Scudder
Balanced
Fund
Semiannual Report
June 30, 1998
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
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Date of Inception: 1/04/93 Total Net Assets as of Ticker Symbol: SCBAX
6/30/98: $202.7 million
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o For the six-month period ended June 30, 1998, Scudder Balanced Fund returned
12.69%, a performance that ranked the Fund in the top 9% of 409 balanced funds
tracked by Lipper Analytical Services.
o Throughout the period, the Fund maintained approximately 60% of assets
invested in equities and 40% in fixed income securities (including cash
equivalents).
o The equity portion of the Fund was invested in stocks of large growth
companies -- the best performing sector of the stock market over the six months.
o In the fixed income portion of the Fund, management lengthened duration to
take advantage of declining interest rates and rising bond prices.
Table of Contents
3 Letter from the Fund's President 16 Financial Statements
4 Performance Update 19 Financial Highlights
5 Portfolio Summary 20 Notes to Financial Statements
6 Portfolio Management Discussion 24 Officers and Trustees
9 Glossary of Investment Terms 25 Investment Products and Services
10 Investment Portfolio 26 Scudder Solutions
2 - Scudder Balanced Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
For much of the first half of 1998, a strong dollar provided support to the
domestic stock and bond markets, as many investors sought the perceived
reliability of the large-cap growth stocks and quality of fixed income
securities which comprise your Fund's holdings. High valuations of U.S. stocks
and slowing economic and profit growth have tempered expectations for equities,
despite generous returns for the six-month report period ended June 30, 1998.
Scudder Balanced Fund's diversified approach helped it weather a period of
increasing volatility in the equity markets, as the Fund turned in top tier
performance for the six months. Your Fund's lead portfolio manager, Valerie F.
Malter, discusses this environment and her investment strategy beginning on page
6.
Considering the prolonged strong performance of the domestic equity
markets, now may be a good time to review your asset allocation among stocks,
bonds, and international securities. The rise of the U.S. stock market has had
the effect of increasing the weighting of this asset class in many investors'
portfolios. We encourage you to check your holdings periodically for adequate
exposure to other asset classes including small-cap, international, and fixed
income securities. We believe a diversified approach can provide the best
opportunity for attractive returns and reduced risk over the long term.
For those of you who want to keep apprised of new Scudder products, we
would like to inform you of two new international funds which will commence
operations on September 1st: Scudder International Growth Fund and Scudder
International Value Fund. For more information on these new offerings, please
call Scudder Investor Relations at 1-800-225-2470.
Thank you for your continued investment in Scudder Balanced Fund. If you
have any questions about your investment, please call Scudder Investor Relations
at the 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 June 30, 1998
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FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
- --------------------------------------------
Period Growth
Ended of Average
6/30/98 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER BALANCED FUND
- --------------------------------------------
1 Year $ 12,161 21.61% 21.61%
5 Year $ 20,055 100.55% 14.93%
Life of Fund* $ 19,839 98.39% 13.30%
- --------------------------------------------
S&P 500 INDEX (60%) and LBAB Index (40%)
- --------------------------------------------
1 Year $ 12,221 22.21% 22.21%
5 Year $ 21,426 114.26% 16.45%
Life of Fund* $ 22,364 123.64% 16.03%
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* The Fund commenced operations January 4, 1993.
Index comparisons begin January 31, 1993.
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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
6/94 $ 9,823
6/95 $11,705
6/96 $13,584
6/97 $16,286
6/98 $19,806
S&P 500 INDEX
Year Amount
- ----------------------
1/31/93* $10,000
6/93 $10,399
6/94 $10,546
6/95 $13,293
6/96 $16,749
6/97 $22,564
6/98 $29,370
LBAB INDEX
Year Amount
- ----------------------
1/31/93* $10,000
6/93 $10,489
6/94 $10,351
6/95 $11,650
6/96 $12,234
6/97 $13,232
6/98 $14,626
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 June 30
1993* 1994 1995 1996 1997 1998
------------------------------------------------------
NET ASSET VALUE... $ 11.82 $ 11.49 $ 13.33 $ 14.74 $ 16.51 $ 18.71
INCOME DIVIDENDS.. $ .05 $ .28 $ .32 $ .32 $ .09 $ .47
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ -- $ .37 $ -- $ .76
FUND TOTAL
RETURN (%)........ -1.07 -.54 19.16 16.05 19.90 21.61
INDEX TOTAL
RETURN (%)........ 4.30 .49 20.72 19.02 23.64 22.21
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 June 30, 1998
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DIVERSIFICATION
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Common Stocks 58%
Fixed Income Holdings 38%
Cash Equivalents 4%
- --------------------------------------
100%
- --------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund's diversification
in large company growth
stocks and investment
grade bonds was
particularly valuable as
volatility continued in
the equity markets.
