SCUDDER
INVESTMENTS(SM)
[LOGO]
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EQUITY/DOMESTIC
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Scudder Balanced
Fund
Fund #062
Semiannual Report
June 30, 2000
For investors seeking 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 no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
10 Portfolio Management Discussion
15 Glossary of Investment Terms
16 Investment Portfolio
23 Financial Statements
26 Financial Highlights
27 Notes to Financial Statements
31 Shareholder Meeting Results
32 Officers and Trustees
33 Investment Products and Services
35 Account Management Resources
2
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Scudder Balanced Fund
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ticker symbol SCBAX fund number 062
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Date of o Stocks experienced significant volatility in the
Inception: first six months of 2000, with the most dramatic
1/04/93 fluctuations occurring in the technology sector.
o Despite the rising interest rate environment, bonds
provided positive performance and a meaningful source
Total Net of diversification for equity investors.
Assets as
of 6/30/00: o The fund maintained an overweight position in
$560 million equities, where its positions in technology stocks
and pharmaceuticals helped boost returns. In the
fixed
income portion of the portfolio, management's decision
to overweight Treasuries at the expense of corporates
proved beneficial to performance.
o According to Lipper Analytical services, Scudder
Balanced Fund finished in the 27th percentile of
comparable funds over the one year period, and in the
19th and 24th percentiles over the three- and five-year
periods, respectively.^1
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. Performance includes reinvestment of dividends
and capital gains. For the period ended June 30, 2000 Scudder Balanced
Fund's Lipper ranking was 121 out of 461 balanced funds for the
one-year period, 62 out of 340 funds for the three-year period, and 55
out of 237 for the five-year period. Past performance is no guarantee
of future results.
3
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Letter from the Fund's President
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Dear Shareholders,
For many investors, the strong performance of the U.S. stock market diminished
the attractiveness of diversification during the second half of the 1990s. As
investors watched the Nasdaq index surpass new milestones on what seemed to be a
monthly basis, the temptation to move into technology stocks was sometimes
irresistible. But as the events of the first half of 2000 demonstrated,
diversification remains as important as ever. In a period in which stocks
experienced significant volatility and actually lost ground (as measured by the
S&P 500 Index), investors who abandoned their investment plan in favor of a
heavy weighting in more aggressive sectors generally saw their portfolios lose
substantial ground. On the other hand, those who sought to diversify into bonds
and multiple sectors of the stock market generally benefited from their
diversified approach.
We believe that the lesson from the last six months is that no matter what is
taking place in the financial markets, it is essential for investors to stay
focused on their goals and ensure that their investments are appropriately
suited for their needs. Unless you plan to devote your energies to investing
every day, we think that you will benefit from taking a long-term approach that
includes exposure to several asset classes. This includes domestic and
4
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international stocks, small-caps, fixed income, and money market funds. As a
shareholder of Scudder Balanced Fund, you already hold a key element of a
diversified portfolio. The fund's investment in both stocks and bonds has
allowed it to ride out a volatile period with a lower degree of share price
fluctuation than more concentrated portfolios. For more information on where the
fund's managers have found opportunities during the first half of the year,
please turn to the Portfolio Management Discussion that begins on page 10.
Thank you for your continued investment in Scudder Balanced Fund. For current
information on the fund or your account, visit our Web site at www.scudder.com.
There you'll find a wealth of information, including fund performance, the most
recent news on Scudder products and services, and the opportunity to perform
account transactions. You can also speak with one of our representatives by
calling 1-800-SCUDDER (1-800-728-3337).
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President,
Scudder Balanced Fund
5
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Performance Update
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June 30, 2000
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder Balanced Fund S&P 500 Index* LBAB Index*
'93 10000 10000 10000
'94 9839 10546 10351
'95 11724 13293 11650
'96 13606 16749 12234
'97 16313 22564 13232
'98 19839 29370 14626
'99 22385 36056 15084
'00 24298 38673 15770
Yearly periods ended June 30
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 6/30/2000 $10,000 Cumulative Annual
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Scudder Balanced Fund
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1 year $ 10,855 8.55% 8.55%
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5 year $ 20,724 107.24% 15.69%
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Life of Fund** $ 24,298 142.98% 12.58%
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S&P 500 Index (60%) and LBAB Index (40%)*
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1 year $ 10,643 6.43% 6.43%
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5 year $ 21,719 117.19% 16.76%
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Life of Fund** $ 27,421 174.21% 14.57%
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* The Standard & Poor's 500 Index is a capitalization-weighted index of
500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries. The Lehman Brothers Aggregate
Bond (LBAB) Index is an unmanaged market value-weighted measure of
treasury issues, agency issues, corporate bond issues and mortgage
securities. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on January 4, 1993. Index comparisons
begin January 31, 1993.
