SCUDDER
INVESTMENTS(SM)
[LOGO]
- --------------------------------------------------------------------------------
EQUITY/DOMESTIC
- --------------------------------------------------------------------------------
Scudder Balanced Fund
Fund #062
Annual Report
December 31, 1999
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.
<PAGE>
Contents
- --------------------------------------------------------------------------------
4 Letter from the Fund's President
6 Performance Update
7 Portfolio Summary
10 Portfolio Management Discussion
15 Glossary of Investment Terms
16 Investment Portfolio
24 Financial Statements
27 Financial Highlights
28 Notes to Financial Statements
32 Report of Independent Accountants
33 Tax Information
34 Officers and Trustees
35 Investment Products and Services
37 Scudder Solutions
2
<PAGE>
Scudder Balanced Fund
- --------------------------------------------------------------------------------
ticker symbol SCBAX fund number 062
- --------------------------------------------------------------------------------
o Scudder Balanced Fund outperformed both its benchmark and its peer
group in 1999. In a period when fixed income returns were dampened by
fears that a pickup in inflation was imminent, the fund was buoyed by
strong stock selection in the equity portion of its portfolio.
o The fund has finished in the top quartile of balanced funds over the
one-, three-, and five- year periods, according to Lipper Analytical
Services.^1
o Although a focus on growth stocks held the fund in good stead in 1999,
management has begun to trim the fund's weightings in some of its more
richly valued holdings in favor of stocks that offer growth at what
management sees as a more reasonable price.
^1 Lipper Analytical Services, Inc. is an independent analyst of investment
performance. Performance includes reinvestment of dividends and capital
gains. For the period ended December 31, 1999, Scudder Balanced Fund's Lipper
ranking was 101 out of 448 funds for the one-year period, 167 out of 476
funds for the three-year period, and 102 out of 477 for the five-year period.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
- --------------------------------------------------------------------------------
Date of Inception: 1/04/93
Total Net Assets as of 12/31/99:
$572 million
- --------------------------------------------------------------------------------
3
<PAGE>
Letter from the Fund's President
- --------------------------------------------------------------------------------
Dear Shareholders,
What a difference a year makes. When 1999 began, investors were still reeling
from the various crises that plagued the markets in the autumn of the previous
year. Many experts predicted that bond yields, which had already fallen
significantly in 1998, would go still lower. At the same time, the conventional
wisdom said that stocks would post subdued returns in a year likely to be
characterized by slower global growth. As is often the case, however, both the
economy and the markets defied expectations. Equity prices soared behind an
acceleration in economic growth, with the most richly-valued stocks providing
the best performance. Bonds fared much worse, as concerns about the inflation
outlook caused yields to rise steadily (and prices to fall) as the year
progressed.
Although equities vastly outperformed bonds in the second half of the 1990s, we
believe that the fixed income sector continues to provide excellent
opportunities for portfolio diversification. A balanced approach that includes
both stocks and bonds can help achieve more consistent returns with a lower
level of risk than a strategy that focuses on only a limited segment of the
market. We believe diversification is never more important than at a time when
volatility is likely to be a key feature of the investment environment, as we
believe it will in 2000. For more information on how the fund's management team
plans to position the fund in
4
<PAGE>
the year ahead, please turn to the Portfolio Management Discussion that begins
on page 10.
Finally, it should be noted that Daniel Pierce retired in June of 1999 as
President of Scudder Balanced Fund, at which time I assumed that role and its
responsibilities. We are fortunate that Dan's long-standing affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join the fund's team in this capacity, and look forward
to serving your interests.
Thank you for your continued investment in Scudder Balanced Fund. If you have
any questions about your investment, please call Scudder Investor Information at
1-800-SCUDDER (1-800-728-3337), or visit our Web site at www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Balanced Fund
5
<PAGE>
Performance Update
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
Scudder Balanced Fund S&P 500 Index* LBAB Index*
1/31/93** 10000 1/31/93** 10000 1/31/93** 10000
93 10412 93 10915 93 10768
94 10164 94 11059 94 10454
95 12855 95 15214 95 12386
96 14339 96 18707 96 12833
97 17605 97 24951 97 14075
98 21319 98 32083 98 15295
99 24188 99 38834 99 15167
Yearly periods ended December 31
- --------------------------------------------------------------------------------
Fund Index Comparison
- --------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 12/31/1999 $10,000 Cumulative Annual
- --------------------------------------------------------------------------------
Scudder Balanced Fund
- --------------------------------------------------------------------------------
1 year $ 11,346 13.46% 13.46%
- --------------------------------------------------------------------------------
5 year $ 23,799 137.99% 18.94%
- --------------------------------------------------------------------------------
Life of Fund** $ 24,188 141.88% 13.47%
- --------------------------------------------------------------------------------
S&P 500 Index (60%) and LBAB Index (40%)*
- --------------------------------------------------------------------------------
1 year $ 11,199 11.99% 11.99%
- --------------------------------------------------------------------------------
5 year $ 24,971 149.71% 20.07%
- --------------------------------------------------------------------------------
Life of Fund** $ 27,029 170.29% 15.46%
- --------------------------------------------------------------------------------
* 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 operation on January 4, 1993. Index comparisons begin
January 31, 1993.