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FIXED INCOME HOLDINGS
(Excludes 4% Cash Equivalents)
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Type
- --------------------------------------------
Corporate Bonds 42%
U.S. Government & Agencies 32%
U.S. Government Mortgages 16%
Foreign Bonds -- U.S.
$ Denominated 4%
Asset-Backed Securities 6%
- --------------------------------------------
100%
- --------------------------------------------
Quality
- --------------------------------------------
AAA 59%
AA 8%
A 19%
BBB 14%
- --------------------------------------------
100%
- --------------------------------------------
The Fund's AA average
quality rating in the fixed
income portion was
maintained.
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EQUITY HOLDINGS
- --------------------------------------------------------------------------
Health 21%
Consumer Staples 20%
Technology 15%
Consumer Discretionary 12%
Manufacturing 10%
Media 8%
Financial 6%
Durables 5%
Service Industries 3%
- ---------------------------------------------
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. HOME DEPOT, INC.
Building supply/home improvement stores
A continuing emphasis on high quality, large-cap
growth stocks -- one of the strongest performing
sectors -- were important contributors to the Fund's
outperformance.
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 Fund
<PAGE>
Portfolio Management Discussion
We interviewed lead portfolio manager, Valerie A. Malter, about the market
environment and the Fund's performance for the six-month period ended June 30,
1998. Below are highlights of our discussion with Ms. Malter.
Q: The six-month performance of the stock and bond markets would seem to
indicate another period of solid returns. However, the path to that performance
was anything but a straight line, especially in the second quarter. What is your
assessment?
A: The stock market added to its gains over the six months, but with increased
volatility during the second quarter. Many investors became concerned about
worsening economic conditions in Asia and the strong U.S. dollar, which caused a
temporary pullback. Clearly, the underlying strong fundamentals of the U.S.
economy are impressive when compared with the deteriorating conditions in many
parts of the world, and those characteristics helped stocks recover in the final
weeks of the period. On the fixed income front, bonds continued to benefit from
a decline in interest rates and inflation remained a non-issue as growth
moderated over the six months.
Q: How did the Fund's two areas of concentration -- large company growth stocks
and investment grade bonds -- perform in this environment?
A: The Fund's equity holdings benefited from our careful security selection as
well as the strong performance of large-cap growth stocks -- the best performing
sector of the U.S. stock market over the six months. This story of
outperformance is told by the 20.37% return of the unmanaged Russell 1000 Growth
Index (an index of large-cap growth stocks), which compares to the 17.71% return
of the widely followed S&P 500 Index. The fixed income sector remained a
stalwart performer, returning 3.92% for the six months as measured by the
unmanaged Lehman Aggregate Bond Index. Bonds benefited from the declining
interest rate environment and a renewed interest on the part of investors in the
relatively safe and consistent returns of this asset class.
Q: How did the Fund perform?
A: The Fund returned 12.69% for the six-month period, ranking it in the top 9%
of 409 balanced funds tracked by Lipper Analytical Services. The Fund's strong
performance relative to other balanced funds extended beyond the short term with
the Fund ranking in the top 16% of 373 funds for the one-year, the top 24% of
256 funds for the three-year, and in the top 27% of 131 funds for the five-year
periods as of June 30, 1998.
Q: The equity portion of the portfolio represented about 60% of assets
throughout the period. How did you manage it?
A: The Fund's equity position is constructed company by company with a focus on
businesses which we believe have solid long-term franchises, focused and
experienced management teams, and sustainable above average earnings growth.
From an industry sector standpoint, we have taken a relatively neutral approach
because we strongly believe that significant overweighting or underweighting of
sectors could detract from performance. Our focus is on individual stock
6 - Scudder Balanced Fund
<PAGE>
selection, where we think we can add the most value.
Q: Among the Fund's equity holdings, what areas contributed significantly to
performance?
A: The two best performing sectors were healthcare, particularly large
pharmaceutical stocks, and consumer discretionary stocks, where nearly all
holdings registered strong gains. The technology sector was volatile and
provided mixed results. In the last three months of the period it was the best
performing sector in April, among the worst performers in May, and at the top of
the list again in June. The equity portfolio benefited significantly from its
lack of exposure to energy stocks, which underperformed for most of the period.