6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER BALANCED FUND TOTAL RETURN (%) AND
S&P 500 INDEX (60%) AND LBAB INDEX (40%)* TOTAL RETURN (%)
Yearly periods ended June 30
1993** 1994 1995 1996 1997 1998 1999 2000
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Fund Total
Return (%) -1.07 -.54 19.16 16.05 19.90 21.61 12.83 8.55
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Index Total
Return (%) 4.30 .49 20.72 19.02 23.64 22.21 15.21 6.43
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Net Asset
Value ($) 11.82 11.49 13.33 14.74 16.51 18.71 19.74 20.80
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Income
Dividends
($) .05 .28 .32 .32 .09 .47 .33 .33
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Capital
Gains
Distributions
($) -- -- -- .37 -- .76 .95 .29
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* The Standard & Poor's 500 Index is a capitalization-weighted index of
500 stocks. The index is designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500
stocks representing all major industries. The Lehman Brothers Aggregate
Bond (LBAB) Index is an unmanaged market value-weighted measure of
treasury issues, agency issues, corporate bond issues and mortgage
securities. Index returns assume reinvestment of dividends and, unlike
Fund returns, do not reflect any fees or expenses.
** The Fund commenced operations on January 4, 1993. Index comparisons
begin January 31, 1993.
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 maintained the Fund's expenses, total return for the
Fund would have been lower.
7
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Portfolio Summary
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June 30, 2000
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Diversification
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Management generally
Common Stocks 64% targets a stock-bond mix
Fixed Income Holdings 33% of 65%-35%.
Cash Equivalents 3%
------------------------------------
100%
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Fixed Income Holdings
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(Excludes 3% Cash Equivalents) The fund's heavy
weighting in government
Type securities -- the best
------------------------------------ performing sector of the
U.S. Government Agencies 69% bond market -- proved
Corporate Bonds 19% beneficial to fund
U.S. Government Agency performance.
Pass-Thrus 7%
Asset-Backed 2%
Collateralized Mortgage
Obligations 2%
Foreign Bonds --
U.S.$ Denominated 1%
------------------------------------
100%
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Quality
------------------------------------
U.S. Government and
Agencies 63%
AAA 18%
AA 1%
A 11%
BBB 6%
Not Rated 1%
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100%
------------------------------------
Weighted Average Quality: AAA
8
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Equity Holdings
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(Excludes 3% Cash Equivalents) An overweight position
in technology stocks was
Technology 27% helpful to performance
Financial 17% despite the sector's
Health 16% spring correction.
Media 8%
Consumer Discretionary 6%
Energy 6%
Manufacturing 6%
Consumer Staples 6%
Durables 3%
Other 5%
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100%
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Five Largest Equity Holdings
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1. Intel Corp.
Producer of semiconductor memory circuits
2. General Electric Co.
Producer of electrical equipment
3. Microsoft Corp.
Developer of computer software
4. Cisco Systems, Inc.
Manufacturer of computer network products
5. PepsiCo, Inc.
Provider of soft drinks, snack foods and food services
For more complete details about the Fund's investment portfolio, see page 16. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
9
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Portfolio Management Discussion
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June 30, 2000
In the following interview, portfolio manager Gary A. Langbaum discusses the
recent market environment and the strategy of Scudder Balanced Fund during the
six-month period ended June 30, 2000.
Q: The financial markets have experienced quite a bit of volatility over the
past six months. Starting with the fixed income side first, what have been the
issues impacting the bond market?
A: The bond market's performance has been the direct result of investors'
shifting expectations regarding the direction of interest rates, as well as
changes in the balance of supply and demand in the market. Long-term bonds
generally rose during the period as a result of the Treasury's buyback program,
which is designed to reduce outstanding debt by curtailing issuance and taking
existing bonds off investors' hands. Seeing the potential for a significant
reduction in supply, investors moved into longer-term bonds (where the Treasury
was focusing its buyback efforts), driving up prices and sending yields
plummeting. At the same time, shorter-term government bonds were experiencing
the pressure associated with the Federal Reserve's interest rate increases. The
combination of continued strong growth, a shrinking pool of available workers,
rising energy prices, and a roaring stock market compelled the Fed to boost
rates by a full point to slow growth to a more manageable pace. As the reporting
period drew to a close, signs began to emerge that the economy was beginning to
slow down after all, suggesting that the Fed's rate increases were finally
beginning to have an effect. Sensing an end to the tightening cycle, investors
moved back into bonds of all maturities in the final six weeks of the period.
Amid these fluctuations, Treasuries generally outperformed non-governments such
as corporate bonds, mortgage-backed securities, and asset-backeds.
10
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Q: What have been the key factors driving the performance of the stock market?
A: Stocks have also been impacted by changing outlook for interest rates.
Enthusiasm for stocks gained momentum through the first two months of the year,
reaching a crescendo in early March. This phase was characterized by high
trading volumes, enormous inflows of new cash to mutual funds, and explosive
moves in scores of individual stocks in the technology and biotech sectors. In
mid-March, however, the market suffered a large-scale correction as strong
economic growth fueled fears that the Federal Reserve would need to raise rates
more than the market originally expected. With seemingly no end in sight to the
Fed's tightening cycle, the euphoria that propelled the markets in the early
part of the year quickly evaporated, prompting investors to unload their most
speculative, richly-valued holdings. As stocks with questionable business plans,
weak balance sheets, and no current earnings were reassessed by the markets,
many former high-fliers fell as much as 50-80%.
After several weeks of declining stock prices -- which were punctuated by
numerous days in which the Nasdaq experienced sell-offs of 5% or more --
evidence began to emerge that the economy may not be overheating after all.