6
<PAGE>
- --------------------------------------------------------------------------------
Returns and Per Share Information
- --------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
Yearly periods ended December 31
Scudder Balanced Fund S&P 500 Index (60%) and LBAB Index (40%)*
1993** 4.12 1993** 8.56
1994 -2.39 1994 -0.5
1995 26.48 1995 31.34
1996 11.54 1996 14.96
1997 22.78 1997 23.63
1998 21.10 1998 20.98
1999 13.46 1999 11.99
1993** 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
Fund Total
Return (%) 4.12 -2.39 26.48 11.54 22.78 21.10 13.46
- --------------------------------------------------------------------------------
Index Total
Return (%) 8.56 -.03 31.34 14.96 23.63 20.98 11.99
- --------------------------------------------------------------------------------
Net Asset
Value ($) 12.23 11.63 14.12 14.60 16.85 18.96 21.15
- --------------------------------------------------------------------------------
Income
Dividends ($) .26 .31 .32 .34 .36 .37 .32
- --------------------------------------------------------------------------------
Capital Gains
Distributions($) -- -- .25 .79 .68 1.02 .02
- --------------------------------------------------------------------------------
* 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 operation 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
<PAGE>
Portfolio Summary
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
Diversification
- --------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Common Stocks 65%
Fixed Income Holdings 33%
Cash Equivalents 2%
- ------------------------------------
100%
- ------------------------------------
The fund's weighting in equities increased from 59% of net assets on June 30.
- --------------------------------------------------------------------------------
Fixed Income Holdings
- --------------------------------------------------------------------------------
(Excludes 2% Cash Equivalents)
Type
- ------------------------------------
U.S. Government Agencies 60%
Corporate Bonds 24%
U.S. Government Agency
Pass-Thrus 4%
Asset-Backed 3%
Government National
Mortgage Association 3%
Collateralized Mortgage
Obligations 3%
Foreign Bonds --
U.S.$ Denominated 3%
- ------------------------------------
100%
- ------------------------------------
Quality
- ------------------------------------
U.S. Government and
Agencies 67%
AAA 6%
AA 5%
A 13%
BBB 7%
Not Rated 2%
- ------------------------------------
100%
- ------------------------------------
Weighted Average Quality: AAA
Management increased the portfolio's weighting in government bonds in order to
add flexibility to the fixed income portion of the portfolio.
8
<PAGE>
- --------------------------------------------------------------------------------
Equity Holdings
- --------------------------------------------------------------------------------
Technology 22%
Financial 14%
Media 12%
Health 10%
Consumer Discretionary 10%
Manufacturing 8%
Communications 7%
Consumer Staples 6%
Energy 5%
Service Industries 4%
Durables 2%
- --------------------------------
100%
- --------------------------------
The fund's weighting in the technology, media, and communications sectors
provided a significant boost to performance over the second half of the year.
Five Largest Equity Holdings
- ----------------------------------------------------------
1. General Electric Co.
Producer of electrical equipment
2. Microsoft Corp.
Developer of computer software
3. Cisco Systems, Inc.
Manufacturer of computer network products
4. Wal-Mart Stores, Inc.
Operator of discount stores
5. Intel Corp.
Producer of semiconductor memory circuits
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
<PAGE>
Portfolio Management Discussion
- --------------------------------------------------------------------------------
December 31, 1999
In the following interview, portfolio manager Gary Langbaum discusses the recent
market environment and the strategy of Scudder Balanced Fund in the twelve-month
period ended December 31, 1999.
Q: The stock market produced another stellar year in 1999, but bonds lagged.
What were some of the key factors driving market performance?
A: The potent combination of favorable liquidity factors, stronger than expected
economic growth, and a powerful rise in corporate earnings helped propel the
U.S. stock market to strong gains in 1999, the fifth consecutive year in which
the S&P 500 has delivered a total return of over 20%. The Nasdaq average rose
85.6% behind the incredible gains in technology stocks, which once again
benefited from investors' emphasis on earnings growth over valuation. Bonds, on
the other hand, posted poor performance due to persistent fears of inflation and
three interest rate hikes by the U.S. Federal Reserve. The yield on the
benchmark 30-year Treasury issue rose from 5.10% to 6.48% in 1999 (as its price
fell), its second worst performance since 1973. However, certain sectors of the
bond market -- such as mortgage-backed securities and high-yield corporates --
outperformed government issues.
Q: How did the fund perform in this environment?
A: For the twelve months ended December 31, 1999, the fund returned 13.46%,
beating the 11.99% return of its unmanaged benchmark, which is a combination of
the S&P 500 (60%) and the Lehman Brothers Aggregate Bond Index (40%). The equity
portion of the portfolio produced a return of 25.46%, which beat the 21.04%
return of the S&P 500. The fund's 13.46% return stacked up well against the
8.72% average return of funds in the balanced category, as calculated by Lipper
Analytical Services. The fund has performed well against its peers over the long
term, as well. Its total return through December 31 placed it in the top 23%,
10%, and 19% of comparable funds over the one-, three-, and five-year periods,
respectively.
10
<PAGE>
Q: What was your strategy with respect to the equity portion of the portfolio?
A: Fund strategy has been shaped by our strongly bullish view on the stock
market. We held a larger than normal weighting in equities, and were
well-positioned to capitalize on the rally in technology stocks. Performance has
been boosted by our holdings in a number of the large cap tech stocks that led
the market in 1999, such as Microsoft, Oracle, Applied Materials, Motorola,
America Online, and Sun Microsystems. The fund's equity position has also been
buoyed by its holdings in broadcasting, retail, and biotechnology, but its
positions in pharmaceuticals and financials lagged.