Q: Are there any individual names you'd like to mention?
A: There are a few. We are glad that many of the stocks which performed well in
the first quarter (second and third tier stocks) were replaced by companies that
are clear leaders in their respective industries. Home Depot, WalMart, American
International Group, Microsoft, Cisco Systems, and Lucent Technologies were
strong performers overall. The Fund also benefited from noteworthy performances
from Costco, which continues to deliver consistent 6%-7% "same store" sales
growth, and Royal Caribbean Cruise, a name we added earlier in the year to
participate in the rapid growth in the demand for leisure cruises. Clear Channel
Communications and Outdoor Systems, our two favorite media names continue to
deliver results ahead of expectations. On the healthcare front, large
pharmaceutical companies performed well, fueled by continued strong demand for
new drugs such as Viagra from Pfizer, Lipitor and Rezulin from Warner Lambert,
Claritin from Schering Plough, and Zyprexa from Eli Lilly.
Q: How did the bond market perform over the six-month period?
A: Bonds provided attractive income and total returns, as yields on long term
bonds generally declined, causing bond prices to rise. With no inflation to
speak of and the economy still growing at a moderate pace, the 30-year Treasury
bond yield closed the period at 5.63%, down from 5.92% at the beginning of the
six-month period.
Q: What is your strategy in managing the fixed income portion of the portfolio?
A: We manage this portion of the Fund with a diversified approach, which
generally means maintaining broad exposure to a range of securities in the
corporate, Treasury, and mortgage-backed sectors. As we have seen in the past
few quarters, Treasury bonds, despite having lower yields, can generate
excellent returns. While we usually overweight corporates to gain a yield
advantage, other sectors also can provide valuable components to overall
returns. Over the six-month period we continued with our strategy of lengthening
portfolio duration as interest rates declined. At the end of the period duration
stood at 5.4 years, up from 4.9 years at the end of 1997. The overall quality of
the fixed income portion of the portfolio remained essentially unchanged, at
"AA" as of June 30.
In the corporate bond sector, we emphasized non-cyclicals, that is, bonds that
tend to be less affected by changes in the economic or business cycle, such as
7 - Scudder Balanced Fund
<PAGE>
cable, defense, and telecommunications issues. We also increased our weighting
in the oil sector, an area that has underperformed for some time. With the price
of oil dipping to record lows recently, we regarded a number of oil issues as
buying opportunities which included Anadarko, Phillips, Enron, and Ocean Energy.
In the mortgage sector, we continued with an underweighted position due to
expectations of slightly weaker performance.
Q: What is your outlook for the stock and bond markets?
A: The aftershocks from the economic crisis in Asia will likely increase in the
second half of the year. Combined with a strong dollar, and slower economic
growth, we view any increase in interest rates by the Federal Reserve as
unlikely, at least in the near term. Overall, we are keenly aware of the
relatively high prices of stocks and will keep this in mind as we continue to
seek high quality growth companies that we believe are able to deliver the
earnings growth expected of them. We believe that Scudder Balanced Fund will
continue to provide attractive and consistent performance over time, with
reduced volatility, through investment in a portfolio of quality stocks and
bonds.
8 - Scudder Balanced Fund
<PAGE>
Glossary of Investment Terms
CONSUMER DISCRETIONARY/ Two classifications of companies engaged in
CONSUMER STAPLES businesses that cater to consumers. The
consumer discretionary (also known as
consumer cyclicals) category includes
companies that produce non-essential goods
and services that are desired by consumers,
e.g., entertainment, fashion apparel, hotels,
and jewelry. The consumer staples category
includes companies that sell goods and
services required by consumers, e.g.,
beverages, food, and clothing. Such stocks
are generally more resistant to a decline in
the overall economy.
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 investors
$100 a year.
DURATION A measure of the portfolio's sensitivity to
changes in interest rates. If an investment
portfolio has a duration of 5 years and
interest rates decline by 1% from present
levels, the value of the portfolio would rise
by about 5% and vice versa.
FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and
earnings on balance sheets and income
statements. Distinct from technical analysis,
which evaluates the attractiveness of a stock
based on historical price and trading volume
movements, rather than the financial results
of the underlying company.
MARKET CAPITALIZATION The value of a company's outstanding shares
of common stock, determined by multiplying
the number of shares outstanding by the share
price (shares x price = market
capitalization). The universe of
publicly-traded companies is frequently
divided into large-, mid-, and
small-capitalizations. "Large-cap" stocks
tend to be more liquid and less volatile.
OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually
by sector, industry, or country -- within an
investment portfolio relative to a benchmark
index or investment universe.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
9 - Scudder Balanced Fund
<PAGE>
Investment Portfolio as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements 2.8%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with State Street Bank and Trust Company dated 6/30/1998 at
5.75%, to be repurchased at $5,643,901 on 7/1/1998, collateralized by a -----------
$6,070,000 U.S. Treasury Bill, 6/24/1999 (Cost $5,643,000) ............................ 5,643,000 5,643,000
-----------
Commercial Paper 1.0%
- ------------------------------------------------------------------------------------------------------------------------------
Prudential Funding Corp. 5.59%, 7/2/1998 (Cost $2,000,000) .............................. 2,000,000 2,000,000
-----------
U.S. Government & Agencies 12.5%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 6.875%, 7/31/1999 ................................................... 1,000,000 1,013,910
U.S. Treasury Note, 5.5%, 2/29/2000 ..................................................... 1,000,000 999,690
U.S. Treasury Note, 5.75%, 10/31/2000 ................................................... 2,750,000 2,762,898
U.S. Treasury Note, 5.625%, 12/31/2002 .................................................. 5,000,000 5,021,842
U.S. Treasury Note, 6.25%, 2/28/2002 .................................................... 2,500,000 2,557,425
U.S. Treasury Note, 5.5%, 5/31/2003 ..................................................... 500,000 500,080
U.S. Treasury Note, 6.5%, 5/15/2005 ..................................................... 750,000 791,603
U.S. Treasury Note, 5.625%, 2/15/2006 ................................................... 2,500,000 2,510,150
U.S. Treasury Note, 6.25%, 2/15/2007 .................................................... 1,000,000 1,047,190
U.S. Treasury Bond, 7.25%, 5/15/2016 .................................................... 6,750,000 7,908,030
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government & Agencies (Cost $24,902,894) 25,112,818
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assoc. 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association Pass-thru, 9.5%, 8/15/2019 (Cost $18,278) ...... 16,841 18,233
-----------
U.S. Government Agency Pass-thrus 4.2%
- ------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association, 6.5% with various maturities to 1/1/2026 ......... 3,008,442 3,002,786
Federal National Mortgage Association, 7% with various maturities to 9/1/2026 ........... 5,466,519 5,544,529
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-thrus (Cost $8,202,995) 8,547,315
- ------------------------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 1.3%
- ------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 8% with various maturities to 4/1/2008 ................ 1,145,110 1,173,497
Residential Asset Securitization Trust, Series 1997-A6, 7.25%, 9/25/2012 ................ 1,541,000 1,543,408
- ------------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations (Cost $2,738,988) 2,716,905
- ------------------------------------------------------------------------------------------------------------------------------
Foreign Bonds -- U.S.$ Denominated 1.6%
- ------------------------------------------------------------------------------------------------------------------------------
Norsk Hydro A/S, 7.75%, 6/15/2023 ....................................................... 1,000,000 1,138,370
Province of Ontario Global, 6%, 2/21/2006 ............................................... 1,000,000 996,060
Saga Petroleum A/S, 7.25%, 9/23/2027 .................................................... 1,000,000 1,011,570
- ------------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds-- U.S.$ Denominated (Cost $3,071,940) 3,146,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Asset Backed 2.5%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automobile Receivables 1.0%
Ford Credit Automobile Trust, Series 1996-A A4, 6.75%, 9/15/2000 ........................ 1,000,000 1,008,120
Premier Auto Trust Asset Backed Certificate, Series 1996-3 A4, 6.75%, 11/6/2000 ......... 1,000,000 1,009,680
-----------
2,017,800
-----------
Credit Card Receivables 1.0%
Proffitt's, Inc. Credit Card Master Trust, 6%, 9/15/2004 ................................ 1,000,000 997,070
Sears Credit Account Master Trust, Series 1995-A4, 6.25%, 1/15/2003 ..................... 933,332 934,500
-----------
1,931,570
-----------
Home Equity Loans 0.5%
First Plus Home Loan Trust, Series 1998, 6.25%, 11/10/2016 .............................. 1,000,000 999,063
- ------------------------------------------------------------------------------------------------------------------------------
Total Asset Backed (Cost $4,929,511) 4,948,433
- ------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds 16.2%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 0.5%
ITT Corp., 7.375%, 11/15/2015 ........................................................... 1,000,000 926,540
-----------
Consumer Staples 1.0%
Bass America Inc., 6.625%, 3/1/2003 ..................................................... 1,500,000 1,523,955
Seagram Co., Ltd., 8.35%, 1/15/2022 ..................................................... 500,000 582,140
-----------
2,106,095
-----------
Financial 4.9%
Associates Corp. of North America, 6.625%, 5/15/2001 .................................... 500,000 507,515
Capital One Bank, Medium Term Note, 5.95%, 2/15/2001 .................................... 1,000,000 991,940
First USA Bank, 5.85%, 2/22/2001 ........................................................ 1,000,000 995,550