Inflation figures (as measured by the Consumer Price Index and the Producer
Price Index) were relatively tame, home purchases slowed, and unemployment rose
to 4.1% from 3.9%. Suddenly faced with evidence that the Fed's rate hikes were
in fact beginning to take hold, investors moved back into equities. The ensuing
recovery was sparked by the growing belief that the Fed could now be much less
aggressive than the markets had anticipated. However, not all market
participants had reason to celebrate. Most smaller, speculative growth stocks
remained mired near their lows as skittish investors became less inclined to
hold stocks that lacked meaningful earnings. On the other end of the spectrum,
stocks in the so-called "old economy" sectors -- which had generally
outperformed during the correction -- began to lag on fears that slower growth
11
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would take a bite out of earnings. The weaker performance of these sectors
demonstrated that even though the major averages moved higher over the latter
part of the period, investor confidence remained shaken in the wake of the
dramatic spring sell-off.
Q: How has the fund performed in this environment?
A: For the six-month period ended June 30, 2000, Scudder Balanced Fund produced
a return of 0.45%, which trailed the 1.45% return of its benchmark, a blend of
the S&P 500 Index (60%) and the Lehman Brothers Aggregate Bond Index (40%). In a
period characterized by the rapid fluctuations of the financial markets, the
fund exhibited a low level of relative volatility due to its extensive
diversification. The fund continues to rank well against its peer group across
all time periods. According to Lipper Analytical Services, Scudder Balanced Fund
finished in the 27th percentile of comparable funds over the one-year period,
and in the 19th and 24th percentiles over the three- and five-year periods,
respectively.
Q: How have you positioned the equity portion of the portfolio?
A: We continue to employ a strategy known as "GARP," which stands for "growth at
a reasonable price." GARP is a disciplined, price-oriented methodology that is
designed to help select the strongest candidates from the universe of growth
stocks. We utilize a strict quantitative discipline to evaluate current and
potential holdings based on their fundamental strengths, sustainability of
earnings, and valuations. This process allows us to screen out stocks whose
valuations have climbed to excessive levels with respect to their growth
potential, and to determine price targets for stocks that are already in the
fund. While good companies with superior long-term growth characteristics are
generally worth more than less reliable companies that are often "cheap" for a
reason, we remain very conscious of valuation in this volatile market
environment.
12
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Our target mix of stocks and bonds remains at 65% and 35%, respectively. We
believe that an overweight position in equities is warranted given their
tendency to outperform bonds over the long term. In general, we have been using
market volatility as an opportunity to trim our holdings in stocks that have
reached our target prices, and to take advantage of values that have been
created by the decline in the broader market.
During the first half of 2000, the most significant contributor to performance
was our weighting in technology stocks, in which we held 27.4% of net assets as
of the end of the period. Several stocks provided double digit returns,
including Xilinx (+86%), Intel (+60%), Oracle (+51%), and Applied Materials
(+46%). Another positive was our weighting in pharmaceutical stocks, which
generally respond well when a slowdown in the economy appears imminent. Fund
holdings in Schering Plough, Pfizer, and Forest Labs helped performance, but we
recently trimmed our positions in these names as they reached our price targets.
Recent additions in the sector include Baxter International, Alza, and Abbott
Labs. On the down side, the fund was hurt by its positions in financials and
retailers, both of which were hurt by rising interest rates. We continue to feel
that retail stocks will show strength over the second half of the year, given
strong consumer demand and a booming job market.
Q: On the fixed income side, what sectors have you been focusing on?
A: In the fixed income portion of the portfolio, we benefited from an
overweighting in Treasuries -- the best performing sector of the bond market --
and a concurrent underweighting in corporate bonds, which were hurt by concerns
over the effect that slower economic growth would have on the financial strength
of U.S. corporations. This positioning allowed us to take advantage of the
strong rally in government issues over the first half of the year. As the period
drew to a close, we began to look at opportunities among asset-backed issues,
which, in our
13
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view, offer attractive yields in relation to Treasuries and corporates.
Q: What is your outlook for the markets from here?
A: Looking ahead, we believe that the combination of a slowing economy, low
inflation, stable interest rates, and strong corporate earnings will provide a
solid foundation for both stocks and bonds. Although we see a positive bias to
the market, we believe it is reasonable to expect that volatility will remain an
issue as investors keep a close eye on economic data and corporate earnings
releases. It is also likely that political issues will also move to the
forefront of investors' attention as we move through the third quarter. In our
view, the continuation of a split government (which occurs when Congress and the
presidency are controlled by opposing parties) will be the ideal outcome for the
financial markets. We believe that the fund is well positioned for a positive
environment through its large weighting in equities. At the same time, its
weighting in bonds should help to mitigate further volatility in the financial
markets.
14
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Glossary of Investment Terms
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Asset-Backed Bonds or notes backed by loan paper or accounts receivable
Securities originated by banks, credit card companies, or other
providers of credit and often "enhanced" by a bank Letter of
Credit or by insurance coverage provided by an institution
other than the issuer.
Diversification The spreading of risk by investing in several asset
categories, industry sectors, or individual securities. An
investor with a broadly diversified portfolio will likely
receive some protection from the price declines of an
individual asset class.