We employ a strategy known as "GARP," which stands for "growth at a reasonable
price." Essentially, we are using a value-oriented approach to select what we
see as the strongest candidates from a growth universe. Utilizing a quantitative
discipline, we evaluate current and potential holdings based on their
fundamental strengths, sustainability of earnings, and valuations. In the
process, we screen out stocks whose valuations have climbed to what we see as
excessive levels with respect to their growth potential, a condition that
usually increases their vulnerability to earnings disappointments. In our view,
good companies with superior long-term growth characteristics are worth more
than less reliable companies that are often "cheap" for a reason. However, we
are very conscious of valuation, and have been reducing our positions in the
types of high-octane stocks that drove market performance in 1999.
Q: What are some individual companies that performed well for the fund?
A: The retail sector provided mixed returns in 1999, but we benefited from our
positions in two of the best performers in the group: Wal-Mart and Home Depot.
The top players in their respective categories, both companies continue to
produce outstanding earnings growth and same-store sales figures. While higher
interest rates are
11
<PAGE>
usually a negative for retailers, we believe that Wal-Mart and Home Depot will
remain two of the best long-term retail stories even if growth slows from its
current pace. Both companies sell at a premium multiple in relation to their
peer group, but we believe they are worth it given their outstanding track
records.
Our selection of some of the top-performing stocks in the media sector also
provided a boost to fund performance. An example of a company that has done well
for us is Clear Channel Communications, which owns and operates radio stations
across the United States. The company has been a direct beneficiary of the
"dot.com" fever, since many of the Internet companies that have gone public over
the past year have put the cash to work by launching aggressive marketing
campaigns. The ensuing increase in demand for advertising time -- a product for
which there is a relatively stable supply -- has been a windfall for radio
companies like Clear Channel. Even after the company's outstanding performance
in 1999, we remain optimistic on its prospects due to its strong management,
outstanding execution, and history of steady earnings growth.
Q: Where have you found opportunities on the fixed income side?
A: Even though bonds produced poor performance over the course of the year, we
gained an incremental advantage by being well-positioned within the sector. At
the end of the second quarter, we increased our weighting in corporate bonds
when yields reached attractive levels in relation to Treasuries. As Y2K fears
dissipated in the second half of the year, corporates held up well even as the
interest rate environment deteriorated. The fund gained particularly strong
performance from its fixed income holdings in the energy and telecommunications
sectors.
As the year drew to a close, we cut back on our holdings in corporates and added
to our weighting in Treasuries. We made this move in order to increase our
flexibility with respect to the fund's duration. While the duration of the
portfolio (or interest rate sensitivity) is neutral at the present time, we are
preparing for a shift in the interest
12
<PAGE>
rate outlook later in 2000 when the threat of further rate hikes by the Federal
Reserve begin to diminish. Since it is much easier to make adjustments to the
portfolio when it has a larger position in Treasuries -- which are more liquid
than corporates -- we feel this move will make it easier for us to take
advantage of the shifts in the interest rate environment that we see occurring
in the first half of 2000.
Q: What is your outlook for the year ahead?
A: We believe that the key variable could be November's elections. In recent
years, the markets have performed best in periods when there is a spilt
government; in other words, when different parties are in control of Congress
and the White House. If we were to see a return of one-party government in favor
of either the Democrats or the Republicans, the change in the political
environment may have a negative impact on individual sectors of the market. For
example, the Democrats may attempt to pass a comprehensive health care bill,
which in turn would be likely to depress pharmaceutical stocks. We believe that
as the interest rate picture becomes clearer toward mid-year, these political
issues will move to the forefront of the markets' attention.
Nevertheless, we remain bullish on the outlook for the stock market. Although it
is likely that we will see an even higher level of volatility than last year, we
believe that the fundamental underpinnings of the stock market -- increasing
productivity, strong economic growth, and rising corporate earnings -- remain in
place. On the fixed income side, we feel that bonds are poised for a rebound
following their poor performance in 1999. Once the end of the Fed's current
tightening cycle is in sight, the pressure that has been on the bond market for
the past year will be eased, making investors more inclined to take advantage of
the high real yields that currently exist. Despite our expectation for a more
challenging investment environment in the coming months, we are confident that
the combination of solid growth stocks and high-quality bonds will position the
portfolio for long-term outperformance.
13
<PAGE>
Scudder Balanced Fund:
A Team Approach to Investing
Scudder Balanced Fund is managed by a team of Scudder Kemper Investments, Inc.
(the "Adviser") professionals, each of whom plays an important role in the
fund's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in offices across the United States and abroad.
The Adviser believes that a team approach benefits fund investors by bringing
together many disciplines and leveraging the firm's extensive resources.
Lead portfolio manager Gary A. Langbaum assumed responsibility for the fund's
day-to-day management and investment strategies in 1999. Mr. Langbaum has 12
years of experience as an equity research analyst covering a wide range of
industries, and five years of portfolio management experience, focusing on the
stocks of companies with medium- to large-sized market capitalizations.
Portfolio manager Tracy McCormick joined the Adviser in 1994 and the fund in
1999 and has more than 18 years of experience in the investment industry.