Fleet Financial Group, 6.875%, 1/15/2028 ................................................ 1,000,000 1,024,190
General Electric Capital Corp., 6.02%, 5/1/2001 ......................................... 1,000,000 1,005,000
General Electric Capital Services Inc., 7.5%, 8/21/2035 ................................. 250,000 292,718
ICI Investments, 6.75%, 8/7/2002 ........................................................ 1,000,000 1,016,400
Lehman Brothers Holding Corp., Medium Term Note, 6.33%, 8/1/2000 ........................ 1,000,000 1,005,540
Simon Debartolo Group, Inc., 6.625%, 6/15/2003 .......................................... 2,000,000 1,999,400
Southern National Corp., 7.05%, 5/23/2003 ............................................... 1,000,000 1,035,700
-----------
9,873,953
-----------
Media 2.5%
Cox Communications, Inc., 6.85%, 1/15/2018 .............................................. 1,000,000 1,005,000
News America, Inc., 7.25%, 5/18/2018 .................................................... 1,000,000 1,024,660
TCA Cable TV, Inc., 6.53%, 2/1/2028 ..................................................... 1,000,000 1,003,604
</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>
Time Warner, Inc., 9.125%, 1/15/2013 .................................................... 1,000,000 1,217,050
Time Warner, Inc., 6.875%, 6/15/2018 .................................................... 750,000 752,925
-----------
5,003,239
-----------
Service Industries 0.5%
ServiceMaster L.P., 7.45%, 8/15/2027 .................................................... 1,000,000 1,026,875
-----------
Durables 1.4%
Martin Marietta Corp., 6.5%, 4/15/2003 .................................................. 1,000,000 1,010,680
McDonnell Douglas Finance Corp., Medium Term Note, 6.75%, 12/23/2003 .................... 1,000,000 1,026,940
Northrop Grumman Corp., 7%, 3/1/2006 .................................................... 750,000 775,695
-----------
2,813,315
-----------
Manufacturing 0.3%
Nova Corp. of Alberta, 7.875%, 4/1/2023 ................................................. 500,000 576,335
-----------
Technology 1.6%
Loral Corp., 8.375%, 6/15/2024 .......................................................... 1,000,000 1,208,260
Pitney Bowes, Inc., 6.27%, 1/20/2012 .................................................... 2,000,000 2,002,500
-----------
3,210,760
-----------
Energy 1.5%
PanEnergy Corp., 7.375%, 9/15/2003 ...................................................... 1,000,000 1,048,460
Phillips Petroleum Corp., 6.65%, 7/15/2018 .............................................. 1,000,000 996,900
Pioneer Natural Resources Co., 7.2%, 1/15/2028 .......................................... 1,000,000 973,750
-----------
3,019,110
-----------
Transportation 0.5%
Continental Airlines Inc. Series 1997-1A, 7.461%, 4/1/2015 .............................. 991,014 1,060,484
-----------
Utilities 1.5%
PacifiCorp, 6.15%, 1/15/2008 ............................................................ 2,000,000 1,981,400
Public Service Co. of Colorado, 6%, 4/15/2003 ........................................... 1,000,000 993,750
-----------
2,975,150
- ------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $32,013,611) 32,591,856
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 57.9%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Discretionary 7.0%
Department & Chain Stores 6.2%
Consolidated Stores Corp.* .............................................................. 25,800 935,250
Costco Companies, Inc.* ................................................................. 30,500 1,923,406
Dayton Hudson Corp. ..................................................................... 22,200 1,076,700
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Balanced Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home Depot, Inc. ........................................................................ 47,300 3,928,856
Nordstrom, Inc. ......................................................................... 18,000 1,390,500
Wal-Mart Stores, Inc. ................................................................... 54,800 3,329,100
-----------
12,583,812
-----------
Hotels & Casinos 0.8%
Royal Caribbean Cruises Ltd. ............................................................ 19,400 1,542,300
-----------
Consumer Staples 11.7%
Alcohol & Tobacco 1.1%
Philip Morris Companies, Inc. ........................................................... 56,300 2,216,813
-----------
Food & Beverage 4.6%
Coca-Cola Co., Inc. ..................................................................... 51,800 4,428,900
H.J. Heinz Co. .......................................................................... 42,800 2,402,150
Interstate Bakeries Corp. ............................................................... 40,100 1,330,819
Suiza Foods Corp.* ...................................................................... 18,600 1,110,188
-----------
9,272,057
-----------
Package Goods/Cosmetics 6.0%
Colgate-Palmolive Co. ................................................................... 34,700 3,053,600
Estee Lauder Companies "A" .............................................................. 17,600 1,226,500
Gillette Co. ............................................................................ 52,152 2,956,367
Procter & Gamble Co. .................................................................... 53,700 4,890,056
-----------
12,126,523
-----------
Health 12.1%
Health Industry Services 2.5%
HBO & Company, Inc. ..................................................................... 48,000 1,692,000
HEALTHSOUTH Corp.* ...................................................................... 59,800 1,595,913
Total Renal Care Holdings, Inc.* ........................................................ 49,600 1,711,200
