Scudder
S&P 500 Index
Fund
Annual Report
December 31, 1998
Pure No-Load(TM) Funds
A pure no-load(TM) (no sales charges) mutual fund seeking to provide investment
results that, before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard & Poor's
500 Composite Stock Price Index.
SCUDDER (logo)
<PAGE>
Scudder S&P 500 Index Fund
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Date of Inception: 8/29/97 Total Net Assets as of Ticker Symbol: SCPIX
12/31/98: $128 million
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o For its most recent fiscal year ended December 31, 1998, Scudder S&P 500 Index
Fund posted a 28.29% total return, in keeping with the 28.58% return of the S&P
500 Index over the same period.
o Even in the face of extraordinary market volatility, major U.S. stock indices
recorded their fourth consecutive year of double-digit gains during 1998.
o We continue to be optimistic about near-term U.S. equity market performance
given our outlook for solid growth, low inflation, favorable consumer
fundamentals, and low interest rates.
Table of Contents
3 Letter from the Fund's President Equity 500 Index Portfolio
4 Performance Update 20 Statement of Net Assets
5 Portfolio Summary 28 Financial Statements
6 Portfolio Management Discussion 30 Financial Highlights
8 Glossary of Investment Terms 31 Notes to Financial Statements
34 Report of Independent Accountants
Scudder S&P 500 Index Fund
9 Financial Statements 37 Investment Products and Services
12 Financial Highlights 38 Scudder Solutions
13 Notes to Financial Statements
16 Report of Independent Accountants
17 Tax Information
18 Shareholder Meeting Results
19 Officers and Trustees
2 - Scudder S&P 500 Index Fund
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Letter from the Fund's President
Dear Shareholders,
We are pleased to present the annual report for Scudder S&P 500 Index Fund
for the 12-month period ended December 31, 1998.
The U.S. economy and financial markets displayed remarkable resiliency amid
1998's stormy global financial environment. Prices of U.S. equities as measured
by the S&P 500 Index and the Dow Jones Industrial Average rose 28.58% and
18.14%, respectively, during the year just passed, although the path upward was
an irregular one.
For its fiscal year ended December 31, 1998, the Fund provided a strong
28.29% total return. This marked the fourth consecutive year of gains in the
U.S. stock market exceeding 20%, a rate well above the long-term annualized
performance of common stocks -- which is closer to 10%. Some near-term
correction or slowing of growth would not be unreasonable to expect, but the
exact timing of such a move is unpredictable. For additional details concerning
the Fund's investment environment and outlook, please turn to the Portfolio
Management Discussion that begins on page 6.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
invests in small U.S. companies. Using a combination of quantitative and
fundamental research, the funds focus on companies with strong earnings growth,
reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after-tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate. Please see pages 37 through 39 for more
information on Scudder products and services.
If you have any questions regarding Scudder S&P 500 Index Fund or any other
Scudder fund, please call Investor Relations at 1-800-225-2470. Or visit
Scudder's Web site at www.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder S&P 500 Index Fund
3 - Scudder S&P 500 Index Fund
<PAGE>
Performance Update as of December 31, 1998
Fund Index Comparison
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Total Return
--------------------------------------------
Period
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------------
Scudder S&P 500 Index Fund
--------------------------------------------
1 Year $ 12,829 28.29% 28.29%
Life of $ 13,899 38.99% 27.86%
Fund*
--------------------------------------------
S&P 500 Index
--------------------------------------------
1 Year $ 12,858 28.58% 28.58%
Life of $ 13,953 39.53% 28.36%
Fund*
--------------------------------------------
* The Fund commenced operations on August
29, 1997.
Index comparisons begin August 31, 1997.
Growth of a $10,000 Investment
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THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Scudder S&P 500 Index Fund
Year Amount
- --------------------------
8/97* 10000
9/97 10542
12/97 10834
3/98 12325
6/98 12715
9/98 11460
12/98 13899
S&P 500 Index
Year Amount
- --------------------------
8/97* 10000
9/97 10548
12/97 10851
3/98 12365
6/98 12773
9/98 11502
12/98 13967
The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York Stock Exchange
and American Stock Exchange, and traded on the Over-The-Counter market. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
Returns and Per Share Information
- ---------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
Yearly Periods Ended December 31
1997* 1998
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Net Asset Value $ 12.94 $ 16.44
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Income Dividends $ .06 $ .15
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Capital Gains Distributions $ -- $ --
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Fund Total Return (%) 8.34 28.29
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Index Total Return (%) 8.51 28.58
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Performance is historical, assumes reinvestment of all dividends and capital
gains and is not indicative of future results. Total 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,
the total returns would have been lower.
4 - Scudder S&P 500 Index Fund
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Portfolio Summary as of December 31, 1998
Equity 500 Index Portfolio
Asset Allocation
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Common Stocks 99%
Cash Equivalents 1%
-------------------------------------
100%
=====================================
The Portfolio is essentially fully invested in common stocks that are part
of the S&P 500 Index.
Sector Diversification
(Excludes 1% Cash Equivalents)
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A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Financial 16%
Consumer Discretionary 15%
Consumer Staples 15%
Health 12%
Capital Goods 11%
Technology 10%
Utilities 8%
Energy 7%
Durables 5%
Transportation 1%
--------------------------------------
100%
=====================================
During the Fund's most recent fiscal year, the financial sector was the
largest weighting in the S&P 500 Index.
Ten Largest Equity Holdings
(21% of Portfolio)
- ----------------------------------------
1. Microsoft Corp.
Developer of computer operating systems software
2. General Electric Co.
Leading producer of electrical equipment
3. Intel Corp.
Producer of semiconductor memory circuits
4. Wal-Mart Stores, Inc.
Operator of discount stores
5. Exxon Corp.
International oil and gas company
6. Merck & Co., Inc.
Leading ethical drug manufacturer
7. International Business Machines Corp.
Principal manufacturer and
servicer of business and computing machines
8. Coca-Cola Co.
International soft drink company
9. Pfizer, Inc.
Leading international pharmaceutical company
10. Cisco Systems Inc.
Manufacturer of computer network products
The Portfolio's top holdings reflect the mainly large-capitalization
composition of the S&P 500 Index.
For more complete details about the Fund's investment portfolio, see page 20. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder S&P 500 Index Fund
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Portfolio Management Discussion
Dear Shareholders,
For its most recent fiscal year ended December 31, 1998, Scudder S&P 500 Index
Fund provided a 28.29% total return, closely tracking the 28.58% return of the
S&P 500 Index over the same 12-month period.
Market Activity
Despite volatility throughout the year in Asia, Latin America, Russia, and here
at home, the U.S. equity market indices continued to push on, with the S&P 500
Index gain of 28.58% outperforming the gain of 18.14% for the well publicized
Dow Jones Industrial Average for the twelve months ending December 31, 1998.
This fourth consecutive year of double-digit gains in the major U.S. stock
indices was helped by an exuberant, low-inflation economy, an easier monetary
policy, and the United States' safe-haven status in a sea of global turmoil.
Equity indices climbed through the first half of the year even as volatility
increased. The S&P 500 Index crossed the 1,000 mark for the first time in
February 1998. The Index continued to reach higher through most of April, when,
towards the end of the month, fears of a tightening by the Federal Reserve Board
sparked a huge drop in the market. Stronger than anticipated economic numbers
supported a quick rebound, and a similar roller coaster ride was replayed
through May and June.
All major U.S. equity indices posted negative returns for the third quarter, as
stocks tumbled on both domestic and international news. Lower corporate profits,
expectations of slower growth in the second half, and the General Motors strike
contributed to a July sell-off. In August, Russia's default on its domestic
debt; weak commodity prices which dampened the economic outlook for Latin
America; and ongoing economic instability in Asia impacted markets worldwide. In
fact, the August S&P 500 Index return was one of the ten worst monthly losses
since the Index's inception. September began with tremendous gains. The market
had recovered more than half of August's losses towards the end of September,
when it tumbled again, having anticipated a 0.50% cut in interest rates by the
Federal Reserve Board, rather than the actual 0.25% easing.
