UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number 811-06702
SCUDDER INTERNATIONAL EQUITY PORTFOLIO
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(Exact Name of Registrant as Specified in Charter)
One South Street, Baltimore, Maryland 21202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2663
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Salvatore Schiavone
Two International Place
Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
Date of fiscal year end: 10/31
Date of reporting period: 10/31/04
ITEM 1. REPORT TO STOCKHOLDERS
Scudder International
Equity Fund
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Institutional Class
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Annual Report to Shareholders
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October 31, 2004
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This report must be preceded or accompanied by a prospectus. To obtain a
prospectus for any of our funds, refer to the Account Management Resources
information provided in the back of this booklet. We advise you to consider the
fund's objectives, risks, charges and expenses carefully before investing. The
prospectus contains this and other important information about the fund. Please
read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. Investing
in foreign securities presents certain unique risks not associated with domestic
investments, such as currency fluctuation, political and economic changes and market
risks. Additionally, hedging strategies are subject to special risks, and the success of such
strategies cannot be guaranteed. All of these factors may result in greater share price
volatility. Please read this fund's prospectus for specific details regarding its investments
and risk profile.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the
US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management
Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services
Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any
bank. Fund shares involve investment risk, including possible loss of principal.
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Performance Summary October 31, 2004
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All performance shown is historical, assumes reinvestment of all dividends and
capital gains, and does not guarantee future results. Investment return and
principal value fluctuate with changing market conditions so that, when
redeemed, shares may be worth more or less than their original cost. Current
performance may be lower or higher than the performance quoted. Please visit
scudder.com for the product's most recent month-end performance.
Returns and rankings during all periods shown reflect a fee waiver and/or expense
reimbursement. Without this waiver/reimbursement returns and rankings would have been
lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares. Returns and rankings may differ by
share class.
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Average Annual Total Returns as of 10/31/04
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Scudder International Equity Fund
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1-Year
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3-Year
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5-Year
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Life of
Class*
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Institutional Class
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12.42%
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5.62%
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-2.94%
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3.15%
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MSCI EAFE Index+
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18.84%
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9.42%
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-.92%
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3.88%
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Sources: Lipper Inc. and Deutsche Asset Management Inc.
* The Class commenced operations on April 1, 1997. Index returns begin March 31, 1997.
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Net Asset Value and Distribution Information
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Institutional
Class
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Net Asset Value:
10/31/04
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$ 10.35
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10/31/03
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$ 9.65
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Distribution Information:
Twelve Months:
Income Dividends as of 10/31/04
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$ .48
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Institutional Class Lipper Rankings — International Large-Cap Core Funds
Category as of 10/31/04
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Period
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Rank
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Number of
Funds Tracked
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Percentile
Ranking
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1-Year
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150
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of
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201
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75
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3-Year
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96
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of
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173
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56
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5-Year
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79
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of
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129
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61
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Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are
based on total return with distributions reinvested. Rankings are for Institutional Class
shares.
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Growth of an Assumed $1,000,000 Investment
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[] Scudder International Equity Fund — Institutional Class
[] MSCI EAFE Index+
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Yearly periods ended October 31
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Comparative Results as of 10/31/04
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Scudder International Equity Fund
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1-Year
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3-Year
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5-Year
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Life of
Class*
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Institutional
Class
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Growth of $1,000,000
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$1,124,200
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$1,178,300
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$861,500
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$1,265,000
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Average annual total return
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12.42%
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5.62%
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-2.94%
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3.15%
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MSCI EAFE
Index+
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Growth of $1,000,000
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$1,188,400
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$1,310,200
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$955,100
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$1,334,300
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Average annual total return
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18.84%
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9.42%
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-.92%
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3.88%
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The growth of $1,000,000 is cumulative.
The minimum initial investment for Institutional Class shares is $1,000,000.
* The Class commenced operations on April 1, 1997. Index returns begin March 31, 1997.
+ The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged, capitalization-
weighted index that tracks international stock performance in the 21 developed markets in Europe,
Australasia and the Far East. Index returns assume reinvestment of all distributions and do not
reflect fees or expenses. It is not possible to invest directly in an index.
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Information About Your Fund's Expenses
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As an investor of the Fund, you incur two types of costs: ongoing expenses
and transaction costs. Ongoing expenses include management fees,
distribution and service (12b-1) fees and other Fund expenses. Examples of
transaction costs include sales charges (loads), redemption fees and account
maintenance fees, which are not shown in this section. The following table is
intended to help you understand your ongoing expenses (in dollars) of
investing in the Fund and to help you compare these expenses with the
ongoing expenses of investing in other mutual funds. In the most recent
six-month period, the Fund limited these expenses; had it not done so,
expenses would have been higher. The table is based on an investment of
$1,000 made at the beginning of the six-month period ended October 31,
2004.