Portfolio manager Robert S. Cessine joined the Adviser in 1993 and the team in
1999. Mr. Cessine has over 18 years of experience in the investment industry.
14
<PAGE>
Glossary of Investment Terms
- --------------------------------------------------------------------------------
Duration A measure of bond price volatility. Duration can be defined
as the approximate percentage change in price for a 100
basis point (one single percentage point) change in market
interest rate levels. A duration of 5, for example, means
that the price of a bond should rise by approximately 5% for
a one percentage point drop in interest rates, and fall by
5% for a one percentage point rise in interest rates.
Growth Stock Stock of a company that has displayed above-average
earnings growth and is expected to continue to increase
profits faster than the overall market. Stocks of such
companies usually trade at higher valuations and experience
more price volatility than the market as a whole. Distinct
from value stock.
Liquidity A characteristic of an investment or an asset referring to
the ease of convertibility into cash within a reasonably
short period of time. A stock that is liquid has enough
shares outstanding and a substantial enough market
capitalization to allow large purchases and sales to occur
without causing a significant move in its market price as a
result.
Price/Earnings A widely used gauge of a stock's valuation that indicates
Ratio (P/E) what investors are paying for a company's earning power at
(also the current stock price. A P/E ratio may be based on a
"earnings company's projected earnings for the coming 12 months. A
multiple") higher "earnings multiple" indicates higher expected
earnings growth, along with greater risk of earnings
disappointment.
Real Interest The nominal interest rate minus the inflation rate. For
Rates example, if the U.S. 30-year Treasury bond is yielding 5%
and inflation is running at 1%, the real yield is 4%.
Yield Spread The difference in yield between two types of bonds.
A mortgage-backed security's yield is often measured
against the yield of a Treasury bond of similar maturity as
a market yardstick. If GNMA yield spreads are "narrow," for
example, it typically means that GNMA yields have been
declining, and prices rising, compared with Treasury bonds
of similar maturity.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
15
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio as of December 31, 1999
- -------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Repurchase Agreements 1.80%
- -------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be
repurchased at $10,358,415 on 1/3/2000**
(Cost $10,356,000) ...................................... 10,356,000 10,356,000
- -------------------------------------------------------------------------------------
U.S. Government & Agencies 19.4%
- -------------------------------------------------------------------------------------
U.S. Treasury Inflationary-Indexed Security, 3.684%,
4/15/2028 ............................................. 1,750,000 1,625,300
U.S. Treasury Bond, 5.25%, 2/15/2029 .................... 3,500,000 2,894,045
U.S. Treasury Bond, 9.375%, 2/15/2006 ................... 16,000,000 18,212,480
U.S. Treasury Inflationary-Indexed Security, 3.927%,
1/15/2009 ............................................. 2,000,000 1,981,875
U.S. Treasury Note, 5.5%, 8/31/2001 ..................... 1,000,000 988,590
U.S. Treasury Note, 5.5%, 5/31/2003 ..................... 15,250,000 14,847,248
U.S. Treasury Note, 5.625%, 12/31/2002 .................. 8,500,000 8,343,260
U.S. Treasury Note, 6%, 8/15/2004 ....................... 14,450,000 14,224,147
U.S. Treasury Note, 6%, 8/15/2009 ....................... 29,500,000 28,578,125
U.S. Treasury Note, 7.5%, 2/15/2005 ..................... 18,500,000 19,294,945
Total U.S. Government & Agencies (Cost $114,050,042) 110,990,015
- -------------------------------------------------------------------------------------
Government National Mortgage Association 1.1%
- -------------------------------------------------------------------------------------
GNMA Pass Through Certificates, 7% with various
maturities to 3/15/2029 (Cost $6,398,023) ............. 6,314,163 6,099,087
- -------------------------------------------------------------------------------------
U.S. Government Agency Pass-Thrus 1.5%
- -------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 5.75%, 7/15/2003 ...... 3,000,000 2,904,840
Federal National Mortgage Association 8.00% with various
maturities to 12/1/2012 ............................... 626,236 636,313
Federal National Mortgage Association 6.50% with various
maturities to 3/1/2028 ................................ 5,279,572 4,993,836
Total U.S. Government Agency Pass-Thrus (Cost $8,968,444) 8,534,989
- -------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 0.9%
- -------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Series 1997-A7, 7.25%,
11/25/2027 ............................................ 3,897,434 3,737,882
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Residential Asset Securitization Trust, Series 1997-A6,
7.25%, 9/25/2012 ........................................ 1,541,000 1,541,963
Total Collateralized Mortgage Obligations (Cost $5,527,559) 5,279,845
- ------------------------------------------------------------------------------------
Foreign Bonds -- U.S.$ Denominated 1.0%
- ------------------------------------------------------------------------------------
Norsk Hydro A/S, 7.75%, 6/15/2023 ......................... 500,000 489,100
PacifiCorp Australia LLC, 6.15%, 1/15/2008 ................ 2,000,000 1,806,640
Petroleum Geo-Services, 6.625%, 3/30/2008 ................. 1,000,000 924,560
Saga Petroleum A/S, 7.25%, 9/23/2027 ...................... 2,500,000 2,262,725
Total Foreign Bonds-- U.S.$ Denominated (Cost $5,926,105) 5,483,025
- ------------------------------------------------------------------------------------
Asset Backed 1.0%
- ------------------------------------------------------------------------------------