Fourth quarter returns, the strongest in some twenty years for most major U.S.
large cap equity indices, provided an explosive finish to a volatile year. The
technology sector, led by internet-related stocks, posted staggering returns for
the quarter. Such growth is evidenced by the addition of America Online Inc. and
Compuware Corp. to the S&P 500 Index, replacing Venator Group Inc. and
SunAmerica Inc., the latter of which was acquired by index component American
International Group Inc. Two more interest rate cuts of 0.25% each by the
Federal Reserve Board in the fourth quarter also buoyed the equity markets.
Overall, large-capitalization stocks significantly outperformed small- and
mid-cap stocks for the annual period, and within the large-cap sector, growth
stocks outperformed value stocks. Top performing sectors for the year included
technology, communication services, and health care. The weakest performing
6 - Scudder S&P 500 Index Fund
<PAGE>
sectors included energy, transportation, and basic materials. There were 48
changes to the S&P 500 Index during the year, over 75% of which were due to
mergers and acquisitions.
Manager Outlook
Economic and financial market performance have run on virtually parallel tracks
in 1998, and that pattern seems likely to persist into 1999. Given that we see
strong, positive economic signs in the months ahead, this bodes well for the
U.S. equity markets long term. More specifically, we anticipate GDP growth of
approximately 2.5% in 1999; low inflation; extremely favorable consumer
fundamentals; and low interest rates, with Federal Reserve Board policy likely
on hold in the face of solid economic growth, healthy financial markets, and the
recent softening of the dollar.
Certain equity sectors may be impacted by a problematic profit outlook, however,
given that rising labor costs are squeezing margins. The industrial sector, in
particular, may be adversely affected by developments abroad.
Of course, it is important to reiterate that as an index fund, designed to
replicate the broad diversification and returns of the S&P 500 Index, we neither
evaluate short-term fluctuations in the Fund's performance nor manage according
to a given outlook for the equity markets or the economy in general. Still, we
will continue to monitor economic conditions as well as how they affect the
financial markets, as we seek to closely track the performance of the stock
market.
Sincerely,
/s/Frank Salerno
Frank Salerno
Portfolio Manager
7 - Scudder S&P 500 Index Fund
<PAGE>
Glossary of Investment Terms
INDEX FUND A mutual fund that seeks to replicate the
performance of a securities market index. These
funds are usually passively managed, employing
popular benchmarks such as the S&P 500, Russell 2000
(small-caps), or Lehman Aggregate Bond Index.
Because an index fund essentially "buys the market,"
its performance tends to closely track both
increases and decreases in the respective index.
LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.
MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by multiplying the number
of shares outstanding by the share price (shares x
price = market capitalization). The universe of
publicly traded companies is frequently divided into
large-, mid-, and small-capitalizations. "Large-cap"
stocks tend to be more liquid and less volatile,
while "small-cap" stocks have greater potential
earnings growth and are typically more volatile.
PASSIVE MANAGEMENT An investment approach that typically selects
investments based on non-fundamental criteria, often
by seeking to mirror the performance of a securities
market index. This is in contrast to active
management in which an investment manager attempts
to select the most promising investments by
analyzing company financial statements, market
conditions, and industry trends.
STANDARD & POOR'S A broad-based measurement of changes in stock market
COMPOSITE INDEX OF 500 conditions based on the average performance of 500
STOCKS (S&P 500) widely held common stocks. The index is comprised of
400 industrial company stocks, 20 transportation
company stocks, 40 financial company stocks, and 40
public utilities. The stocks which comprise the S&P
500 represent some of the largest companies in terms
of market capitalization.
STANDARD & POOR'S A subsidiary of McGraw-Hill, Inc. that provides a
CORPORATION broad range of investment services, including rating
commercial paper, compiling the Standard & Poor's
Composite Index of 500 Stocks, the Standard & Poor's
400 Industrial Index, and the Standard & Poor's 100
Index, among other indices. The company also provides
a wide variety of statistical materials, investment
advisory reports, and other financial information.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
8 - Scudder S&P 500 Index Fund
<PAGE>
Financial Statements
Scudder S&P 500 Index Fund
Statement of Assets and Liabilities
as of December 31, 1998
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investment in Equity 500 Index Portfolio, at market ..................... $ 125,920,779
Receivable for Fund shares sold ......................................... 3,370,104
Deferred organization expenses .......................................... 20,899
Due from Adviser ........................................................ 11,936
----------------
Total assets ............................................................ 129,323,718
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed ........................................ 980,417
Other payables and accrued expenses ..................................... 62,349
----------------
Total liabilities ....................................................... 1,042,766
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Net assets, at market value $ 128,280,952
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Net Assets
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Net assets consist of:
Undistributed net investment income ..................................... 28,517
Unrealized appreciation on investments and futures transactions ......... 14,820,937
Accumulated net realized loss from investments and futures
transactions ......................................................... (4,633,645)
Paid-in capital ......................................................... 118,065,143
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Net assets, at market value $ 128,280,952
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Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($128,280,952 / 7,804,119 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) .......................................................... $16.44
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - Scudder S&P 500 Index Fund
<PAGE>
Scudder S&P 500 Index Fund
Statement of Operations
year ended December 31, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends ............................................................... $ 838,884
----------------
Expenses:
Administration fee ...................................................... 55,735
Services to shareholders ................................................ 277,921
Custodian and accounting fee ............................................ 14,371
Trustees' fees and expenses ............................................. 25,430
Auditing ................................................................ 16,767
Registration fees ....................................................... 60,111
Reports to shareholders ................................................. 33,823
Legal ................................................................... 12,571
Amortization of organization expense .................................... 5,635
Other ................................................................... 5,453
----------------
Total expenses before reductions ........................................ 507,817
Expense reductions ...................................................... (326,907)
----------------
Expenses, net ........................................................... 180,910
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Net investment income ................................................... 657,974
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ............................................................. 504,869
Futures contracts ....................................................... 36,996
----------------
541,865
----------------
Net unrealized appreciation (depreciation) during the period on
investments and futures contracts .................................... 14,556,069
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 15,097,934
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 15,755,908
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder S&P 500 Index Fund
<PAGE>
Scudder S&P 500 Index Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
August 29, 1997
Year Ended (commencement of
December 31, operations) to
Increase (Decrease) in Net Assets 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................ $ 657,974 $ 39,647
Net realized gain (loss) from investment
transactions ...................................... 541,865 142,842
Net unrealized appreciation (depreciation) on
investment transactions during the period ......... 14,556,069 264,868
---------------- ----------------
Net increase (decrease) in net assets resulting
from operations ................................... 15,755,908 447,357
---------------- ----------------
Distributions to shareholders from net investment
income ............................................ (631,197) (74,511)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ............................ 139,576,614 18,098,523
Net asset value of shares issued to shareholders in
reinvestment of distributions ..................... 610,116 72,136
Cost of shares redeemed .............................. (43,942,765) (1,632,429)
---------------- ----------------
Net increase (decrease) in net assets from Fund
share transactions ................................ 96,243,965 16,538,230
---------------- ----------------
Increase (decrease) in net assets .................... 111,368,676 16,911,076
Net assets at beginning of period .................... 16,912,276 1,200
Net assets at end of period (including undistributed
net investment income of $28,517 and $1,046, ---------------- ----------------
respectively) ..................................... $128,280,952 $16,912,276
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ............ 1,307,405 100
---------------- ----------------
Shares sold .......................................... 9,484,616 1,431,700
Shares issued to shareholders in reinvestment of
distributions ..................................... 40,297 5,676
Shares redeemed ...................................... (3,028,199) (130,071)
---------------- ----------------
Net increase in Fund shares .......................... 6,496,714 1,307,305
---------------- ----------------
Shares outstanding at end of period .................. 7,804,119 1,307,405
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder S&P 500 Index Fund
<PAGE>
Financial Highlights
Scudder S&P 500 Index Fund
The following table includes selected data for a share outstanding (a)
throughout each period and other performance information derived from the
financial statements.