-----------
4,999,113
-----------
Hospital Management 0.7%
Tenet Healthcare Corp. .................................................................. 42,900 1,340,625
-----------
Medical Supply & Specialty 0.5%
Guidant Corp. ........................................................................... 14,400 1,026,900
-----------
Pharmaceuticals 8.4%
Bristol-Myers Squibb Co. ................................................................ 20,700 2,379,206
Eli Lilly & Co. ......................................................................... 35,838 2,367,548
Johnson & Johnson ....................................................................... 19,400 1,430,750
Merck & Co., Inc. ....................................................................... 20,700 2,768,625
</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>
Pfizer, Inc. ............................................................................ 44,200 4,803,988
Schering-Plough Corp. ................................................................... 13,400 1,227,775
Warner-Lambert Co. ...................................................................... 27,300 1,893,938
-----------
16,871,830
-----------
Financial 3.7%
Banks 0.5%
First Union Corp. ....................................................................... 18,700 1,089,275
-----------
Insurance 3.2%
American International Group, Inc. ...................................................... 25,625 3,741,250
MBIA, Inc. .............................................................................. 17,600 1,317,800
UNUM Corp. .............................................................................. 25,000 1,387,500
-----------
6,446,550
-----------
Media 4.4%
Advertising 1.8%
Interpublic Group of Companies, Inc. .................................................... 30,300 1,838,831
Outdoor Systems, Inc.* .................................................................. 64,762 1,813,336
-----------
3,652,167
-----------
Broadcasting & Entertainment 2.6%
Clear Channel Communications, Inc.* ..................................................... 23,200 2,531,700
Univision Communication, Inc.* .......................................................... 37,800 1,408,050
Walt Disney Co. ......................................................................... 11,200 1,176,700
-----------
5,116,450
-----------
Service Industries 1.4%
Miscellaneous Commercial Services 0.6%
AccuStaff, Inc.* ........................................................................ 39,200 1,225,000
-----------
Miscellaneous Consumer Services 0.8%
Service Corp. International ............................................................. 38,700 1,659,263
-----------
Durables 3.1%
Aerospace 0.8%
AlliedSignal Inc. ....................................................................... 36,700 1,628,563
-----------
Telecommunications Equipment 2.3%
Ascend Communications, Inc.* ............................................................ 35,200 1,744,600
Lucent Technologies, Inc. ............................................................... 35,700 2,969,794
-----------
4,714,394
-----------
</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>
Manufacturing 5.6%
Chemicals 0.7%
Monsanto Co. ............................................................................ 25,000 1,396,875
-----------
Diversified Manufacturing 4.3%
General Electric Co. .................................................................... 71,000 6,461,000
Textron, Inc. ........................................................................... 30,500 2,186,469
-----------
8,647,469
-----------
Machinery/Components/Controls 0.6%
Federal-Mogul Corp. ..................................................................... 18,500 1,248,750
-----------
Technology 8.9%
Computer Software 4.0%
Cadence Design System, Inc.* ............................................................ 31,100 971,875
Computer Associates International, Inc. ................................................. 27,625 1,534,914
Microsoft Corp.* ........................................................................ 35,300 3,825,638
PeopleSoft, Inc.* ....................................................................... 38,200 1,795,400
-----------
8,127,827
-----------
EDP Peripherals 0.5%
EMC Corp.* .............................................................................. 23,600 1,057,575
-----------
Electronic Data Processing 0.9%
Sun Microsystems, Inc.* ................................................................. 40,600 1,763,563
-----------
Office/Plant Automation 1.4%
Cisco Systems, Inc.* .................................................................... 29,450 2,711,241
-----------
Semiconductors 2.1%
Intel Corp. ............................................................................. 43,200 3,202,200
Linear Technology Corp. ................................................................. 16,800 1,013,250
-----------
4,215,450
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $70,867,920) 116,680,385
- ------------------------------------------------------------------------------------------------------------------------------
Purchased Options 0.0%
- ------------------------------------------------------------------------------------------------------------------------------
Chicago Board of Trade U.S. Treasury Bond Put, expires 8/21/98 (Cost $75,229) ........... 60 19,687
-----------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $154,464,366) (a) 201,424,632
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $154,540,954. At June 30,
1998, net unrealized appreciation for all securities based on tax cost was
$46,883,678. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $47,785,305 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$901,627.