Automobile Receivables 0.4%
First Security Auto Owner Trust, Series 1999-2 A3, 6%,
10/15/2003 .............................................. 2,000,000 1,975,625
Premier Auto Trust Asset Backed Certificate, Series
1996-3 A4, 6.75%, 11/6/2000 ............................. 343,806 344,126
---------
2,319,751
---------
Credit Card Receivables 0.6%
Citibank Credit Card Master Trust I, Series 1999-1 A,
5.5%, 2/15/2006 ......................................... 2,000,000 1,887,500
MBNA Master Credit Card Trust, 5.8%, 12/15/2005 ........... 1,500,000 1,444,215
---------
3,331,715
---------
Total Asset Backed (Cost $5,835,047) 5,651,466
- ------------------------------------------------------------------------------------
Corporate Bonds 7.7%
- ------------------------------------------------------------------------------------
Consumer Staples 0.7%
Bass America Inc., 6.625%, 3/1/2003 ....................... 1,500,000 1,468,950
Pepsi Bottling Holdings, Inc., 5.625%, 2/17/2009 .......... 1,500,000 1,321,755
Racers-Kellogg, 5.75%, 2/2/2001 ........................... 1,000,000 993,750
---------
3,784,455
---------
Communications 1.4%
AT&T Corp., 6%, 3/15/2009 ................................. 2,000,000 1,814,240
Lucent Technologies Inc., 6.9%, 7/15/2001 ................. 1,250,000 1,252,450
Sprint Capital Corp., 6.125%, 11/15/2008 .................. 3,500,000 3,173,380
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------
WorldCom, Inc., 6.4%, 8/15/2005 .................... 2,000,000 1,915,660
----------
8,155,730
----------
Financial 2.3%
Associates Corp. of North America, 6.625%, 5/15/2001 500,000 498,650
Boeing Capital Corp., Medium Term Note, 6.75%,
12/23/2003 ....................................... 1,000,000 989,040
Capital One Bank, Medium Term Note, 5.95%, 2/15/2001 1,000,000 983,230
First USA Bank, 5.85%, 2/22/2001 ................... 1,000,000 990,280
First Union Corporation, 8.125%, 6/24/2002 ......... 1,000,000 1,020,900
Ford Motor Credit Corp., 5.75%, 2/23/2004 .......... 2,500,000 2,373,425
General Electric Capital Corp., 6.02%, 5/4/2001 .... 1,000,000 992,500
Merrill Lynch & Co., Inc., 6%, 2/17/2009 ........... 1,500,000 1,344,765
NationsBank Corp., 7.25%, 10/15/2025 ............... 1,000,000 929,330
PNC Funding Corp., 7%, 9/1/2004 .................... 1,150,000 1,129,657
Prudential Insurance Co., 6.375%, 7/23/2006 ........ 1,000,000 933,980
Southern National Corp., 7.05%, 5/23/2003 .......... 1,000,000 981,740
----------
13,167,497
----------
Media 0.5%
News America Holdings Inc., 9.25%, 2/1/2013 ........ 1,000,000 1,088,280
TCI-Communications, Inc., 8%, 8/1/2005 ............. 1,000,000 1,029,610
Time Warner Inc., 9.125%, 1/15/2013 ................ 1,000,000 1,095,160
----------
3,213,050
----------
Manufacturing 0.2%
Fort James Corp., 6.625%, 9/15/2004 ................ 1,000,000 964,120
----------
Technology 0.4%
IBM Corp., 5.1%, 11/10/2003 ........................ 2,000,000 1,865,000
Xerox Corp., 5.5%, 11/15/2003 ...................... 750,000 704,025
----------
2,569,025
----------
Energy 1.7%
Anadarko Petroleum Corp., 5.875%, 10/15/2003 ....... 1,500,000 1,408,215
Atlantic Richfield Co., 5.55%, 4/15/2003 ........... 2,000,000 1,910,000
Conoco Inc., 5.9%, 4/15/2004 ....................... 2,500,000 2,386,675
Louisiana Land & Exploration Co., 7.65%, 12/1/2023 . 1,250,000 1,191,575
Occidental Petroleum Corp., 8.45%, 2/15/2029 ....... 2,500,000 2,592,950
----------
9,489,415
----------
Transportation 0.3%
Continental Airlines Inc., 6.795%, 2/2/2020 ........ 1,500,000 1,374,300
Delta Air Lines, Inc., 7.9%, 12/15/2009 ............ 500,000 491,320
----------
1,865,620
----------
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Utilities 0.2%
Public Service Co. of Colorado, 6%, 4/15/2003 ... 1,000,000 968,860
Total Corporate Bonds (Cost $46,416,751) 44,177,772
- --------------------------------------------------------------------------------
Common Stocks 65.6%
- --------------------------------------------------------------------------------
Consumer Discretionary 6.7%
Department & Chain Stores 5.2%
Dayton Hudson Corp. ............................. 82,400 6,051,250
Federated Department Stores, Inc.* .............. 75,500 3,817,469
Home Depot, Inc. ................................ 131,100 8,988,544
Wal-Mart Stores, Inc. ........................... 153,500 10,610,688
-----------
29,467,951
-----------
Hotels & Casinos 0.6%
Carnival Corp. "A" .............................. 73,500 3,514,219
-----------
Specialty Retail 0.9%
Tandy Corp. ..................................... 103,500 5,090,906
-----------
Consumer Staples 4.0%
Food & Beverage 1.8%
Bestfoods ....................................... 40,000 2,102,500
H.J. Heinz Co. .................................. 75,500 3,005,844
PepsiCo, Inc. ................................... 148,100 5,220,525
-----------
10,328,869
-----------
Package Goods/Cosmetics 2.2%
Colgate-Palmolive Co. ........................... 110,800 7,202,000
Procter & Gamble Co. ............................ 48,200 5,280,913
-----------
12,482,913
-----------
Health 6.3%
Biotechnology 1.5%
Amgen, Inc.* .................................... 44,500 2,672,781
Biogen, Inc.* ................................... 38,000 3,211,000
-----------
Genentech, Inc.* ................................ 22,700 3,053,150
-----------
8,936,931
Medical Supply & Specialty 0.4%
Baxter International, Inc. ...................... 36,000 2,261,250
---------
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Shares Value ($)
- -------------------------------------------------------------------
Pharmaceuticals 4.4%
Allergan, Inc. ............................ 57,000 2,835,750
American Home Products Corp. .............. 67,000 2,642,313
Bristol-Myers Squibb Co. .................. 62,000 3,979,625
Forest Laboratories, Inc.* ................ 32,000 1,966,000
Johnson & Johnson ......................... 41,700 3,883,313
Merck & Co., Inc. ......................... 60,000 4,023,750
Schering-Plough Corp. ..................... 50,100 2,113,594
Warner-Lambert Co. ........................ 43,600 3,572,475