Inverted Yield An unusual situation where short-term interest rates are
Curve higher than long-term interest rates. An inverted curve
results when a surge in demand for short-term credit drives
up short-term rates, while long-term rates move up more
slowly since borrowers are not willing to commit themselves
to pay high rates for many years. This scenario is often
indicative of negative sentiment concerning a country's
economic health.
Weighting Refers to the allocation of assets -- usually in terms of
(over/under) sectors, industries, or countries -- within a portfolio
relative to the portfolio's benchmark index or investment
universe.
Yield Curve A graph showing the term structure of interest rates by
plotting the yields of all bonds of the same quality with
maturities ranging from the shortest to the longest
available. The resulting curve shows the relationship between
short-, intermediate-, and long-term interest rates.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
15
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Investment Portfolio as of June 30, 2000 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
-------------------------------------------------------------------------------------
<S> <C> <C>
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Repurchase Agreements 2.8%
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State Street Bank and Trust Company, 6.48%, to be
repurchased at $15,563,801 on 7/3/2000**
(Cost $15,561,000) ................................... 15,561,000 15,561,000
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U.S. Government & Agencies 22.8%
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U.S. Treasury Bond, 9.375%, 2/15/2006 ................... 16,000,000 18,300,000
U.S. Treasury Bond, 6.5%, 2/15/2010 ..................... 32,750,000 33,870,705
U.S. Treasury Bond, 6.125%, 8/15/2029 ................... 6,300,000 6,363,000
U.S. Treasury Inflationary-Indexed Security, 3.975%,
1/15/2009 ............................................ 2,000,000 2,055,791
U.S. Treasury Inflationary-Indexed Security, 3.79%,
4/15/2028 ............................................ 1,750,000 1,765,495
U.S. Treasury Note, 6.625%, 5/31/2002 ................... 13,500,000 13,550,625
U.S. Treasury Note, 7.25%, 8/15/2004 .................... 24,000,000 24,813,840
U.S. Treasury Note, 7.5%, 2/15/2005 ..................... 18,500,000 19,390,220
U.S. Treasury Note, 6.75%, 5/15/2005 .................... 6,300,000 6,446,664
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Total U.S. Government & Agencies (Cost $126,835,977) 126,556,340
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U.S. Government Agency Pass-Thrus 2.5%
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Federal National Mortgage Association:
5.125%, 2/13/2004 .................................... 2,600,000 2,440,334
7.125%, 2/15/2005 .................................... 2,050,000 2,058,323
6.5% with various maturities to 3/1/2028 ............. 3,518,551 3,319,533
Government National Mortgage Association Pass-thru
Certificates, 7% with various maturities to 3/15/2029 6,014,298 5,837,627
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Total U.S. Government Agency Pass-Thrus (Cost $14,121,858) 13,655,817
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Collateralized Mortgage Obligations 0.7%
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Residential Accredit Loans, Inc., Series 1997-A7, 7.25%,
11/25/2027 (Cost $3,942,975) ......................... 3,877,541 3,736,980
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Foreign Bonds -- U.S.$ Denominated 0.3%
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PacifiCorp Australia LLC, 6.15%, 1/15/2008
(Cost $1,991,700) .................................... 2,000,000 1,844,580
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
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Principal
Amount ($) Value ($)
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Asset Backed 0.7%
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Automobile Receivables 0.4%
First Security Auto Owner Trust, Series 1999-2 A3, 6%,
10/15/2003 ........................................ 2,000,000 1,984,688
Credit Card Receivables 0.3%
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ...... 1,500,000 1,445,624
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Total Asset Backed (Cost $3,496,688) 3,430,312
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Corporate Bonds 6.2%
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Consumer Discretionary 0.3%
MGM Grand Inc., 9.75%, 6/1/2007 ...................... 875,000 888,125
Park Place Entertainment, Inc., 8.5%, 11/15/2006 ..... 600,000 589,554
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1,477,679
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Consumer Staples 0.3%
Bass America Inc., 6.625%, 3/1/2003 .................. 1,500,000 1,463,820
------------
Communications 0.9%
Sprint Capital Corp., 6.375%, 5/1/2009 ............... 3,500,000 3,159,870
Vodafone AirTouch plc, 6.25%, 2/15/2010 .............. 2,150,000 2,097,239
------------
5,257,109
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Financial 2.7%
Firststar Bank, 7.125%, 12/1/2009 .................... 1,500,000 1,423,230
Ford Motor Credit Co., 6.7%, 7/16/2004 ............... 4,100,000 3,972,326
Ford Motor Credit Co., 7.375%, 10/28/2009 ............ 1,950,000 1,886,177
General Electric Capital Corp., 7%, 2/3/2003 ......... 2,150,000 2,140,648
General Motors Acceptance Corp., 6.15%, 4/5/2007 ..... 350,000 322,242
General Motors Acceptance Corp. Note, 6.15%,
4/5/2007 .......................................... 380,000 349,862
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ............. 1,150,000 1,025,421
PNC Funding Corp., 7%, 9/1/2004 ...................... 1,150,000 1,115,397
PNC Funding Corp., 7.5%, 11/1/2009 ................... 2,050,000 1,995,019
Prudential Insurance Co., 6.375%, 7/23/2006 .......... 1,000,000 922,400
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15,152,722
------------
Media 1.0%
Cablevision Systems Corp., 7.875%, 12/15/2007 ........ 2,325,000 2,232,000
News America Holdings, Inc., 9.25%, 2/1/2013 ......... 1,000,000 1,080,610
TCI-Communications, Inc., 8%, 8/1/2005 ............... 1,000,000 1,021,100
The accompanying notes are an integral part of the financial statements.