<TABLE>
<CAPTION>
For the Period
August 29, 1997
(commencement of
Year ended operations) to
December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------
Net asset value, beginning of period ................................................. $12.94 $12.00
------------------------------------
Income from investment operations:
Net investment income ................................................................ .17 .05
Net realized and unrealized gain (loss) on investment transactions ................... 3.48 .95
------------------------------------
Total from investment operations ..................................................... 3.65 1.00
------------------------------------
Less distributions from net investment income ........................................ (.15) (.06)
------------------------------------
Net asset value, end of period ....................................................... $16.44 $12.94
------------------------------------
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Total Return (%) (b) ................................................................. 28.29 8.34**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................... 128 17
Ratio of operating expenses, net to average daily net assets (%) (c) ................. .40 .40*
Ratio of operating expenses before expense reductions, to average daily
net assets (%) (c) ................................................................ 1.01 4.42*
Ratio of net investment income to average daily net assets (%) ....................... 1.18 1.35*
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Includes expenses of the Equity 500 Index Portfolio.
* Annualized
** Not annualized
12 - Scudder S&P 500 Index Fund
<PAGE>
Notes to Financial Statements
Scudder S&P 500 Index Fund
A. Significant Accounting Policies
Scudder S&P 500 Index Fund (the "Fund") is a diversified series of the
Investment Trust (the "Trust", formerly Scudder Investment Trust). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund seeks to achieve its investment
objective by investigating substantially all of its assets in the Equity 500
Index Portfolio (the "Portfolio"), an open-end management investment company
advised by Bankers Trust Company ("Bankers Trust") which has the same investment
objective as the Fund. At December 31, 1998, the Fund's investment in the
Portfolio was approximately 2.5% of the Portfolio's total assets.
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. The financial statements of the
Portfolio, including the Schedule of Investments, are contained elsewhere in
this report and should be read in conjunction with the Fund's financial
statements.
Security Valuation. The Fund records its investment in the Portfolio at value,
which reflects its proportionate interest in the net assets of the Portfolio.
Valuation of the securities held by the Portfolio is discussed in the notes to
the Portfolio's financial statements included elsewhere in this report.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. The Fund accordingly paid no federal income taxes and no provision
for federal income taxes was required. At December 31, 1998, the Fund had a net
tax basis capital loss carryforward of approximately $4,632,000, which may be
applied against any realized net taxable capital gains of each succeeding year
until fully utilized or until December 31, 2005 ($216,000) and December 31, 2006
($4,416,000), the respective expiration dates, whichever occurs first.
Distribution of Income and Gains. Distributions of net investment income are
made quarterly. During any particular year, the Fund's pro rata share of the
Portfolio's realized gains from security transactions, in excess of available
capital loss carryforwards, would be taxable to the Fund if not distributed and,
therefore, will be distributed to shareholders. An additional distribution may
be made to the extent necessary to avoid the payment of a four percent federal
excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income 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.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. The Fund records daily its pro rata share of the Portfolio's income,
expenses, and realized and unrealized gains and losses. In addition, the Fund
accrues its own expenses.
13 - Scudder S&P 500 Index Fund
<PAGE>
B. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Manager"), the Manager monitors the
Fund's investments in the Portfolio. Scudder Kemper receives no fee for
providing these monitoring services. In the event the Board of Trustees
determines it is in the best interest of the Fund's shareholders to withdraw its
investment in the Portfolio, Scudder Kemper would become responsible for
directly managing the assets of the Fund. In such event, the Fund would pay the
Manager an annual fee of 0.15% of the Fund's average daily net assets, accrued
daily and paid monthly.
Effective September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner
of the Adviser, entered into an agreement with B.A.T Industries PLC ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's investment management agreement with Scudder Kemper was
deemed to have been assigned and, therefore, terminated. In December 1998, the
Board of Trustees and the shareholders of the Fund approved a new investment
management agreement with Scudder Kemper, which is substantially identical to
the former investment management agreement, except for the dates of execution
and termination.
The Fund also has an Administrative Services Agreement with the Manager, under
which the Manager provides shareholder and administrative services to the Fund.
Scudder Kemper receives a fee of 0.10% of the Fund's average daily net assets,
accrued daily and paid monthly. The Manager has voluntarily agreed to maintain
expenses of the Fund to the extent necessary to limit the expenses of the Fund
to 0.40% of its annual average daily net assets (including the Fund's pro rata
share of the expenses of the Portfolio). Under the terms of a Third Party Feeder
Agreement between the Fund, the Manager and Bankers Trust, Bankers Trust has
voluntarily agreed to waive expenses of the Portfolio to the extent necessary to
limit the expenses of the Portfolio to 0.08% of its annual average net assets.
For the year ended December 31, 1998, the Manager did not impose any of its fee,
which amounted to $55,735. Further, due to the limitations of such Agreement,
the Manager's reimbursement to the Fund for the year ended December 31, 1998,
amounted to $11,936.
Scudder Service Corporation ("SSC"), a subsidiary of the Manager, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended December 31, 1998, SSC did not impose any of its fee, which amounted
to $256,642.
Scudder Trust Company ("STC"), a subsidiary of the Manager, provides
recordkeeping and other services in connection with certain retirement and
employee benefits plans invested in the Fund. For the year ended December 31,
1998, STC did not impose any of its fee, which amounted to $2,594.
The Fund pays each Trustee not affiliated with the Manager an annual retainer.
For the year ended December 31, 1998, Trustees' fees aggregated $25,430.
14 - Scudder S&P 500 Index Fund
<PAGE>
C. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
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 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.
15 - Scudder S&P 500 Index Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Investment Trust and the Shareholders of Scudder S&P
500 Index Fund:
In our opinion, the accompanying statement of assets and liabilities 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 S&P 500 Index Fund (one of the funds comprising Scudder Investment
Trust, hereafter referred to as the "Fund") at December 31, 1998, the results of
its operations for the year then ended and the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. 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 generally accepted
auditing standards 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, 1998 by
correspondence with the transfer agent, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 5, 1999
16 - Scudder S&P 500 Index Fund
<PAGE>
Tax Information
For corporate shareholders, 100% of the income dividends paid during the period
ended December 31, 1998 qualified for the dividends received deduction.
17 - Scudder S&P 500 Index Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder S&P 500 Index Fund
(the "Fund") was held on December 15, 1998, 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 approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
2,639,319 99,224 152,726 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
2,435,119 176,433 169,820 109,897
3. To approve the revision of the Fund's fundamental borrowing policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
2,420,034 178,270 183,068 109,897
- --------------------------------------------------------------------------------
* 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.