----------
25,016,820
----------
Communications 4.9%
Telephone/Communications
AT&T Corp. ................................ 83,000 4,212,250
Bell Atlantic Corp. ....................... 83,000 5,109,688
BellSouth Corp. ........................... 63,000 2,949,188
GTE Corp. ................................. 27,000 1,905,188
Global Crossing Ltd.* ..................... 62,525 3,126,250
MCI WorldCom, Inc.* ....................... 103,950 5,515,847
SBC Communications, Inc. .................. 108,000 5,265,000
----------
28,083,411
----------
Financial 9.4%
Banks 1.5%
Chase Manhattan Corp. ..................... 20,000 1,553,750
First Tennessee National Corp. ............ 67,600 1,926,600
J.P. Morgan & Co., Inc. ................... 15,000 1,899,375
Wells Fargo Co. ........................... 80,000 3,235,000
----------
8,614,725
----------
Insurance 4.2%
American International Group, Inc.......... 72,484 7,837,332
Aon Corp. ................................. 81,000 3,240,000
Cigna Corp. ............................... 40,000 3,222,500
Jefferson Pilot Corp. ..................... 42,000 2,866,500
Marsh & McLennan Companies, Inc. .......... 31,800 3,042,863
St. Paul Companies, Inc. .................. 108,000 3,638,250
----------
23,847,445
----------
Consumer Finance 3.0%
American Express Co. ...................... 21,300 3,541,125
Capital One Finance Corp. ................. 90,600 4,365,788
Citigroup, Inc. ........................... 100,000 5,556,250
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------
Household International, Inc. .............. 97,000 3,613,250
17,076,413
----------
Other Financial Companies 0.7%
Morgan Stanley Dean Witter & Co. ........... 29,200 4,168,300
----------
Media 7.8%
Advertising 1.0%
Omnicom Group, Inc. ........................ 60,100 6,010,000
----------
Broadcasting & Entertainment 4.4%
CBS Corp. .................................. 72,500 4,635,469
Clear Channel Communications, Inc.*......... 98,800 8,817,900
Infinity Broadcasting Corp.* ............... 162,927 5,895,921
Univision Communications, Inc.* ............ 54,000 5,518,125
----------
24,867,415
----------
Cable Television 1.6%
AT&T Corp-- Liberty Media Group ............ 82,600 4,687,550
Comcast Corp. "A" .......................... 56,000 2,814,000
Media One Group, Inc.* ..................... 20,000 1,536,250
----------
9,037,800
----------
Print Media 0.8%
Tribune Co. ................................ 80,000 4,405,000
----------
Service Industries 2.4%
EDP Services 1.8%
Automatic Data Processing, Inc. ............ 70,000 3,771,250
Electronic Data Systems Corp. .............. 68,600 4,591,913
First Data Corp. ........................... 38,500 1,898,531
----------
10,261,694
----------
Environmental Services 0.1%
Transocean Sedco Forex Inc. ................ 13,735 462,705
----------
Printing/Publishing 0.5%
McGraw-Hill, Inc. .......................... 47,100 2,902,538
----------
Durables 1.3%
Aerospace 1.0%
United Technologies Corp. .................. 83,500 5,427,500
----------
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Shares Value ($)
- ---------------------------------------------------------------------------
Telecommunications Equipment 0.3%
Lucent Technologies, Inc. ......................... 24,800 1,855,350
----------
Manufacturing 4.9%
Diversified Manufacturing 0.8%
Tyco International Ltd. (New) ..................... 118,200 4,595,025
----------
Electrical Products 3.4%
Emerson Electric Co. .............................. 32,500 1,864,688
General Electric Co. .............................. 115,400 17,858,138
----------
19,722,826
----------
Machinery/Components/Controls 0.7%
Parker-Hannifin Corp. ............................. 75,000 3,848,438
----------
Technology 14.3%
Computer Software 4.1%
America Online, Inc. .............................. 38,000 2,866,625
Microsoft Corp.* .................................. 128,400 14,990,700
Oracle Corp.* ..................................... 50,000 5,603,125
----------
23,460,450
----------
Diverse Electronic Products 3.1%
Applied Materials, Inc.* .......................... 41,400 5,244,863
Motorola, Inc. .................................... 32,800 4,829,800
Solectron Corp.* .................................. 46,500 4,423,313
Teradyne, Inc.* ................................... 48,700 3,214,200
----------
17,712,176
----------
Electronic Components/Distributors 2.8%
Altera Corp.* ..................................... 37,500 1,858,594
Cisco Systems, Inc.* .............................. 133,550 14,306,544
----------
16,165,138
----------
Electronic Data Processing 0.8%
Sun Microsystems, Inc. ............................ 55,800 4,321,013
----------
Semiconductors 2.5%
Intel Corp. ....................................... 128,700 10,593,619
Linear Technology Corp. ........................... 50,000 3,578,125
----------
14,171,744
----------
Miscellaneous 1.0%
Agilent Technologies, Inc.* ....................... 75,100 5,806,169
----------
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Shares Value ($)
- --------------------------------------------------------------------------------
Energy 3.6%
Oil & Gas Production 1.3%
Coastal Corp. ....................................... 68,500 2,427,469
Conoco, Inc. "A" .................................... 70,000 1,732,500
Royal Dutch Petroleum Co. (New York shares) ......... 56,000 3,384,500
---------
7,544,469
---------
Oil Companies 1.6%
Exxon Mobil Corp. ................................... 89,064 7,175,219
Texaco, Inc. ........................................ 31,000 1,683,688
---------
8,858,907
---------
Oilfield Services/Equipment 0.7%
Schlumberger Ltd. ................................... 70,800 3,982,500
---------
Total Common Stocks (Cost $265,401,248) 374,309,010
- --------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $468,879,219) (a) 570,881,209
- --------------------------------------------------------------------------------
* 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 $469,134,953. At December 31,
1999, net unrealized appreciation for all securities based on tax cost was