17
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Principal
Amount ($) Value ($)
------------------------------------------------------------------------------
Time Warner, Inc., 9.125%, 1/15/2013 ............... 1,000,000 1,095,900
------------
5,429,610
------------
Durables 0.2%
Daimler-Chrysler North America Holdings, 7.375%,
9/15/2006 ....................................... 950,000 934,363
------------
Energy 0.5%
Atlantic Richfield Co., 5.55%, 4/15/2003 ........... 2,000,000 1,928,160
Petroleum Geo-Services, 7.5%, 3/31/2007 ............ 1,000,000 959,910
------------
2,888,070
------------
Transportation 0.1%
Delta Air Lines, 7.9%, 12/15/2009 .................. 500,000 467,300
------------
Utilities 0.3%
Alabama Power Co., 7.125%, 8/15/2004 ............... 500,000 494,600
Detroit Edison Co., 7.5%, 2/1/2005 ................. 1,000,000 990,150
------------
1,484,750
------------
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Total Corporate Bonds (Cost $34,946,241) 34,555,423
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Shares
------------------------------------------------------------------------------
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Common Stocks 64.0%
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Consumer Discretionary 4.0%
Department & Chain Stores
Home Depot, Inc. ................................... 111,100 5,548,056
Kohl's Corp. ....................................... 69,000 3,838,125
Target Corp. ....................................... 66,400 3,851,200
Wal-Mart Stores, Inc. .............................. 153,500 8,845,438
------------
22,082,819
------------
Consumer Staples 3.5%
Food & Beverage 2.6%
H.J. Heinz Co. ..................................... 113,100 4,948,125
PepsiCo, Inc. ...................................... 209,100 9,291,881
------------
14,240,006
------------
Package Goods/Cosmetics 1.0%
Clorox Co. ......................................... 39,000 1,747,688
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Shares Value ($)
----------------------------------------------------------------
Colgate-Palmolive Co. ................. 60,800 3,640,400
------------
5,388,088
------------
Health 10.3%
Biotechnology 1.4%
Amgen Inc.* ........................... 52,000 3,653,000
Genentech, Inc. ....................... 12,000 2,064,000
PE Corp-PE Biosystems Group ........... 29,200 1,923,550
------------
7,640,550
------------
Medical Supply & Specialty 2.0%
Baxter International, Inc. ............ 104,500 7,347,656
Becton, Dickinson & Co. ............... 121,000 3,471,188
------------
10,818,844
------------
Pharmaceuticals 7.0%
Abbott Laboratories ................... 149,000 6,639,813
Allergan, Inc. ........................ 57,800 4,306,100
Alza Corp. ............................ 40,000 2,365,000
Eli Lilly & Co. ....................... 51,500 5,143,563
Forest Laboratories, Inc. ............. 21,900 2,211,900
Merck & Co., Inc. ..................... 71,000 5,440,375
Pfizer, Inc. .......................... 184,900 8,875,200
Schering-Plough Corp. ................. 74,500 3,762,250
------------
38,744,201
------------
Communications 1.7%
Telephone/Communications
Bell Atlantic Corp. ................... 51,500 2,616,844
BroadWing, Inc. ....................... 124,000 3,216,250
Qwest Communications International Inc. 75,000 3,726,563
------------
9,559,657
------------
Financial 10.7%
Banks 0.9%
FleetBoston Financial Corp. ........... 71,000 2,414,000
Wells Fargo Co. ....................... 68,000 2,635,000
------------
5,049,000
------------
Insurance 4.5%
American International Group, Inc. .... 72,483 8,516,753
Aon Corp. ............................. 99,000 3,075,188
Cigna Corp. ........................... 40,000 3,740,000
Hartford Financial Services Group, Inc. 60,000 3,356,250
Jefferson Pilot Corp. ................. 42,000 2,370,375
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Shares Value ($)
--------------------------------------------------------------
St. Paul Companies, Inc. ............. 119,000 4,060,875
------------
25,119,441
------------
Consumer Finance 3.2%
American Express Co. ................. 80,400 4,190,850
Capital One Finance Corp. ............ 86,600 3,864,525
Citigroup, Inc. ...................... 94,000 5,663,500
Household International, Inc. ........ 92,000 3,823,750
------------
17,542,625
------------
Other Financial Companies 2.1%
Federal National Mortgage Association 61,500 3,209,531