18 - Scudder S&P 500 Index Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll Associates; Executive Fellow, Center for
Business Ethics, Bentley College
Peter B. Freeman
Trustee, Corporate Director
George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner, Technology Equity Partners
Bruce F. Beaty*
Vice President
Philip S. Fortuna*
Vice President
William F. Gadsden*
Vice President
Robert T. Hoffman*
Vice President
Thomas W. Joseph*
Vice President
Valerie F. Malter*
Vice President
Ann M. McCreary*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
19 - Scudder S&P 500 Index Fund
<PAGE>
Statement of Net Assets as of December 31, 1998
Equity 500 Index Portfolio
Principal Market
Amount ($) Value ($)
=============================================================================
Short-Term Instruments 0.7%
- -----------------------------------------------------------------------------
Mutual Fund 0.6%
BT Institutional Cash
ManagementFund ......................... 33,163,964 33,163,964
-------------
U.S. Treasury Bills 0.1%$
3.906%, 1/14/1999 (a) .................... 330,000 329,529
4.7%, 1/14/1999 (a) ...................... 5,535,000 5,526,511
-------------
5,856,040
- -----------------------------------------------------------------------------
Total Short-Term Instruments (Cost $39,020,004) 39,020,004
- -----------------------------------------------------------------------------
Shares
=============================================================================
Common Stocks 99.0%
- -----------------------------------------------------------------------------
3Com Corporation* ........................ 193,200 8,657,775
Abbott Laboratories ...................... 785,044 38,467,156
Adobe Systems Inc. ....................... 33,800 1,580,150
Adolph Coors Company --
Class B ................................ 15,968 901,194
Advanced Micro Devices, Inc.* ............ 68,941 1,994,980
Aeroquip-Vickers, Inc. ................... 12,527 375,027
AES Corporation* ......................... 87,100 4,126,362
Aetna, Inc. .............................. 80,059 6,294,639
Air Products & Chemical, Inc. ............ 118,608 4,744,320
Airtouch Communications, Inc.* ........... 288,935 20,839,437
Alberto-Culver Co.-- Class B ............. 8,998 240,134
Albertson's, Inc. ........................ 130,902 8,336,821
Alcan Aluminium Ltd. ..................... 113,636 3,075,274
Allegheny Teledyne, Inc. ................. 85,969 1,756,991
Allergan, Inc. ........................... 37,701 2,441,140
Allied-Signal, Inc. ...................... 284,512 12,607,438
Allstate Corp. ........................... 430,698 16,635,710
Alltel Corp. ............................. 144,200 8,624,962
Aluminum Company of America .............. 96,300 7,180,369
ALZA Corporation* ........................ 51,934 2,713,551
Amerada Hess Corp. ....................... 50,993 2,536,902
Ameren Corporation ....................... 61,220 2,613,329
America Online, Inc.* .................... 221,400 35,424,000
American Electric Power Co. .............. 85,010 4,000,783
American Express Co. ..................... 233,216 23,846,336
American General Corp. ................... 132,737 10,353,486
American Greetings Corp. --
Class A ................................ 38,114 1,565,056
American Home Products Corp. ............. 681,792 38,393,412
American International
Group, Inc. ............................ 540,600 52,235,475
American Stores Company .................. 145,536 5,375,736
Ameritech Corp. .......................... 568,204 36,009,928
Amgen, Inc.* ............................. 131,240 13,722,782
Amoco Corp. .............................. 11,604 700,592
AMP, Inc. ................................ 107,392 5,591,096
AMR Corporation .......................... 101,604 6,032,737
Anadarko Petroleum Corp. ................. 54,100 1,670,337
Andrew Corporation* ...................... 41,176 679,404
Anheuser-Busch Companies, Inc. ........... 252,180 16,549,312
AON Corp. ................................ 96,550 5,346,456
Apache Corp. ............................. 44,400 1,123,875
Apple Computer, Inc. ..................... 78,642 3,219,407
Applied Materials, Inc.* ................. 187,500 8,003,906
Archer-Daniels-Midland Co. ............... 297,447 5,112,370
Armstrong World Industries Inc. .......... 24,583 1,482,662
Asarco, Inc. ............................. 20,449 308,013
Ascend Communications, Inc.* ............. 117,300 7,712,475
Ashland, Inc. ............................ 29,687 1,436,109
Associates First Capital Corp. --
Class A ................................ 348,322 14,760,145
AT&T Corp. ............................... 917,506 69,042,326
Atlantic Richfield Co. ................... 175,250 11,435,062
Autodesk, Inc. ........................... 35,514 1,516,004
Automatic Data Processing, Inc. .......... 149,912 12,021,068
The accompanying notes are an integral part of the financial statements.
20 - Equity 500 Index Portfolio
<PAGE>
Market
Shares Value ($)
==========================================================================
AutoZone, Inc.* ........................ 80,600 2,654,762
Avery Dennison Corp. ................... 48,830 2,200,402
Avon Products, Inc. .................... 140,756 6,228,453
Baker Hughes, Inc. ..................... 172,013 3,042,480
Ball Corp. ............................. 7,954 363,895
Baltimore Gas & Electric Co. ........... 60,725 1,874,884
Banc One Corp. ......................... 620,380 31,678,154
Bank of New York Company, Inc. ......... 391,800 15,769,950
Bankamerica Corp. ...................... 907,657 54,572,877
BankBoston Corp. ....................... 164,434 6,402,649
Barrick Gold Corp. ..................... 207,700 4,050,150
Battle Mountain Gold Co. ............... 59,100 243,787
Bausch & Lomb, Inc. .................... 24,923 1,495,380
Baxter International, Inc. ............. 159,763 10,274,758
BB&T Corp. ............................. 129,700 5,228,531
Bear Stearns Companies, Inc. ........... 65,100 2,433,112
Becton, Dickinson & Co. ................ 135,664 5,791,157
Bell Atlantic Corp. .................... 820,436 46,611,020
BellSouth Corp. ........................ 1,010,664 50,406,867
Bemis Company, Inc. .................... 16,031 608,176
Berkshire Hathaway, Inc. --
Class A* ............................. 6 465,368
Bestfoods .............................. 153,060 8,150,445
Bethlehem Steel Corp.* ................. 57,449 481,135
Biomet, Inc.* .......................... 61,250 2,465,312
Black & Decker Corp. ................... 50,771 2,846,349
BMC Software, Inc.* .................... 106,000 4,723,625
Boeing Co. ............................. 524,346 17,106,788
Boise Cascade Corp. .................... 24,603 762,693
Boston Scientific Corporation* ......... 198,000 5,308,875
Briggs & Stratton Corp. ................ 12,182 607,577
Bristol-Myers Squibb Co. ............... 511,978 68,509,056
Brown-Forman, Inc.-- Class B ........... 18,019 1,363,813
Browning-Ferris Industries, Inc. ....... 106,535 3,029,589
Brunswick Corp. ........................ 47,442 1,174,189
Burlington Northern
Santa Fe Corp. ....................... 242,386 8,180,527
Burlington Resources, Inc. ............. 99,639 3,568,322
C. R. Bard, Inc. ....................... 30,877 1,528,411
Cabletron Systems, Inc.* ............... 69,900 585,412
Campbell Soup Co. ...................... 236,054 12,982,970
Capital One Financial Corp. ............ 33,800 3,887,000
Cardinal Health, Inc. .................. 100,997 7,663,147
Carnival Corp.-- Class A ............... 282,000 13,536,000
Carolina Power & Light Co. ............. 61,128 2,876,836
Case Corp. ............................. 41,900 913,944
Caterpillar, Inc. ...................... 185,564 8,535,944
CBS Corp. .............................. 378,210 12,386,377
Cendant Corp.* ......................... 449,634 8,571,148
Centex Corp. ........................... 41,080 1,851,167
Central & South West Corp. ............. 126,930 3,482,642
Ceridian Corp. ......................... 32,402 2,262,065
Champion International Corp. ........... 56,428 2,285,334
Charles Schwab Corp. ................... 196,750 11,054,891
Chase Manhattan Corp. .................. 446,264 30,373,843
Chevron Corp. .......................... 337,466 27,988,586
Chubb Corp. ............................ 84,272 5,467,146
CIGNA Corp. ............................ 106,799 8,256,898
Cincinnati Financial Corp. ............. 74,700 2,735,887
Cinergy Corp. .......................... 62,822 2,159,506
Circuit City Stores, Inc. .............. 56,646 2,828,760
Cisco Systems, Inc.* ................... 812,925 75,449,602
Citigroup Inc. ......................... 1,184,983 58,656,658
Clear Channel
Communications, Inc.* ................ 130,400 7,106,800
Clorox Co. ............................. 56,704 6,623,736
Coastal Corp. .......................... 111,432 3,893,155
Coca-Cola Co. .......................... 1,275,122 85,273,784
Coca-Cola Enterprises, Inc. ............ 217,000 7,757,750
Colgate-Palmolive Co. .................. 160,002 14,860,186
The accompanying notes are an integral part of the financial statements.