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 June 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $154,464,366) ............... $ 201,424,632
Cash ................................................................ 436
Receivable for investments sold ..................................... 2,351,976
Dividends and interest receivable ................................... 1,076,571
Receivable for Fund shares sold ..................................... 1,060,253
Other assets ........................................................ 1,159
----------------
Total assets ........................................................ 205,915,027
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................... 2,643,714
Payable for Fund shares redeemed .................................... 386,116
Accrued management fee .............................................. 114,386
Other payables and accrued expenses ................................. 102,129
----------------
Total liabilities ................................................... 3,246,345
-------------------------------------------------------------------------------------------
Net assets, at market value $ 202,668,682
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) .......................... 116,906
Net unrealized appreciation (depreciation) on investments ........... 46,960,266
Accumulated net realized gain (loss) ................................ 6,117,505
Paid-in capital ..................................................... 149,474,005
-------------------------------------------------------------------------------------------
Net assets, at market value $ 202,668,682
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($202,668,682 / 10,834,511 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ....................................................... $18.71
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Balanced Fund
<PAGE>
Statement of Operations
six months ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Interest ............................................................ $ 2,508,634
Dividends (net of foreign taxes withheld of $3,242) ................. 517,500
----------------
3,026,134
Expenses:
Management fee ...................................................... 623,985
Services to shareholders ............................................ 396,887
Custodian and accounting fees ....................................... 40,182
Trustees' fees and expenses ......................................... 18,824
Reports to shareholders ............................................. 30,589
Auditing ............................................................ 19,548
Registration fees ................................................... 14,575
Legal ............................................................... 7,421
Other ............................................................... 3,779
----------------
Total expenses before reductions .................................... 1,155,790
Expense reductions .................................................. (104,241)
----------------
Expenses, net ....................................................... 1,051,549
-------------------------------------------------------------------------------------------
Net investment income 1,974,585
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ......................................................... 6,259,580
Futures ............................................................. (32,043)
----------------
6,227,537
----------------
Net unrealized appreciation (depreciation) during the period on:
Investments ......................................................... 13,133,707
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 19,361,244
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 21,335,829
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Balanced Fund
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended
1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 1,974,585 $ 3,186,362
Net realized gain (loss) from investment transactions ........ 6,227,537 6,767,432
Net unrealized appreciation (depreciation) on
investment transactions during the period .................. 13,133,707 18,257,895
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ................................................. 21,335,829 28,211,689
---------------- ----------------
Distributions to shareholders:
From net investment income ................................... (1,963,338) (3,153,021)
---------------- ----------------
From net realized gains ...................................... (798,328) (6,023,486)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................... 42,619,016 58,695,668
Net asset value of shares issued to shareholders in
reinvestment of distributions .............................. 2,684,551 8,964,419
Cost of shares redeemed ...................................... (19,920,956) (37,524,903)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ............................................... 25,382,611 30,135,184
---------------- ----------------
Increase (decrease) in net assets ............................ 43,956,774 49,170,366
Net assets at beginning of period ............................ 158,711,908 109,541,542
Net assets at end of period (including undistributed
net investment income of $116,906 and $105,659, ---------------- ----------------
respectively) .............................................. $202,668,682 $158,711,908
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................... 9,416,710 7,502,830
---------------- ----------------
Shares sold .................................................. 2,389,582 3,666,310
Shares issued to shareholders in reinvestment of
distributions .............................................. 147,358 542,526
Shares redeemed .............................................. (1,119,139) (2,294,956)
---------------- ----------------
Net increase (decrease) in Fund shares ....................... 1,417,801 1,913,880
---------------- ----------------
Shares outstanding at end of period .......................... 10,834,511 9,416,710
---------------- ----------------
</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
Six Months Ended of operations) to
June 30, 1998(a) Years Ended December 31, December 31,
(Unaudited) 1997(a) 1996(a) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
Net asset value, beginning of period .... $ 16.85 $ 14.60 $ 14.12 $ 11.63 $ 12.23 $ 12.00
Income from investment operations: ----------------------------------------------------------------------------