Marsh & McLennan Companies, Inc. ..... 31,800 3,321,113
Morgan Stanley Dean Witter & Co. ..... 58,400 4,861,800
------------
11,392,444
------------
Media 5.1%
Advertising 0.5%
Omnicom Group, Inc. .................. 29,600 2,636,250
------------
Broadcasting & Entertainment 3.9%
Clear Channel Communications, Inc. ... 50,800 3,810,000
Infinity Broadcasting Corp. "A" ...... 152,927 5,572,278
Univision Communication, Inc. ........ 25,100 2,597,850
Viacom, Inc. "B"* .................... 82,162 5,602,421
Walt Disney Co. ...................... 102,500 3,978,281
------------
21,560,830
------------
Cable Television 0.7%
AT&T Corp.-- Liberty Media Group "A"* 165,200 4,006,100
------------
Service Industries 1.8%
EDP Services 0.5%
First Data Corp. ..................... 50,500 2,506,063
------------
Environmental Services 0.6%
Transocean Sedo Forex, Inc. .......... 60,706 3,243,977
------------
Miscellaneous Commercial Services 0.3%
Siebel Systems, Inc. ................. 8,600 1,406,638
------------
Printing/Publishing 0.5%
McGraw-Hill, Inc. .................... 47,100 2,543,400
------------
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Shares Value ($)
-----------------------------------------------------------------
Durables 1.8%
Aerospace
Boeing Co. ............................ 88,600 3,704,588
United Technologies Corp. ............. 103,500 6,093,563
------------
9,798,151
------------
Manufacturing 3.8%
Diversified Manufacturing 3.0%
General Electric Co. .................. 262,700 13,923,100
Tyco International Ltd. ............... 53,200 2,520,350
------------
16,443,450
------------
Machinery/Components/Controls 0.3%
Parker-Hannifin Corp. ................. 49,500 1,695,375
------------
Office Equipment/Supplies 0.5%
Lexmark International Group, Inc. "A" . 43,300 2,911,925
------------
Technology 17.5%
Computer Software 3.7%
Microsoft Corp.* ...................... 169,900 13,592,000
Oracle Corp.* ......................... 83,000 6,977,188
------------
20,569,188
------------
Diverse Electronic Products 4.1%
Applied Materials, Inc.* .............. 40,300 3,652,188
Dell Computer Corp.* .................. 116,500 5,744,906
General Motors Corp. "H" (New) ........ 36,300 3,185,325
Motorola Inc. ......................... 98,900 2,874,281
Solectron Corp. ....................... 112,000 4,690,000
Teradyne, Inc. ........................ 36,500 2,682,750
------------
22,829,450
------------
EDP Peripherals 0.3%
VERITAS Software Corp.* ............... 14,000 1,582,219
------------
Electronic Components/Distributors 2.4%
Cisco Systems, Inc.* .................. 208,100 13,227,356
------------
Electronic Data Processing 2.9%
International Business Machines Corp. . 50,800 5,565,775
Radioshack Corp. ...................... 113,500 5,377,063
Sun Microsystems, Inc.* ............... 55,800 5,074,313
------------
16,017,151
------------
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
Shares Value ($)
---------------------------------------------------------------------------------------
<S> <C> <C>
Semiconductors 4.1%
Intel Corp. ............................................... 110,000 14,705,625
Linear Technology Corp. ................................... 30,000 1,918,125
Texas Instruments, Inc. ................................... 62,400 4,286,100
Xilinx, Inc. .............................................. 19,500 1,609,959
------------
22,519,809
------------
Energy 4.0%
Oil & Gas Production 2.4%
Burlington Resources, Inc. ................................ 66,000 2,524,500
Exxon Mobil Corp. ......................................... 89,064 6,991,524
Royal Dutch Petroleum Co. (New York shares) ............... 57,000 3,509,063
------------
13,025,087
------------
Oilfield Services/Equipment 1.6%
Halliburton Co. ........................................... 77,000 3,633,438
Schlumberger Ltd. ......................................... 70,800 5,283,452
------------
8,916,890
------------
---------------------------------------------------------------------------------------
Total Common Stocks (Cost $259,918,921) 355,016,984
---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $460,815,360) (a) 554,357,436
---------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $461,052,158. At June 30,
2000, net unrealized appreciation for all securities based on tax cost
was $93,305,278. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $103,643,403 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax
cost over value of $10,338,125.