21 - Equity 500 Index Portfolio
<PAGE>
Market
Shares Value ($)
=============================================================================
Columbia Energy Group .................... 37,802 2,183,065
Columbia/HCA Healthcare
Corp ................................... 339,822 8,410,594
Comcast Corp. -- Special
Class A ................................ 178,862 10,496,964
Comerica, Inc. ........................... 80,760 5,506,822
Compaq Computer Corp. .................... 874,784 36,686,254
Computer Associates
International, Inc. .................... 282,175 12,027,709
Computer Sciences Corp.* ................. 91,072 5,868,452
Compuware Corp.* ......................... 85,500 6,679,688
ConAgra, Inc. ............................ 255,432 8,046,108
Conseco, Inc. ............................ 167,468 5,118,241
Consolidated Edison, Inc. ................ 129,336 6,838,641
Consolidated Natural Gas Co. ............. 54,705 2,954,070
Consolidated Stores Corp.* ............... 57,900 1,168,856
Cooper Industries, Inc. .................. 53,548 2,553,570
Cooper Tire & Rubber Co. ................. 35,851 732,705
Corning Inc. ............................. 121,214 5,454,630
Costco Companies, Inc.* .................. 117,799 8,503,615
Countrywide Credit
Industries, Inc. ....................... 72,200 3,623,537
Crane Co. ................................ 30,449 919,179
Crown Cork & Seal Co., Inc. .............. 71,950 2,216,959
CSX Corp. ................................ 121,332 5,035,278
Cummins Engine Co., Inc. ................. 18,934 672,157
CVS Corp. ................................ 190,338 10,468,590
Cyprus Amax Minerals Co. ................. 44,694 446,940
Dana Corp. ............................... 87,947 3,594,834
Danaher Corp. ............................ 65,400 3,552,037
Darden Restaurants, Inc. ................. 63,719 1,146,942
Data General Corp.* ...................... 21,345 350,858
Dayton Hudson Corp. ...................... 227,416 12,337,318
Deere & Co. .............................. 123,323 4,085,074
Dell Computer Corp.* ..................... 658,400 48,186,650
Delta Air Lines, Inc. .................... 74,698 3,884,296
Deluxe Corp. ............................. 43,591 1,593,796
Dillard Department Stores, Inc. --
Class A ................................ 57,497 1,631,477
Dollar General Corp. ..................... 109,925 2,596,978
Dominion Resources, Inc. ................. 110,906 5,184,855
Dover Corp. .............................. 110,008 4,029,043
Dow Chemical Co. ......................... 114,476 10,410,161
Dow Jones & Co., Inc. .................... 41,172 1,981,402
DTE Energy Co. ........................... 73,676 3,158,858
Duke Power Co. ........................... 183,595 11,761,555
Dun & Bradstreet Corp. ................... 76,879 2,426,493
Du Pont (E.I.) de Nemours & Co. .......... 584,092 30,993,382
Eastern Enterprises ...................... 9,242 404,337
Eastman Chemical Co. ..................... 35,081 1,569,875
Eastman Kodak Co. ........................ 160,126 11,529,072
Eaton Corp. .............................. 39,582 2,797,953
Ecolab, Inc. ............................. 46,600 1,686,337
Edison International, Inc. ............... 207,170 5,774,864
EG & G, Inc. ............................. 30,825 857,320
Electronic Data Systems
Corporation ............................ 257,800 12,954,450
Eli Lilly & Co. .......................... 572,440 50,875,605
EMC Corp.* ............................... 264,700 22,499,500
Emerson Electric Co. ..................... 226,600 14,176,663
Engelhard Corp. .......................... 63,608 1,240,356
Enron Corp. .............................. 173,166 9,881,285
Entergy Corp. ............................ 141,907 4,416,855
Equifax Inc. ............................. 68,100 2,328,169
Exxon Corp. .............................. 1,257,634 91,964,486
Fannie Mae ............................... 520,614 38,525,436
FDX Corp.* ............................... 80,855 7,196,095
Freddie Mac .............................. 361,814 23,314,390
Federated Department
Stores, Inc.* .......................... 110,800 4,826,725
The accompanying notes are an integral part of the financial statements.
22 - Equity 500 Index Portfolio
<PAGE>
Market
Shares Value ($)
=============================================================================
Fifth Third Bancorp ...................... 146,467 10,444,928
First Data Corp. ......................... 228,500 7,240,594
First Union Corp. ........................ 512,493 31,165,981
Firstar Corp. ............................ 77,500 7,207,500
FirstEnergy Corp. ........................ 116,984 3,809,291
Fleet Financial Group, Inc. .............. 289,188 12,923,089
Fleetwood Enterprises, Inc. .............. 33,306 1,157,383
Fluor Corp. .............................. 37,881 1,612,310
FMC Corp.* ............................... 17,750 994,000
Ford Motor Co. ........................... 589,244 34,581,257
Fort James Corp. ......................... 113,635 4,545,400
Fortune Brands, Inc. ..................... 86,174 2,725,253
Foster Wheeler Corp. ..................... 25,938 342,057
FPL Group, Inc. .......................... 92,094 5,675,293
Franklin Resources, Inc. ................. 133,020 4,256,640
Fred Meyer, Inc.* ........................ 72,200 4,350,050
Freeport-McMoRan Copper &
Gold, Inc.-- Class B ................... 59,900 625,206
Frontier Corp. ........................... 102,400 3,481,600
Fruit of the Loom, Inc. --
Class A* ............................... 30,800 425,425
Gannett Company, Inc. .................... 145,692 9,642,989
The Gap, Inc. ............................ 303,266 17,058,713
Gateway 2000, Inc.* ...................... 76,400 3,910,725
General Dynamics Corp. ................... 65,544 3,842,517
General Electric Co. ..................... 1,695,044 173,000,428
General Instrument Corp.* ................ 77,300 2,623,369
General Mills, Inc. ...................... 77,919 6,058,202
General Motors Corp. ..................... 338,484 24,222,761
Genuine Parts Co. ........................ 91,426 3,057,057
Georgia-Pacific Corp. .................... 54,201 3,174,146
Gillette Co. ............................. 568,116 27,447,104
Golden West Financial Corp. .............. 20,017 1,835,309
Goodrich (B.F.) Co. ...................... 46,452 1,666,465
Goodyear Tire & Rubber Co. ............... 80,636 4,067,078
GPU, Inc. ................................ 57,600 2,545,200
Great Atlantic & Pacific
Tea Co., Inc. .......................... 17,025 504,366
Great Lakes Chemical Corp. ............... 26,396 1,055,840
GTE Corp. ................................ 500,636 33,761,640
Guidant Corp. ............................ 76,700 8,456,175
H & R Block, Inc. ........................ 56,735 2,553,075
Halliburton Co. .......................... 231,862 6,868,912
Harcourt General, Inc. ................... 27,139 1,443,456
Harnischfeger Industries, Inc. ........... 19,822 201,937
Harrah's Entertainment, Inc.* ............ 46,915 735,979
Harris Corp. ............................. 41,342 1,514,151
Hartford Financial Services
Group, Inc. ............................ 125,646 6,894,824
Hasbro, Inc. ............................. 68,647 2,479,873
HBO & Co. ................................ 262,900 7,541,944
HCR Manor Care, Inc.* .................... 53,000 1,556,875
HEALTHSOUTH Corp. ........................ 236,000 3,643,250
H.J. Heinz Co. ........................... 190,175 10,768,659
Helmerich and Payne ...................... 28,016 542,810
Hercules, Inc. ........................... 52,814 1,445,783
Hershey Foods Corp. ...................... 50,594 3,146,314
Hewlett-Packard Co. ...................... 536,440 36,645,558
Hilton Hotels Corp. ...................... 134,441 2,571,184
Home Depot, Inc. ......................... 753,652 46,114,082
Homestake Mining Co. ..................... 134,043 1,231,520
Honeywell, Inc. .......................... 64,919 4,889,212
Household International, Inc. ............ 249,685 9,893,768
Houston Industries, Inc. ................. 127,892 4,108,530
Humana, Inc. ............................. 83,600 1,489,125
Huntington Bancshares, Inc. .............. 91,770 2,758,836
Ikon Office Solutions, Inc. .............. 61,762 528,837
Illinois Tool Works, Inc. ................ 135,692 7,870,136
IMS Health Inc. .......................... 84,179 6,350,253
Inco, Ltd. ............................... 75,266 794,997
The accompanying notes are an integral part of the financial statements.