$101,746,256. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of value over tax cost of
$114,609,691 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $12,863,435.
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Financial Statements
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- -------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------
Investments in securities, at value (cost $468,879,219). $570,881,209
Cash ................................................... 1,479
Dividends receivable ................................... 309,707
Interest receivable .................................... 3,485,690
Receivable for Fund shares sold ........................ 225,386
Other assets ........................................... 4,778
------------
Total assets ........................................... 574,908,249
Liabilities
- -------------------------------------------------------------------------
Payable for fund shares redeemed ....................... 1,505,723
Accrued managment fee .................................. 341,073
Other accrued expenses and payables .................... 816,708
------------
Total liabilities ...................................... 2,663,504
Net assets, at value $572,244,745
Net Assets
- -------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................... 98,712
Net unrealized appreciation (depreciation) on:
Investments .......................................... 102,001,990
Accumulated net realized gain (loss) ................... 7,491,599
Paid-in capital ........................................ 462,652,444
Net assets, at value $572,244,745
Net Asset Value
- -------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($572,244,745/27,060,834 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) ............................. $ 21.15
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations year ended December 31, 1999
- --------------------------------------------------------------------------------
Investment Income
- --------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $3,850) ............ $ 1,835,255
Interest ....................................................... 12,327,646
------------
Total income ................................................... 14,162,901
Expenses:
Management fee ................................................. 3,325,085
Services to shareholders ....................................... 2,357,334
Custodian and accounting fees .................................. 104,812
Trustees' fees and expenses .................................... 42,860
Reports to shareholders ........................................ 85,539
Auditing ....................................................... 39,832
Registration fees .............................................. 153,159
Legal .......................................................... 16,558
Other .......................................................... 13,470
------------
Total expenses, before expense reductions ...................... 6,138,649
Expense reductions ............................................. (15,333)
------------
Total expenses, after expense reductions ....................... 6,123,316
Net investment income (loss) 8,039,585
Realized and unrealized gain (loss) on investment transactions
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... 8,108,414
Foreign currency related transactions .......................... 19
------------
8,108,433
------------
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... 43,321,558
Net gain (loss) on investment transactions 51,429,991
Net increase (decrease) in net assets resulting from operations $ 59,469,576
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------------
Years Ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ------------------------------------------------------------------------------------
Operations:
<S> <C> <C>
Net investment income (loss) .................... $ 8,039,585 $ 3,928,148
Net realized gain (loss) on investment
transactions .................................... 8,108,433 11,308,836
Net unrealized appreciation (depreciation) on
investment transactions during the period ....... 43,321,558 24,853,873
------------- -------------
Net increase (decrease) in net assets resulting
from operations ................................. 59,469,576 40,090,857
------------- -------------
Distributions to shareholders:
From net investment income ...................... (7,947,317) (4,059,339)
------------- -------------
From net realized gains ......................... (267,261) (12,314,730)
------------- -------------
Fund share transactions:
Proceeds from shares sold ....................... 419,195,389 132,016,807
Reinvestment of distributions ................... 8,054,647 16,026,652
Cost of shares redeemed ......................... (170,166,182) (66,566,262)
------------- -------------
Net increase (decrease) in net assets from Fund
share transactions .............................. 257,083,854 81,477,197
------------- -------------
Increase (decrease) in net assets ............... 308,338,852 105,193,985
Net assets at beginning of period ............... 263,905,893 158,711,908
Net assets at end of period (including
undistributed net investment income of $98,712 at
December 31, 1999) .............................. $ 572,244,745 $ 263,905,893
Other Information
- ------------------------------------------------------------------------------------
Shares outstanding at beginning of period ....... 13,918,098 9,416,710
------------- -------------
Shares sold ..................................... 21,428,478 7,309,381
Shares issued to shareholders in reinvestment of
distributions ................................... 408,146 870,324
Shares redeemed ................................. (8,693,888) (3,678,317)
------------- -------------
Net increase (decrease) in Fund shares .......... 13,142,736 4,501,388
Shares outstanding at end of period ............. 27,060,834 13,918,098
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<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.
