/01 ....................................... 1,000,000 988,870
First Industrial L.P., 7.6%, 5/15/07 .................................................... 700,000 731,150
General Electric Capital Services Inc., 7.5%, 8/21/35 ................................... 250,000 278,970
Highwoods/Forsyth, Ltd., 7%, 12/1/06 .................................................... 1,500,000 1,510,350
Southern National Corp., 7.05%, 5/23/03 ................................................. 1,000,000 1,029,630
Spieker Properties, Inc., 7.875%, 12/1/16 ............................................... 750,000 806,033
Susa Partnership L.P., 8.2%, 6/1/17 ..................................................... 1,000,000 1,089,210
US West Capital Funding Inc., 7.9%, 2/1/27 .............................................. 1,000,000 1,094,340
-----------
8,034,663
-----------
Media 1.3%
TCI Communications, Inc., 8%, 8/1/05 .................................................... 750,000 803,723
Time Warner Inc., 9.125%, 1/15/13 ....................................................... 1,000,000 1,190,770
-----------
1,994,493
-----------
Service Industries 0.7%
ServiceMasters Co., Ltd, 7.45%, 8/15/27 ................................................. 1,000,000 1,039,130
-----------
Durables 2.1%
Ford Motor Co., 8.875%, 1/15/22 ......................................................... 500,000 616,690
Ford Motor Credit Co., 6.25%, 2/26/98 ................................................... 250,000 250,065
Lockheed Martin Corp., 7.75%, 5/1/26 .................................................... 500,000 554,105
Northrop Grumman Corp., 7%, 3/1/06 ...................................................... 750,000 773,663
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Northrop Grumman Corp., 7.875%, 3/1/26 .................................................. 1,000,000 1,112,690
-----------
3,307,213
-----------
Manufacturing 0.3%
Nova Gas Transmissions, Ltd., 7.875%, 4/1/23 ............................................ 500,000 556,135
-----------
Technology 0.3%
Loral Corp., 8.375%, 6/15/24 ............................................................ 500,000 587,280
-----------
Energy 0.7%
PanEnergy Corp., 7.375%, 9/15/03 ........................................................ 1,000,000 1,051,020
-----------
Metals & Minerals 0.7%
Potash Corp., 7.125%, 6/15/07 ........................................................... 1,000,000 1,022,760
-----------
Transportation 0.3%
Norfolk Southern Corp., 7.8%, 5/15/27 ................................................... 500,000 562,020
- ------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $18,535,311) 19,678,649
- ------------------------------------------------------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 57.6%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 6.2%
Department & Chain Stores 4.4%
Costco Companies Inc.* .................................................................. 28,400 1,267,340
Home Depot, Inc. ........................................................................ 44,100 2,596,388
Nordstrom, Inc. ......................................................................... 16,800 1,014,300
Wal-Mart Stores Inc. .................................................................... 51,100 2,015,256
-----------
6,893,284
-----------
Hotels & Casinos 0.7%
Host Marriott Corp.* .................................................................... 55,300 1,085,263
-----------
Specialty Retail 1.1%
Corporate Express, Inc.* ................................................................ 50,800 654,050
Pier 1 Imports, Inc. .................................................................... 48,300 1,092,788
-----------
1,746,838
-----------
Consumer Staples 12.6%
Alcohol & Tobacco 1.6%
Philip Morris Companies Inc. ............................................................ 56,300 2,551,094
-----------
Consumer Specialties 0.5%
Samsonite Corp.* ........................................................................ 23,800 752,675
-----------
Food & Beverage 4.9%
Coca-Cola Co., Inc. ..................................................................... 48,300 3,217,988
H.J. Heinz Co. .......................................................................... 39,900 2,027,419
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interstate Bakeries Corp. ............................................................... 37,400 1,397,825
Suiza Foods Corp.* ...................................................................... 17,300 1,030,431
-----------
7,673,663
-----------
Package Goods/Cosmetics 5.6%
Colgate-Palmolive Co. ................................................................... 32,300 2,374,050
Gillette Co. ............................................................................ 24,276 2,438,221
Procter & Gamble Co. .................................................................... 50,000 3,990,625
-----------
8,802,896
-----------
Health 12.7%
Biotechnology 1.0%
Guidant Corp. ........................................................................... 26,500 1,649,625
-----------
Health Industry Services 1.3%
HBO & Company, Inc. ..................................................................... 22,400 1,075,200
Total Renal Care Holdings, Inc.* ........................................................ 33,500 921,250
-----------
1,996,450
-----------
Hospital Management 0.6%
Tenet Healthcare Corp.* ................................................................. 27,800 920,875