Net investment income ................... .20 .38 .36 .32 .31 .26
Net realized and unrealized gain (loss)
on investments ........................ 1.93 2.91 1.25 2.74 (.60) .23
----------------------------------------------------------------------------
Total from investment operations ........ 2.13 3.29 1.61 3.06 (.29) .49
----------------------------------------------------------------------------
Less distributions from:
Net investment income ................... (.19) (.36) (.34) (.32) (.31) (.26)
Net realized gains on investment
transactions .......................... (.08) (.68) (.79) (.25) -- --
----------------------------------------------------------------------------
Total distributions ..................... (.27) (1.04) (1.13) (.57) (.31) (.26)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net asset value, end of period .......... $ 18.71 $ 16.85 $ 14.60 $ 14.12 $ 11.63 $ 12.23
----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) .................... 12.69** 22.78 11.54 26.48 (2.39) 4.12*
Ratios and Supplemental Data
Net assets, end of period ($ millions) .. 203 159 110 90 66 64
Ratio of operating expenses, net to
average daily net assets (%) .......... 1.18* 1.02 1.00 1.00 1.00 1.00
Ratio of operating expenses before
expense reductions, to average daily
net assets (%) ........................ 1.30* 1.37 1.37 1.40 1.47 1.53
Ratio of net investment income to average
daily net assets (%) .................. 2.22* 2.32 2.42 2.51 2.66 2.43
Portfolio turnover rate (%) ............. 75.9* 43.2 69.7 103.3 105.4 99.3
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not Annualized
19 - Scudder Balanced Fund
<PAGE>
Notes to Financial Statements (Unaudited)
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 an
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 Stock Market
("Nasdaq"), 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 Nasdaq 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.
Options. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased put options on U.S. Treasury Bonds as a hedge against
potential adverse price movements in the value of portfolio assets. In addition,
during the period, the Fund purchased call options on U.S. Treasury Bonds as a
temporary substitute for purchasing selected investments.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects
20 - Scudder Balanced Fund
<PAGE>
to close out the option it would recognize a gain or loss equal to the
difference between the cost of acquiring the option and the amount realized upon
the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised, the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked prices are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased index securities futures as a temporary substitute for purchasing
selected investments and sold index securities futures to hedge against declines
in the value of portfolio securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
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.
21 - Scudder Balanced Fund
<PAGE>
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
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.
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 six months ended June 30, 1998, purchases and sales of investment
securities (excluding short-term investments and direct U.S. Government
obligations) aggregated $62,628,966 and $40,935,407, respectively. Purchases and
sales of direct U.S. Government obligations aggregated $31,421,106 and
$22,359,927, respectively.
The aggregate face value of futures contracts opened and closed during the six
months ended June 30, 1998 was $143,120,308.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, 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 net
assets, computed and accrued daily and payable monthly. In addition, the Adviser
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 six months ended June 30, 1998,
the Adviser did not impose a portion of its fees amounting to $104,241, and the
portion imposed amounted to $519,744, of which $114,386 is unpaid at June 30,
1998.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended June 30, 1998, the amount charged to the Fund by SSC aggregated
$159,290, of which $27,148 is unpaid at June 30, 1998.
22 - Scudder Balanced Fund
<PAGE>
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 six months ended June 30, 1998, the
amount charged to the Fund by STC aggregated $199,470, of which $36,718 is
unpaid at June 30, 1998.
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 six months
ended June 30, 1998, the amount charged to the Fund by SFAC aggregated $27,898,
of which $4,610 is unpaid at June 30, 1998.
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 six months ended June 30, 1998,
Trustees' fees and expenses aggregated $18,824.
23 - 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; Executive Fellow,
Center for Business Ethics,
Bentley Colleege
Peter B. Freeman
Trustee; Corporate Director
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
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
Stephen A. Wohler*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Treasurer
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
24 - 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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment 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 Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
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. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++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.
25 - Scudder Balanced Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
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<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:
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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.
Distributions Direct
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
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26 - Scudder Balanced Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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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 8,000 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
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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
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27 - 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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