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
---------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $460,815,360) ................ $554,357,436
Receivable for investments sold ........................................ 6,364,690
Dividends receivable ................................................... 190,404
Interest receivable .................................................... 3,828,043
Receivable for Fund shares sold ........................................ 144,236
Reimbursement from Adviser ............................................. 28,105
Other assets ........................................................... 31,166
---------------
Total assets ........................................................... 564,944,080
Liabilities
------------------------------------------------------------------------------------
Due to custodian bank .................................................. 1,490
Payable for investments purchased ...................................... 3,050,899
Payable for Fund shares redeemed ....................................... 619,459
Accrued management fee ................................................. 327,109
Accrued reorganization costs ........................................... 265,861
Accrued Trustees' fees and expenses .................................... 56,118
Other accrued expenses and payables .................................... 392,121
---------------
Total liabilities ...................................................... 4,713,057
---------------------------------------------------------------------------------------
Net assets, at value $560,231,023
---------------------------------------------------------------------------------------
Net Assets
---------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 46,916
Net unrealized appreciation (depreciation) on investments .............. 93,542,076
Accumulated net realized gain (loss) ................................... 6,042,362
Paid-in capital ........................................................ 460,599,669
---------------------------------------------------------------------------------------
Net assets, at value $560,231,023
---------------------------------------------------------------------------------------
Net Asset Value
---------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($560,231,023 /
26,930,321 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) .............................. $ 20.80
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
--------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $8,156) ........... $ 1,317,241
Interest ...................................................... 6,789,139
---------------
Total Income .................................................. 8,106,380
Expenses:
Management fee ................................................ 1,945,662
Services to shareholders ...................................... 1,492,564
Custodian and accounting fees ................................. 50,074
Auditing ...................................................... 19,900
Legal ......................................................... 6,453
Trustees' fees and expenses ................................... 72,668
Reports to shareholders ....................................... 44,732
Registration fees ............................................. 12,954
Reorganization fees ........................................... 313,877
Other ......................................................... 3,945
---------------
Total expenses, before expense reductions ..................... 3,962,829
Expense reductions ............................................ (39,719)
---------------
Total expenses, after expense reductions ...................... 3,923,110
-----------------------------------------------------------------------------
Net investment income (loss) 4,183,270
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
-----------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... 6,139,859
Net unrealized appreciation (depreciation) during the period on
investments ................................................ (8,459,914)
--------------------------------------------------------------------------------
Net gain (loss) on investment transactions (2,320,055)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 1,863,215
--------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended
2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................... $ 4,183,270 $ 8,039,585
Net realized gain (loss) on investment transactions 6,139,859 8,108,433
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... (8,459,914) 43,321,558
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations ................................ 1,863,215 59,469,576
--------------- ---------------
Distributions to shareholders from:
Net investment income ............................. (4,235,066) (7,947,317)
--------------- ---------------
Net realized gains ................................ (7,589,096) (267,261)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ......................... 96,353,897 419,195,389
Reinvestment of distributions ..................... 11,665,672 8,054,647
Cost of shares redeemed ........................... (110,072,344) (170,166,182)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................ (2,052,775) 257,083,854
--------------- ---------------
Increase (decrease) in net assets ................. (12,013,722) 308,338,852
Net assets at beginning of period ................. 572,244,745 263,905,893
Net assets at end of period (including
undistributed net investment income of $46,916
and $98,712, respectively) ..................... $ 560,231,023 $ 572,244,745
Other Information
------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 27,060,834 13,918,098
--------------- ---------------
Shares sold ....................................... 4,653,109 21,428,478
Shares issued to shareholders in reinvestment of
distributions .................................. 554,379 408,146
Shares redeemed ................................... (5,338,001) (8,693,888)
--------------- ---------------
Net increase (decrease) in Fund shares ............ (130,513) 13,142,736
Shares outstanding at end of period ............... 26,930,321 27,060,834
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<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>
-------------------------------------------------------------------------------------
Years ended December 31, 2000(c) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $21.15 $18.96 $16.85 $14.60 $14.12 $11.63
------------------------------------------------------
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
-------------------------------------------------------------------------------------
Net investment income (loss)
(a) .16 .33 .36 .38 .36 .32
-------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.11) 2.20 3.14 2.91 1.25 2.74
------------------------------------------------------
-------------------------------------------------------------------------------------
Total from investment
operations .05 2.53 3.50 3.29 1.61 3.06
-------------------------------------------------------------------------------------
Less distributions from:
-------------------------------------------------------------------------------------
Net investment income (.11) (.32) (.37) (.36) (.34) (.32)
-------------------------------------------------------------------------------------
Net realized gains on
investment transactions (.29) (.02) (1.02) (.68) (.79) (.25)
------------------------------------------------------
-------------------------------------------------------------------------------------
Total distributions (.40) (.34) (1.39) (1.04) (1.13) (.57)
-------------------------------------------------------------------------------------
Net asset value, end of period $20.80 $21.15 $18.96 $16.85 $14.60 $14.12
------------------------------------------------------
-------------------------------------------------------------------------------------
Total Return (%) .45** 13.46 21.10(b) 22.78(b) 11.54(b) 26.48(b)
-------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
-------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 560 572 264 159 110 90
-------------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) 1.37(d)* 1.29 1.34 1.37 1.37 1.40
-------------------------------------------------------------------------------------
Ratio of expenses after
expense reductions (%) 1.36(d)* 1.29 1.29 1.02 1.00 1.00
-------------------------------------------------------------------------------------
Ratio of net investment income
(loss) (%) 1.53* 1.69 1.99 2.32 2.42 2.51
-------------------------------------------------------------------------------------
Portfolio turnover rate (%) 113* 102 75 43 70 103
-------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been
reduced.
(c) For the six months ended June 30, 2000 (Unaudited).
(d) The ratios of operating expenses excluding costs incurred in connection
with reorganization before and after expense reductions were 1.30% and
1.30%, respectively.
* Annualized
** Not annualized
26
<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") which is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-ended management investment
company organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States 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. Investments are stated at value determined as of the close
of regular trading on the New York Stock Exchange. 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. 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, or if no sale occurred, at the calculated mean between the most recent
bid and asked quotations on such market. 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 Trust, whose
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 or
sub-custodian bank, receives delivery of the underlying securities, the amount
27
<PAGE>
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 is equal to at least the
principal amount of the repurchase price plus accrued interest.