-----------
Pharmaceuticals 9.8%
Bristol-Myers Squibb Co. ................................................................ 19,300 1,826,263
Eli Lilly & Co. ......................................................................... 39,238 2,731,946
Johnson & Johnson ....................................................................... 32,600 2,147,525
Merck & Co. Inc. ........................................................................ 19,300 2,050,625
Pfizer, Inc. ............................................................................ 52,000 3,877,250
SmithKline Beecham PLC (ADR) ............................................................ 34,800 1,790,025
Warner-Lambert Co. ...................................................................... 8,500 1,054,000
-----------
15,477,634
-----------
Financial 3.6%
Banks 1.2%
First Union Corp. ....................................................................... 17,400 891,750
NationsBank Corp. ....................................................................... 15,700 954,756
-----------
1,846,506
-----------
Insurance 2.4%
American International Group, Inc. ...................................................... 23,925 2,601,844
Conseco Inc. ............................................................................ 24,100 1,095,044
-----------
3,696,888
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Media 3.7%
Advertising 1.8%
Interpublic Group of Companies Inc. ..................................................... 28,200 1,404,713
Outdoor Systems, Inc.* .................................................................. 38,250 1,467,844
-----------
2,872,557
-----------
Broadcasting & Entertainment 1.9%
Clear Channel Communications, Inc.* ..................................................... 25,000 1,985,938
Walt Disney Co. ......................................................................... 10,400 1,030,250
-----------
3,016,188
-----------
Service Industries 2.2%
Miscellaneous Consumer Services 1.5%
Cendant Corporation* .................................................................... 31,450 1,081,094
Service Corp. International ............................................................. 36,100 1,333,444
-----------
2,414,538
-----------
Printing/Publishing 0.7%
Reuters Holdings PLC "B" (ADR) .......................................................... 15,600 1,033,500
-----------
Durables 2.4%
Aerospace 0.9%
AlliedSignal Inc. ....................................................................... 34,200 1,331,663
-----------
Telecommunications Equipment 1.5%
Ciena Corp.* ............................................................................ 18,200 1,112,475
Nokia AB Oy "A" (ADR) ................................................................... 18,000 1,260,000
-----------
2,372,475
-----------
Manufacturing 4.8%
Chemicals 0.6%
Monsanto Co. ............................................................................ 23,300 978,600
-----------
Diversified Manufacturing 4.2%
General Electric Co. .................................................................... 66,200 4,857,425
Textron, Inc. ........................................................................... 28,400 1,775,000
-----------
6,632,425
-----------
Technology 8.9%
Computer Software 3.7%
Computer Associates International, Inc. ................................................. 25,725 1,360,209
Microsoft Corp.* ........................................................................ 23,400 3,024,450
PeopleSoft Inc.* ........................................................................ 35,600 1,388,400
-----------
5,773,059
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diverse Electronic Products 0.5%
Teradyne Inc.* .......................................................................... 25,700 822,400
-----------
Electronic Data Processing 0.9%
Compaq Computer Corp. ................................................................... 25,350 1,430,691
-----------
Office/Plant Automation 1.0%
3Com Corp.* ............................................................................. 16,600 579,963
Cisco Systems, Inc.* .................................................................... 16,950 944,963
-----------
1,524,926
-----------
Semiconductors 2.8%
Intel Corp. ............................................................................. 28,400 1,995,100
Linear Technology Corp. ................................................................. 13,300 766,413
National Semiconductor Corp.* ........................................................... 37,800 980,438
Taiwan Semiconductor Manufacturing Co.* ................................................. 33,200 603,825
-----------
4,345,776
-----------
Energy 0.5%
Oilfield Services/Equipment
Schlumberger Ltd. ....................................................................... 10,700 861,350
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $58,548,025) 90,503,839
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $123,399,890) (a) 157,226,449
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $123,476,478. At December 31,
1997, net unrealized appreciation for all securities based on tax cost was
$33,749,971. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $34,758,407 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,008,436.
The accompanying notes are an integral part of the financial statements.