23 - Equity 500 Index Portfolio
<PAGE>
Market
Shares Value ($)
=============================================================================
Ingersoll-Rand Co. ....................... 90,446 4,245,309
Intel Corp. .............................. 863,728 102,405,751
International Business
Machines Corp. ......................... 477,382 88,196,324
International Flavors &
Fragrances, Inc. ....................... 63,387 2,800,913
International Paper Co. .................. 157,744 7,068,903
The Interpublic Group of
Companies, Inc. ........................ 77,760 6,201,360
ITT Industries* .......................... 52,223 2,075,864
J.C. Penney Co., Inc. .................... 135,550 6,353,906
Jefferson-Pilot Corp. .................... 47,765 3,582,375
Johnson & Johnson ........................ 697,296 58,485,702
Johnson Controls, Inc. ................... 35,354 2,085,886
Jostens, Inc. ............................ 7,639 200,046
Kaufman & Broad Home Corp. ............... 17,545 504,419
Kellogg Co. .............................. 212,714 7,258,865
Kerr-McGee Corp. ......................... 30,732 1,175,499
KeyCorp .................................. 242,800 7,769,600
Kimberly Clark Corp. ..................... 293,406 15,990,627
King World Productions, Inc.* ............ 32,912 968,847
KLA/Tencor Corp.* ........................ 50,100 2,173,088
Kmart Corp.* ............................. 236,503 3,621,452
Knight-Ridder, Inc. ...................... 51,926 2,654,717
Kohl's Corp.* ............................ 79,700 4,896,569
The Kroger Co. ........................... 132,520 8,017,460
Laidlaw, Inc. ............................ 118,000 1,187,375
Lehman Brothers, Inc. .................... 69,700 3,071,156
The Limited, Inc. ........................ 99,860 2,908,423
Lincoln National Corp. ................... 58,210 4,762,306
Liz Claiborne, Inc. ...................... 34,803 1,098,470
Lockheed Martin Corp. .................... 107,145 9,080,539
Loews Corp. .............................. 53,400 5,246,550
Longs Drug Stores, Inc. .................. 18,026 675,975
Louisiana-Pacific Corp. .................. 66,958 1,226,168
Lowe's Companies, Inc. ................... 180,088 9,218,255
LSI Logic Corp.* ......................... 75,800 1,222,275
Lucent Technologies, Inc. ................ 679,982 74,798,020
Mallinckrodt Group, Inc. ................. 49,202 1,516,037
Marriott International ................... 130,380 3,781,020
Marsh and McLennan ....................... 141,486 8,268,088
Masco Corp. .............................. 173,022 4,974,383
Mattel, Inc. ............................. 161,465 3,683,420
May Department Stores Co. ................ 127,898 7,721,842
Maytag Corp. ............................. 51,712 3,219,072
MBIA, Inc. ............................... 49,300 3,232,231
MBNA Corp. ............................... 385,187 9,605,601
McDermott International, Inc. ............ 25,887 639,085
McDonald's Corp. ......................... 349,914 26,812,160
McGraw-Hill, Inc. ........................ 50,930 5,188,494
MCI WorldCom, Inc. ....................... 916,631 65,768,274
Mead Corp. ............................... 57,702 1,691,390
MediaOne Group* .......................... 316,828 14,890,916
Medtronic, Inc. .......................... 236,304 17,545,572
Mellon Bank Corp. ........................ 139,524 9,592,275
Mercantile Bancorporation, Inc. .......... 66,600 3,071,925
Merck & Co., Inc. ........................ 616,097 90,989,826
Meredith Corp. ........................... 18,772 710,990
Meritor Automotive, Inc. ................. 1 21
Merrill Lynch & Co., Inc. ................ 180,576 12,053,448
MGIC Investment Corp. .................... 62,500 2,488,281
Micron Technology, Inc. .................. 120,700 6,102,894
Microsoft Corp.* ......................... 1,294,700 179,558,706
Milacron, Inc. ........................... 13,647 262,705
Millipore Corp. .......................... 19,792 562,835
Minnesota Mining &
Manufacturing Co. ...................... 205,778 14,635,960
Mirage Resorts Inc.* ..................... 105,000 1,568,438
Mobil Corp. .............................. 403,342 35,141,172
Monsanto Co. ............................. 311,720 14,806,700
The accompanying notes are an integral part of the financial statements.
24 - Equity 500 Index Portfolio
<PAGE>
Market
Shares Value ($)
=============================================================================
Moore Corp. Ltd. ......................... 25,179 276,969
Morgan Stanley Dean Witter
Discover & Co. ......................... 298,833 21,217,143
Morgan (J.P.) & Co., Inc. ................ 90,460 9,503,954
Morton International, Inc. ............... 83,306 2,040,997
Motorola, Inc. ........................... 310,442 18,956,365
NACCO Industries, Inc. --
Class A ................................ 3,627 333,684
Nalco Chemical Co. ....................... 28,325 878,075
National City Corp. ...................... 171,400 12,426,500
National Semiconductor Corp.* ............ 77,126 1,041,201
National Service Industries, Inc. ........ 21,726 825,588
Navistar International Corp. ............. 34,158 973,503
New Century Energies, Inc. ............... 55,200 2,691,000
New York Times Co.-- Class A ............. 90,668 3,145,046
Newell Co. ............................... 71,258 2,939,393
Newmont Mining Corp. ..................... 85,710 1,548,137
Nextel Communications, Inc. --
Class A* ............................... 140,900 3,328,763
Niagara Mohawk Power Corp. ............... 72,242 1,164,902
NICOR, Inc. .............................. 24,769 1,046,490
Nike, Inc. ............................... 105,148 4,265,066
Nordstrom, Inc. .......................... 82,958 2,877,606
Norfolk Southern Corp. ................... 192,753 6,107,861
Northern States Power Co. ................ 53,888 1,495,392
Northern Telecom Ltd. .................... 343,562 17,221,045
Northern Trust Corp. ..................... 60,300 5,264,944
Northrop Grumman Corp. ................... 39,479 2,886,902
Novell, Inc.* ............................ 176,292 3,195,293
Nucor Corp. .............................. 48,694 2,106,016
Occidental Petroleum Corp. ............... 178,914 3,019,174
Omnicom Group, Inc. ...................... 82,900 4,808,200
Oneok, Inc. .............................. 13,991 505,425
Oracle Corp.* ............................ 495,156 21,353,603
Oryx Energy Co. .......................... 48,279 648,749
Owens Corning ............................ 33,750 1,196,016
Owens-Illinois, Inc.* .................... 91,600 2,805,250
Paccar, Inc. ............................. 42,080 1,730,540
Pacificorp ............................... 153,789 3,239,181
Pall Corp. ............................... 64,164 1,624,151
Parametric Technology Corp.* ............. 162,000 2,652,750
Parker-Hannifin Corp. .................... 64,714 2,119,384
Paychex, Inc. ............................ 89,800 4,619,088
PECO Energy .............................. 117,284 4,881,947
PennzEnergy Co. .......................... 9 147
People's Energy Corp. .................... 17,055 680,068
PeopleSoft, Inc.* ........................ 112,500 2,130,469
Pep Boys (Manny Moe & Jack) .............. 26,712 419,045
Pepsico, Inc. ............................ 752,794 30,817,504
Perkin Elmer Corp. ....................... 26,925 2,626,870
Pfizer, Inc. ............................. 669,028 83,921,200
PG & E Corp. ............................. 221,105 6,964,808
Pharmacia & Upjohn, Inc. ................. 262,832 14,882,862
Phelps Dodge Corp. ....................... 26,508 1,348,595
Philip Morris Co. ........................ 1,260,198 67,420,593
Phillips Petroleum Co. ................... 116,806 4,978,856
Pioneer Hi-Bred
International, Inc. .................... 101,420 2,738,340
Pitney Bowes, Inc. ....................... 143,896 9,506,130
Placer Dome, Inc. ........................ 106,404 1,223,646
PNC Bank Corp. ........................... 158,333 8,569,774
Polaroid Corp. ........................... 36,182 676,151
Potlatch ................................. 13,301 490,474
PPG Industries, Inc. ..................... 91,642 5,338,146
P.P.& L. Resources, Inc. ................. 71,007 1,979,320
Praxair, Inc. ............................ 82,615 2,912,179
Procter & Gamble Co. ..................... 688,740 62,890,571
Progressive Corporation of Ohio .......... 39,950 6,766,531
The accompanying notes are an integral part of the financial statements.