- --------------------------------------------------------------------------------
Years Ended December 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Net asset value, beginning of
period $18.96 $16.85 $14.60 $14.12 $11.63
----------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) (a) .33 .36 .38 .36 .32
Net realized and unrealized gain
(loss) on investment transactions 2.20 3.14 2.91 1.25 2.74
----------------------------------------
Total from investment operations 2.53 3.50 3.29 1.61 3.06
Less distributions from:
Net investment income (.32) (.37) (.36) (.34) (.32)
Net realized gains on investment (.02) (1.02) (.68) (.79) (.25)
transactions
----------------------------------------
Total distributions (.34) (1.39) (1.04) (1.13) (.57)
Net asset value, end of period $21.15 $18.96 $16.85 $14.60 $14.12
------------------------------------------
Total Return (%) 13.46 21.10(b) 22.78(b) 11.54(b)26.48(b)
Ratios to Average Net Assets and Supplemental Data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) 572 264 159 110 90
Ratio of expenses before expense
reductions (%) 1.29 1.34 1.37 1.37 1.40
Ratio of expenses after expense
reductions (%) 1.29 1.29 1.02 1.00 1.00
Ratio of net investment income
(loss) (%) 1.69 1.99 2.32 2.42 2.51
Portfolio turnover rate (%) 102 75 43 70 103
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
27
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 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. 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
28
<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 generally accepted accounting principles. 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 year ended December 31, 1999, purchases and sales of investment
securities (excluding short-term investments and direct U.S. Government
obligations) aggregated $725,506,360 and $462,580,795, respectively. Purchases
and sales of direct U.S. Government obligations aggregated $215,055,824 and
$124,338,195, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. (the "Adviser"), the Adviser directs the
29
<PAGE>
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.
Accordingly, for the year ended December 31, 1999, the fee pursuant to the
agreement amounted to $3,325,085.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended December 31, 1999, the amount charged to the Fund by SSC aggregated
$508,682, of which $83,555 is unpaid at December 31, 1999.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans for the Fund. For the year ended December 31, 1999, the
amount charged to the Fund by STC aggregated $1,601,215, of which $481,644 is
unpaid at December 31, 1999.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
December 31, 1999, the amount charged to the Fund by SFAC aggregated $84,694, of
which $7,839 is unpaid at December 31, 1999.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended December 31, 1999, Trustee fees and expenses aggregated $42,860.
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 year ended December 31, 1999,
the Fund's custodian and transfer agent fees were reduced by $3,708 and $11,625,
respectively, under these arrangements.
30
<PAGE>
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 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.
31
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Scudder Portfolio Trust and the Shareholders of Scudder
Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Balanced Fund (the "Fund")
at December 31, 1999, the results of its operations, the changes in its net
assets, and the financial highlights for each of the periods indicated therein,
in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 2000
32
<PAGE>
Tax Information
- --------------------------------------------------------------------------------
December 31, 1999
The Fund paid distributions of $0.015 per share from net long-term capital gains
during its year ended December 31, 1999, of which 100% represents 20% rate
gains.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$8,500,000 as capital gain dividends for its year ended December 31, 1999, of
which 100% represents 20% rate gains.
For corporate shareholders, 23% of the income dividends paid during the Fund's
fiscal year ended December 31, 1999 qualified for the dividends received
deduction.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
33
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong* Kelly D. Babson*
o President and Trustee o Vice President
Henry P. Becton, Jr. Robert S. Cessine*
o Trustee; President and General o Vice President
Manager, WGBH Educational
Foundation Gary A. Langbaum*
o Vice President
Dawn-Marie Driscoll
o Trustee; President, Driscoll Ann M. McCreary*
Associates; Executive Fellow, o Vice President
Center for Business Ethics, Bentley
College John Millette*
o Vice President and Secretary
Peter B. Freeman
o Trustee; Corporate Director John R. Hebble*
o Treasurer
George M. Lovejoy, Jr.
o Trustee; President and Director, Caroline Pearson*
Fifty Associates o Assistant Secretary
Wesley W. Marple, Jr. *Scudder Kemper Investments, Inc.
o Trustee; Professor of Business
Administration, Northeastern
University
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner,
Internet Capital Group
34
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
35
<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
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
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.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ 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 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.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold 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.
36
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Automatic Investment Plan
Convenient A convenient investment program in which money is
ways to invest, electronically debited from your bank account monthly to
quickly and regularly purchase fund shares and "dollar cost average" --
reliably 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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account Personalized account information, the ability to exchange
service and or redeem shares, and information on other Scudder funds
information, and services via touchtone telephone.
including some
transactions Scudder's Web Site -- www.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 your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
37
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend You designate the bank account, determine the schedule (as
on investment frequently as once a month) and amount of the redemptions,
proceeds for and Scudder does the rest.
living expenses
can enjoy these Distributions Direct
convenient, Automatically deposits your fund distributions into the
timely, and bank account you designate within three business days after
reliable each distribution is paid.
automated
withdrawal QuickSell
programs Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
38
<PAGE>
Notes
- --------------------------------------------------------------------------------
<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)
[SCUDDER LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial
Services Group