15 - Scudder Balanced Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $123,399,890) .................. $ 157,226,449
Receivable for Fund shares sold ........................................ 1,149,642
Dividends and interest receivable ...................................... 778,392
Other assets ........................................................... 2,514
----------------
Total assets ........................................................... 159,156,997
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed ....................................... 236,348
Accrued management fee ................................................. 48,092
Other accrued expenses ................................................. 160,649
----------------
Total liabilities ...................................................... 445,089
--------------------------------------------------------------------------------------------
Net assets, at market value $ 158,711,908
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 105,659
Net unrealized appreciation on investments ............................. 33,826,559
Accumulated net realized gain .......................................... 688,296
Paid-in capital ........................................................ 124,091,394
--------------------------------------------------------------------------------------------
Net assets, at market value $ 158,711,908
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($158,711,908 / 9,416,710 outstanding shares of beneficial -----------------
interest, $.01 par value, unlimited number of shares authorized) ..... $16.85
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Balanced Fund
<PAGE>
Statement of Operations
year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Interest ............................................................... $ 3,799,396
Dividends (net of foreign taxes withheld of $7,552) .................... 784,766
-----------------
4,584,162
Expenses:
Management fee ......................................................... 964,234
Services to shareholders ............................................... 660,947
Custodian and accounting fees .......................................... 77,375
Trustees' fees and expenses ............................................ 36,837
Reports to shareholders ................................................ 50,692
Auditing ............................................................... 36,627
Registration fees ...................................................... 23,148
Legal .................................................................. 13,489
Amortization of organization expense ................................... 9,599
Other .................................................................. 8,746
-----------------
Total expenses before reductions ....................................... 1,881,694
Expense reductions ..................................................... (483,894)
-----------------
Expenses, net .......................................................... 1,397,800
--------------------------------------------------------------------------------------------
Net investment income 3,186,362
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments ............................................................ 6,767,432
Net unrealized appreciation during the period on:
Investments ............................................................ 18,257,895
--------------------------------------------------------------------------------------------
Net gain on investment transactions 25,025,327
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 28,211,689
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Balanced Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 3,186,362 $ 2,514,758
Net realized gain from investment transactions ............... 6,767,432 4,906,972
Net unrealized appreciation on investment transactions
during the period ......................................... 18,257,895 3,888,751
---------------- ----------------
Net increase in net assets resulting from operations ......... 28,211,689 11,310,481
---------------- ----------------
Distributions to shareholders:
From net investment income ................................... (3,153,021) (2,447,716)
---------------- ----------------
From net realized gains ...................................... (6,023,486) (5,755,741)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................... 58,695,668 39,011,632
Net asset value of shares issued to shareholders in
reinvestment of distributions .............................. 8,964,419 8,015,313
Cost of shares redeemed ...................................... (37,524,903) (30,743,649)
---------------- ----------------
Net increase in net assets from Fund share transactions ...... 30,135,184 16,283,296
---------------- ----------------
Increase in net assets ....................................... 49,170,366 19,390,320
Net assets at beginning of period ............................ 109,541,542 90,151,222
Net assets at end of period (including undistributed net ---------------- ----------------
investment income of $105,659 and $94,771, respectively).... $158,711,908 $109,541,542
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................... 7,502,830 6,386,156
---------------- ----------------
Shares sold .................................................. 3,666,310 2,665,524
Shares issued to shareholders in reinvestment of
distributions ............................................. 542,526 547,246
Shares redeemed .............................................. (2,294,956) (2,096,096)
---------------- ----------------
Net increase in Fund shares .................................. 1,913,880 1,116,674
---------------- ----------------
Shares outstanding at end of period .......................... 9,416,710 7,502,830
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder Balanced Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
January 4, 1993
(commencement
of operations) to
Years Ended December 31, December 31,
1997(a) 1996(a) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------
Net asset value, beginning of period .. $14.60 $14.12 $11.63 $12.23 $12.00
Income from investment operations: ---------------------------------------------------------------------------------
Net investment income ................. .38 .36 .32 .31 .26
Net realized and unrealized gain
(loss) on investments .............. 2.91 1.25 2.74 (.60) .23
---------------------------------------------------------------------------------
Total from investment operations ...... 3.29 1.61 3.06 (.29) .49
Less distributions from: ---------------------------------------------------------------------------------
Net investment income ................. (.36) (.34) (.32) (.31) (.26)
Net realized gains on investment
transactions ....................... (.68) (.79) (.25) -- --
---------------------------------------------------------------------------------
Total distributions ................... (1.04) (1.13) (.57) (.31) (.26)
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Net asset value, end of period ........ $16.85 $14.60 $14.12 $11.63 $12.23
---------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total Return (%) ...................... 22.78 11.54 26.48 (2.39) 4.12*
Ratios and Supplemental Data
Net assets, end of period
($ millions) ....................... 159 110 90 66 64
Ratio of operating expenses, net to
average daily net assets (%) ....... 1.02 1.00 1.00 1.00 1.00
Ratio of operating expenses before
expense reductions, to average
daily net assets (%) ............... 1.37 1.37 1.40 1.47 1.53
Ratio of net investment income to
average daily net assets (%) ....... 2.32 2.42 2.51 2.66 2.43
Portfolio turnover rate (%) ........... 43.2 69.7 103.3 105.4 99.3
Average commission rate paid (b) ...... $.0552 $.0551 $ -- $ -- $ --
</TABLE>
(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 ending on or after December 31, 1996.