25 - Equity 500 Index Portfolio
<PAGE>
Market
Shares Value ($)
=============================================================================
Provident Companies, Inc. ................ 63,900 2,651,850
Providian Financial Corp. ................ 73,397 5,504,775
Public Service Enterprise Group .......... 130,994 5,239,760
Pulte Corp. .............................. 20,632 573,828
Quaker Oats Co. .......................... 70,384 4,187,848
Ralston Purina Group ..................... 146,015 4,727,236
Raychem Corp. ............................ 49,976 1,614,850
Raytheon Co.-- Class B ................... 175,214 9,330,146
Reebok International Ltd. ................ 25,029 372,306
Regions Financial Corp. .................. 127,770 5,150,728
Republic New York Corp. .................. 67,100 3,057,244
Reynolds Metals Co. ...................... 45,849 2,415,669
Rite Aid Corp. ........................... 131,302 6,507,655
RJR Nabisco Holdings Corp. ............... 168,000 4,987,500
Rockwell International Corp. ............. 103,224 5,012,816
Rohm & Haas Co. .......................... 98,377 2,963,607
Rowan Companies, Inc.* ................... 39,100 391,000
Royal Dutch Petroleum Co. ................ 1,109,204 53,103,141
R.R. Donnelley & Sons Co. ................ 63,552 2,784,372
Rubbermaid, Inc. ......................... 78,502 2,467,907
Russell Corp. ............................ 16,011 325,223
Ryder Systems, Inc. ...................... 34,017 884,442
Safeco Corp. ............................. 70,502 3,027,180
Safeway, Inc.* ........................... 256,800 15,648,750
Sara Lee Corp. ........................... 478,654 13,492,060
SBC Communications, Inc. ................. 1,031,528 55,315,689
Schering-Plough Corp. .................... 757,232 41,837,068
Schlumberger Ltd. ........................ 275,962 12,728,747
Scientific-Atlanta, Inc. ................. 36,238 826,679
Seagate Technology, Inc.* ................ 133,100 4,026,275
Seagram Co. Ltd. ......................... 187,637 7,130,206
Sealed Air Corp. ......................... 47,005 2,400,193
Sears, Roebuck & Co. ..................... 201,409 8,559,883
Sempra Energy ............................ 121,414 3,080,880
Service Corp. International .............. 138,092 5,256,127
Shared Medical Systems Corp. ............. 10,974 547,328
Sherwin-Williams Co. ..................... 87,974 2,584,236
Sigma Aldrich Corp. ...................... 59,500 1,747,813
Silicon Graphics, Inc.* .................. 109,115 1,404,856
SLM Holding Corp. ........................ 95,100 4,564,800
Snap-On Tools Corp. ...................... 39,794 1,385,329
Solectron Corp.* ......................... 58,000 5,390,375
Sonat, Inc. .............................. 48,110 1,301,977
Southern Co. ............................. 386,658 11,237,248
Southwest Airlines Co. ................... 161,700 3,628,144
Springs Industries, Inc.-- Class A ....... 5,604 232,216
Sprint Corp. ............................. 168,982 14,215,611
Sprint PCS* .............................. 220,491 5,098,854
St. Jude Medical, Inc.* .................. 37,388 1,035,180
St. Paul Companies, Inc. ................. 121,928 4,236,998
Stanley Works ............................ 39,330 1,091,408
Staples, Inc.* ........................... 145,100 6,339,056
State Street Corp. ....................... 76,700 5,335,444
Summit Bancorp ........................... 93,800 4,097,888
Sun Microsystems, Inc.* .................. 202,856 17,369,545
SunAmerica, Inc. ......................... 104,100 8,445,113
Sunoco, Inc. ............................. 41,245 1,487,398
Suntrust Banks, Inc. ..................... 163,460 12,504,690
SuperValu, Inc. .......................... 63,640 1,781,920
Synovus Financial Corp. .................. 116,350 2,836,031
Sysco Corp. .............................. 175,020 4,802,111
Tandy Corp. .............................. 56,166 2,313,337
Tektronix, Inc. .......................... 36,707 1,103,504
Tele-Communications, Inc. --
Class A* ............................... 246,960 13,659,975
Tellabs, Inc.* ........................... 100,000 6,856,250
Temple Inland, Inc. ...................... 28,622 1,697,642
Tenet Healthcare Corp. ................... 156,810 4,116,263
Tenneco, Inc. ............................ 88,034 2,998,658
Texaco, Inc. ............................. 280,322 14,822,026
The accompanying notes are an integral part of the financial statements.
26 - Equity 500 Index Portfolio
<PAGE>
Market
Shares Value ($)
=============================================================================
Texas Instruments, Inc. .................. 202,956 17,365,423
Texas Utilities Co. ...................... 158,227 7,387,223
Textron, Inc. ............................ 77,006 5,847,643
Thermo Electron Corp.* ................... 95,100 1,610,756
Thomas & Betts Corp. ..................... 38,000 1,645,875
Time Warner, Inc. ........................ 569,430 35,340,249
Times Mirror Co.-- Class A ............... 28,529 1,597,624
Timken Co. ............................... 24,796 468,025
TJX Companies, Inc. ...................... 189,516 5,495,964
Torchmark Corp. .......................... 63,468 2,241,214
Toys 'R' Us, Inc.* ....................... 156,218 2,636,179
Transamerica Corp. ....................... 28,243 3,262,067
Tribune Co. .............................. 53,596 3,537,336
Tricon Global Restaurants, Inc.* ......... 81,999 4,110,200
TRW, Inc. ................................ 61,792 3,482,052
Tupperware Corp. ......................... 27,396 450,322
Tyco International Ltd. .................. 339,870 25,638,943
U.S. West Inc. ........................... 269,255 17,400,604
U.S. Bancorp ............................. 394,737 14,013,164
Unicom Corp. ............................. 138,825 5,353,439
Unilever NV .............................. 323,868 26,860,802
Union Camp Corp. ......................... 36,203 2,443,703
Union Carbide Corp. ...................... 68,552 2,913,460
Union Pacific Corp. ...................... 130,847 5,896,293
Union Pacific Resources
Group, Inc. ............................ 146,248 1,325,373
Union Planters Corp. ..................... 64,900 2,940,781
Unisys Corp. ............................. 121,599 4,187,566
United Healthcare Corp. .................. 93,500 4,026,344
United Technologies Corp. ................ 113,512 12,344,430
Unocal Corp. ............................. 127,837 3,731,242
UNUM Corp. ............................... 61,800 3,607,575
US Airways Group, Inc.* .................. 42,715 2,221,180
UST, Inc. ................................ 96,207 3,355,219
USX Marathon Group ....................... 154,864 4,665,278
USX-- U.S. Steel Group ................... 61,577 1,416,271
V.F. Corp. ............................... 65,730 3,081,094
Viacom, Inc.-- Class B ................... 148,249 10,970,426
Wachovia Corp. ........................... 113,910 9,960,006
Wal-Mart Stores, Inc. .................... 1,157,848 94,292,246
Walgreen Co. ............................. 257,268 15,066,257
Walt Disney Co. .......................... 1,064,071 31,922,130
Warner-Lambert Co. ....................... 428,458 32,214,686
Washington Mutual, Inc. .................. 321,022 12,259,028
Waste Management, Inc. ................... 287,956 13,425,949
Wells Fargo Co. .......................... 853,636 34,092,088
Wendy's International, Inc. .............. 75,762 1,652,559
Westvaco Corp. ........................... 39,960 1,071,428
Weyerhaeuser Co. ......................... 103,894 5,279,114
Whirlpool Corp. .......................... 33,439 1,851,685
Willamette Industries, Inc. .............. 43,700 1,463,950
Williams Companies, Inc. ................. 243,136 7,582,804
Winn-Dixie Stores, Inc. .................. 66,580 2,987,778
Wm. Wrigley, Jr. Co. ..................... 46,892 4,199,765
Worthington Industries, Inc. ............. 31,279 390,988
W. R. Grace & Co.* ....................... 35,649 559,244
W.W. Grainger, Inc. ...................... 48,330 2,011,736
Xerox Corp. .............................. 169,635 20,016,930
- -----------------------------------------------------------------------------
Total Common Stocks (Cost $3,244,951,024) 5,146,921,230
- -----------------------------------------------------------------------------
% of
Net Assets
================================================================================
Total Investment Portfolio
(Cost $3,283,971,028) .................. 99.7% 5,185,941,234
Other Assets Less Liabilities ............ 0.3% 14,563,176
----- -------------
Net Assets ............................... 100.0% 5,200,504,410
===== =============
* Non-income producing security.
(a) Held as collateral for futures contracts.
The accompanying notes are an integral part of the financial statements.