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. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. Distributions of net investment income, if
any, are made quarterly. 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 at least
annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States. 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date. Realized gains and
losses from investment transactions are recorded on an identified cost basis.
All discounts are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
For the six months ended June 30, 2000, purchases and sales of investment
securities (excluding short-term investments and direct U.S. Government
obligations) aggregated $210,826,619 and $248,071,727, respectively. Purchases
and sales of direct U.S. Government obligations aggregated $97,490,836 and
$79,733,571, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the
28
<PAGE>
Adviser directs the investments of the Fund in accordance with its investment
objectives, policies and restrictions. The Adviser determines the securities,
instruments and other contracts relating to investments to be purchased, sold or
entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The management fee payable under the Agreement is equal to an annual
rate of 0.70% of the Fund's average daily net assets, computed and accrued daily
and payable monthly. Accordingly, for the six months ended June 30, 2000, the
fee pursuant to the agreement amounted to $1,945,662.
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, 2000, the amount charged to the Fund by SSC aggregated
$240,951, of which $37,877 is unpaid at June 30, 2000.
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, 2000, the
amount charged to the Fund by STC aggregated $1,139,219, of which $198,899 is
unpaid at June 30, 2000.
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, 2000, the amount charged to the Fund by SFAC aggregated $46,380,
of which $7,888 is unpaid at June 30, 2000.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the six
months ended June 30, 2000, Trustee fees and expenses aggregated $16,458. In
addition, a one-time fee of $56,210 was accrued for payment to those Trustees
not affiliated with the Adviser who are not standing for re-election, under the
reorganization discussed in Note F. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $28,105 of such costs.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. For the six months ended June 30,
29
<PAGE>
2000, the Fund's custodian and transfer agent fees were reduced by $740 and
$10,874, respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets, among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum of 33 percent of its net
assets under the agreement.
F. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, are presented as reorganization expenses in the
Statement of Operations of the Fund.
30
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Balanced Fund (the
"fund") was held on July 13, 2000, at the office of Scudder Kemper Investments,
Inc., Two International Place, Boston, Massachusetts 02110. At the Meeting the
following matters were voted upon by the shareholders (the resulting votes for
each matter are presented below).
1. To elect Trustees of the fund.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 10,541,160 257,734
Linda C. Coughlin 10,546,548 252,346
Dawn-Marie Driscoll 10,544,878 254,015
Edgar R. Fiedler 10,539,694 259,200
Keith R. Fox 10,530,873 268,021
Joan E. Spero 10,537,400 261,494
Jean Gleason Stromberg 10,544,736 254,158
Jean C. Tempel 10,540,941 257,953
Steven Zaleznick 10,538,822 260,072
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the current fiscal year.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------------------------------------------------------------------------------
10,538,454 119,151 141,288 0
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* 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.
31
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin* Kelly D. Babson*
o President and Trustee o Vice President
Henry P. Becton, Jr. Robert S. Cessine*
o Trustee; President, WGBH o Vice President
Educational Foundation
Gary A. Langbaum*
Dawn-Marie Driscoll o Vice President
o Trustee; President, Driscoll
Associates; Executive Fellow, Ann M. McCreary*
Center for Business Ethics, o Vice President
Bentley College
John Millette*
Peter B. Freeman o Vice President and Secretary
o Trustee; Corporate Director
John R. Hebble*
George M. Lovejoy, Jr. o Treasurer
o Trustee; President and Director,
Fifty Associates Caroline Pearson*
o Assistant Secretary
Wesley W. Marple, Jr.
o Trustee; Professor of Business *Scudder Kemper Investments, Inc.
Administration, Northeastern
University
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital, LLC
32
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
--------------------------------------------------------------------------------
The Scudder Family of Funds@
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund***
Prime Reserve Shares* Scudder Small Company Value Fund
Premium Shares*
Managed Shares* Growth
Scudder Tax Free Money Fund+ Scudder Classic Growth Fund***
Scudder Capital Growth Fund***
Tax Free+ Scudder Large Company Growth Fund***
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund*** Scudder Small Company Stock Fund***
Scudder California Tax Free Fund** Scudder 21st Century Growth Fund***
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund** Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund++
Scudder GNMA Fund*** Scudder Global Discovery Fund***
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.***
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Choice Series
Scudder Pathway Growth Portfolio Scudder Health Care Fund
Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund***
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
</TABLE>
33
<PAGE>
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**@@
Scudder Horizon Advantage**@@@
--------------------------------------------------------------------------------
Closed-End Funds#
--------------------------------------------------------------------------------
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia 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 or classes thereof 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 Class S 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 Kemper Investments'
insurance agencies, 1-800-225-2470.
@@@ A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by
Scudder Kemper Investments' 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.
34
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average"
-- buy more shares when the fund's price is lower and
fewer when it's higher, which can reduce your average
purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* 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- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to exchange
or redeem shares, and information on other Scudder funds
and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all 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.
35
<PAGE>
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days
withdrawal after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Scudder Class S Shareholders:
information Call a Scudder representative at
about these 1-800-SCUDDER
services
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
36
<PAGE>
Notes
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<PAGE>
Notes
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<PAGE>
Notes
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<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services 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 Financial Services Group. The Zurich Financial Services 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
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