* Not Annualized
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 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 most recent 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 purchased with an original maturity 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. Money market instruments purchased with an original 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.
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, is equal to at least 100.5% of the repurchase price.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, 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 certain securities sold at a
loss. As a result, net investment income (loss) and net realized gain (loss) on
20 - Scudder Balanced Fund
<PAGE>
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 were deferred and 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, 1997, purchases and sales of investment
securities (excluding short-term investments and direct U.S. Government
obligations) aggregated $57,901,191 and $52,365,683, respectively. Purchases and
sales of direct U.S. Government obligations aggregated $5,988,086 and
$1,408,516, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, 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 Management Agreement. The
management fee payable under the Management Agreement is equal to an annual rate
of .70% of the Fund's average daily net assets, computed and accrued daily and
payable monthly. In addition, the Adviser had agreed not to impose all or a
portion of its management fee until October 31, 1997 to maintain the annualized
expenses of the Fund at not more than 1.00% of average daily net assets. The
Adviser has also agreed not to impose all or a portion of its management fee
until April 30, 1998 and to maintain the annualized expenses of the Fund at not
more than 1.10% of average daily net assets. Accordingly, for the year ended
December 31, 1997, the Adviser did not impose a portion of its fees amounting to
$483,894, and the portion imposed amounted to $480,340, of which $48,092 is
unpaid at December 31, 1997.
21 - Scudder Balanced Fund
<PAGE>
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, 1997, the amount charged to the Fund by SSC aggregated
$269,472, of which $23,120 is unpaid at December 31, 1997.
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, 1997, the
amount charged to the Fund by STC aggregated $294,504, of which $26,529 is
unpaid at December 31, 1997.
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, 1997, the amount charged to the Fund by SFAC aggregated $48,318, of
which $4,128 is unpaid at December 31, 1997.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the year ended December 31, 1997,
Trustees' fees and expenses aggregated $36,837.
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, 1997, 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 four 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, 1997, 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, 1997, 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 four 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 9, 1998
23 - Scudder Balanced Fund
<PAGE>
Tax Information
The Fund paid distributions of $0.49 per share from net long-term capital gains
during the year ended December 31, 1997, of which 74.2% represents 20% gains.
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$3,964,340 as capital gain dividends for the year ended December 31, 1997, of
which 30.69% represent 20% gains.
For corporate shareholders, 23.26% of the income dividends paid during the
Fund's fiscal year ended December 31, 1997 qualified for the dividends received
deduction.
24 - Scudder Balanced Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Balanced Fund (the
"Fund") was held on October 24, 1997, at the office of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), Two International
Place, Boston, Massachusetts 02110. At the Meeting, as adjourned and reconvened,
the following matters were voted upon by the shareholders (the resulting votes
for each matter are presented below). With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide shareholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
5,043,832 146,714 136,477 109,810
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Henry P. Becton, Jr. 5,217,588 109,435
Dawn-Marie Driscoll 5,216,902 110,121
Peter B. Freeman 5,216,538 110,485
George M. Lovejoy, Jr. 5,215,525 111,498
Dr. Wesley W. Marple, Jr. 5,216,616 110,407
Daniel Pierce 5,215,750 111,273
Kathryn L. Quirk 5,212,323 114,700
Jean C. Tempel 5,216,334 110,689
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,774,135 239,364 203,714 109,810
25 - Scudder Balanced Fund
<PAGE>
4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
4,944,224 176,679 254,434 106,049
5. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker
-------------------- --- ------- ------- ------
Non-Votes*
<S> <C> <C> <C> <C>
5.1 Diversification 4,808,138 178,317 230,758 109,810
5.2 Borrowing 4,803,941 182,514 230,758 109,810
5.3 Senior securities 4,805,720 180,505 230,988 109,810
5.4 Concentration 4,804,404 181,907 230,902 109,810
5.5 Underwriting of securities 4,807,112 142,693 267,408 109,810
5.6 Investment in real estate 4,805,916 143,511 267,786 109,810
5.7 Purchase of physical 4,797,348 152,079 267,786 109,810
commodities
5.8 Lending 4,803,109 146,318 267,786 109,810
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
5,103,454 44,226 179,343
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
26 - Scudder Balanced Fund
<PAGE>
This Page
intentionally
left blank.
27 - Scudder Balanced Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates
Peter B. Freeman
Trustee ; Corporate Director 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
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
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
Treasurer
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
28 - 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
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
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
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index 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 Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income 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, Inc.
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal 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
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **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 Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various other stock exchanges.
29 - Scudder Balanced Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder Balanced Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
31 - Scudder Balanced Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
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