27 - Equity 500 Index Portfolio
<PAGE>
Financial Statements
Equity 500 Index Portfolio
Statement of Operations
for the year ended December 31, 1998
<TABLE>
<S> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign withholding tax of $284,044) ................. $ 56,672,952
Interest* .............................................................. 4,806,144
----------------
Total investment income ................................................ 61,479,096
Expenses:
Advisory fees .......................................................... 3,186,503
Administration and services fees ....................................... 676,625
Professional fees ...................................................... 46,189
Miscellaneous .......................................................... 4,344
----------------
Total expenses ......................................................... 3,913,661
Less: Expenses absorbed by Bankers Trust ............................... (799,296)
----------------
Net expenses ........................................................... 3,114,365
---------------------------------------------------------------------------------------------
Net investment income 58,364,731
---------------------------------------------------------------------------------------------
Realized and Unrealized Gain on Investments and Futures Contracts
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment transactions ......................... 33,524,253
Net realized gain from futures transactions ............................ 1,750,435
Net change in unrealized appreciation on investments ................... 894,561,271
Net change in unrealized appreciation on futures contracts ............. 528,247
----------------
Net realized and unrealized gain on investments and futures contracts .. 930,364,206
---------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 988,728,937
---------------------------------------------------------------------------------------------
</TABLE>
* Includes $4,490,254 from the Portfolio's investment in the
BT Institutional Cash Management Fund.
The accompanying notes are an integral part of the financial statements.
28 - Equity 500 Index Portfolio
<PAGE>
Equity 500 Index Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ............................... $ 58,364,731 $ 42,706,376
Net realized gain from investments and futures
transactions ..................................... 35,274,688 95,286,448
Net change in unrealized appreciation on
investments and futures contracts ................ 895,089,518 528,775,836
---------------- ----------------
Net increase in net assets from operations .......... 988,728,937 666,768,660
---------------- ----------------
Capital Transactions:
Proceeds from capital invested ...................... 2,853,940,069 1,462,422,481
Value of capital withdrawn .......................... (1,445,251,067) (1,251,328,236)
---------------- ----------------
Net increase in net assets from capital
transactions ..................................... 1,408,689,002 211,094,245
---------------- ----------------
Total increase in net assets ........................ 2,397,417,939 877,862,905
Net assets at beginning of year ..................... 2,803,086,471 1,925,223,566
---------------- ----------------
Net assets at end of year ........................... $5,200,504,410 $2,803,086,471
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
29 - Equity 500 Index Portfolio
<PAGE>
Financial Highlights
Equity 500 Index Portfolio
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the Equity 500 Index Portfolio.
<TABLE>
<CAPTION>
For the Year Ended December 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supplemental Data and Ratios
Net assets, end of period (000s omitted) .............. $5,200,504 $2,803,086 $1,925,224 $1,080,736 $559,772
Ratios to average net assets:
Net investment income (%) ............................. 1.50 1.76 2.20 2.52 2.84
Expenses (%) .......................................... 0.08 0.08 0.10 0.10 0.10
Decrease reflected in above expense ratio due to
absorption of expenses by Bankers Trust (%) ......... 0.02 0.07 0.05 0.05 0.06
Portfolio turnover rate (%) ........................... 4 19 15 6 21
</TABLE>
30 - Equity 500 Index Portfolio
<PAGE>
Notes to Financial Statements
Equity 500 Index Portfolio
Note 1-Organization and Significant Accounting Policies
A. Organization
The Equity 500 Index Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on December 11, 1991
as an unincorporated trust under the laws of New York and commenced operations
on December 31, 1992. The Declaration of Trust permits the Board of Trustees
(the "Trustees") to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments are valued each business day by an independent
pricing service approved by the Trustees. Securities traded on national
exchanges or traded in the NASDAQ National Market System are valued at the last
sales prices reported at the close of business each day. Over-the-counter
securities not included in the NASDAQ National Market System and listed
securities for which no sale was reported are valued at the mean of the bid and
asked prices. Short-term obligations with remaining maturities of 60 days or
less are valued at amortized cost that, with accrued interest, approximates
value. Securities for which quotations are not available are stated at fair
value as determined by the Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and accretion of discount on
investments. Realized gains and losses from securities transactions are recorded
on the identified cost basis.
All of the net investment income and realized and unrealized gains and losses
from the security transactions of the Portfolio are allocated pro rata among the
investors in the Portfolio at the time of such determination.
D. Futures Contracts
The Portfolio may enter into financial futures contracts which are contracts to
buy a standard quantity of securities at a specified price on a future date. The
Portfolio is required to deposit either cash or securities in an amount equal to
a certain percentage of the contract amount. Variation margin payments are made
or received by the Portfolio each day, dependent on the daily fluctuations in
the value of the underlying security, and are recorded for financial statement
purposes as unrealized gains or losses by the Portfolio.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
E. Federal Income Taxes
The Portfolio is considered a partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is required.
31 - Equity 500 Index Portfolio
<PAGE>
F. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2-Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Portfolio in return for a fee computed daily and
paid monthly at an annual rate of .005% of the Portfolio's average daily net
assets. For the period January 1, 1998 to May 6, 1998 the Administration and
Services Fee was .05% on an accrual basis. For the year ended December 31, 1998,
Administration and Services Fees amounted to $676,625, of which $21,178 was
payable at the end of the year.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, the Portfolio pays Bankers Trust an advisory fee
computed daily and paid monthly at an annual rate of .075% of the Portfolio's
average daily net assets. For the period January 1, 1998 to May 6, 1998 the
Advisory fee was .10%. For the year ended December 31, 1998, Advisor Fees
amounted to $3,186,503, of which $309,104 was payable at the end of the year.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio, to the extent necessary, to limit all expenses to
.08% of the average daily net assets of the Portfolio.
The Portfolio may invest in the BT Institutional Cash Management Fund (the
"Fund"), an open-end management investment company managed by Bankers Trust
Company (the "Company"). The Fund is offered as a cash management option to the
Portfolio and other accounts managed by the Company. Distributions from the Fund
to the Portfolio as of December 31, 1998 amounted to $4,490,254 and are included
in dividend income.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility and a discretionary demand line of credit facility
("collectively the credit facilities") in the amounts of $50,000,000 and
$100,000,000, respectively, which expire March 15, 1999. A commitment fee of
.07% per annum on the average daily amount of the available commitment is
payable on a quarterly basis and apportioned equally among all participants.
Amounts borrowed under the credit facilities will bear interest at a rate per
annum equal to the Federal Funds Rate plus .45%. No amounts were drawn down or
outstanding under the credit facilities as of and for the year ended December
31, 1998.
For the year ended December 31, 1998, the Portfolio paid affiliated brokerage
commissions of $333.
Note 3-Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended December 31, 1998, were
$1,607,662,962 and $153,777,789, respectively. For federal income tax purposes,
the tax basis of investments held at December 31, 1998 was $3,302,071,681. The
aggregate gross unrealized appreciation was $1,914,790,859,
32 - Equity 500 Index Portfolio
<PAGE>
and the aggregate gross unrealized depreciation was $69,941,310 for all
investments as of December 31, 1998. Payable for securities purchased at
December 31, 1998 amounted to $58,369,160.
Note 4-Futures Contracts
A summary of obligations under these financial instruments at December 31, 1998
is as follows:
<TABLE>
<CAPTION>
Unrealized
Type of Future Expiration Contracts Position Market Value ($) Appreciation ($)
- -------------- ---------- --------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
S&P 500 Index Futures March 1999 334 Long 100,118,660 81,600
</TABLE>
At December 31, 1998, the Portfolio segregated $5,856,040 to cover margin
requirements on open futures contracts.
Note 5-Net Assets
<TABLE>
<CAPTION>
<S> <C>
Paid-in capital $ 3,297,393,868
Net unrealized appreciation on investments and futures 1,903,110,542
------------------
Total net assets $ 5,200,504,410
==================
</TABLE>
33 - Equity 500 Index Portfolio
<PAGE>
Report of Independent Accountants
To the Trustees and Holders of Beneficial Interest of the Equity 500 Index
Portfolio:
In our opinion, the accompanying statement of net assets 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
Equity 500 Index Portfolio (the "Portfolio") at December 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio'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 generally accepted
auditing standards 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 5, 1999
34 - Equity 500 Index Portfolio
<PAGE>
This Page
intentionally
left blank.
35 - Scudder S&P 500 Index Fund
<PAGE>
This Page
intentionally
left blank.
36 - Scudder S&P 500 Index Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.
37 - Scudder S&P 500 Index Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
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Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
Distributions Direct
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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38 - Scudder S&P 500 Index Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
800 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
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Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
39 - Scudder S&P 500 Index Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 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 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
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