The table illustrates your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of
ongoing expenses (but not transaction costs) paid on a $1,000 investment
in the Fund using the Fund's actual return during the period. To estimate
the expenses you paid over the period, simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the "Expenses Paid per $1,000"
line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's
ongoing expenses (but not transaction costs) with those of other mutual
funds using the Fund's actual expense ratio and a hypothetical rate of
return of 5% per year before expenses. Examples using a 5% hypothetical
fund return may be found in the shareholder reports of other mutual
funds. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the
period.
Please note that the expenses shown in these tables are meant to highlight your
ongoing expenses only and do not reflect any transaction costs. The "Expenses
Paid per $1,000" line of the tables is useful in comparing ongoing expenses
only and will not help you determine the relative total expense of owning
different funds. If these transaction costs had been included, your costs would
have been higher.
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Expenses and Value of a $1,000 Investment
for the six months ended October 31, 2004
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Actual Fund Return
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Institutional
Class
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Beginning Account Value 5/1/04
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$ 1,000.00
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Ending Account Value 10/31/04
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$ 1,024.80
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Expenses Paid per $1,000*
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$ 4.85
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Hypothetical 5% Fund Return
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Institutional
Class
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Beginning Account Value 5/1/04
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$ 1,000.00
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Ending Account Value 10/31/04
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$ 1,020.42
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Expenses Paid per $1,000*
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$ 4.84
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* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the
average account value over the period, multiplied by the number of days in the most recent
six-month period, then divided by 365.
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Annualized Expense Ratios
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Institutional
Class
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Scudder International Equity Fund
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.95%
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For more information, please refer to the Fund's prospectus.
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Portfolio Management Review
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Scudder International Equity Fund: A Team Approach to Investing
Deutsche Asset Management, Inc. ("DeAM, Inc." or the "Advisor"), which is part of
Deutsche Asset Management, is the investment advisor for the Scudder International
Equity Portfolio in which this fund invests all of its assets. DeAM, Inc. provides a full
range of investment advisory services to institutional and retail clients. Deutsche
Asset Management Investment Services Ltd. ("DeAMIS") is the subadvisor to the
International Equity Portfolio. DeAMIS is responsible for selecting brokers and
dealers and for negotiating brokerage commissions and dealer charges.
Deutsche Asset Management is a global asset management organization that offers a
wide range of investing expertise and resources. This well-resourced global
investment platform brings together a wide variety of experience and investment
insight across industries, regions, asset classes and investing styles.
DeAM, Inc. is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche
Bank AG is a major global banking institution that is engaged in a wide range of
financial services, including investment management, mutual funds, retail, private
and commercial banking, investment banking and insurance.
Portfolio Management Team
Alexander Tedder
Managing Director, Deutsche Asset Management and Lead Manager of the fund.
Head of EAFE Equity Portfolio Selection team and Head of International Select Equity
Strategy: London.
Joined the investment advisor in 1994.
Prior to that, was a European analyst (1990-1994) and representative (1992-1994) for
Schroders.
15 years of investment experience.
Masters in Economics and Business Administration from Freiburg University.
Clare Gray, CFA
Director, Deutsche Asset Management and Manager of the fund.
Joined the investment advisor in 1993.
Over ten years of investment industry experience.
Matthias Knerr, CFA
Director, Deutsche Asset Management and Manager of the fund.
Joined Deutsche Asset Management in 1995 and the funds in 2004.
Portfolio manager for EAFE Equities and Global Equities.
Sangita Uberoi, CFA
Director, Deutsche Asset Management and Manager of the fund.
Joined Deutsche Asset Management in 1994 and the funds in 2004.
Portfolio manager for EAFE Equities.
Previous experience includes two years in equity research and investments at Lehman
Brothers and Smith Barney.
In the following interview, Lead Portfolio Manager Alex Tedder discusses Scudder
International Equity Fund's strategy and the market environment during the
12-month period ended October 31, 2004.
Q: How did the international stock markets perform
during the past year?
A: International equities performed well during the
fund's fiscal year, as investors responded to a continued
environment of moderate global growth, steady gains in
corporate earnings and low absolute levels of interest
rates worldwide. An additional factor helping overseas
markets was the strength in foreign currencies relative to
the US dollar. Since foreign shares are denominated in
local-country currencies, a gain in the value of the
currency helps increase the value of the investment in
US dollar terms. During the past year, for instance, the
value of the euro rose 11.5% against the dollar, while the
British pound and Japanese yen rose 9.2% and 4.4%,
respectively. This provided a substantial boost to the gains
enjoyed by dollar-based investors during the period,
contributing approximately 8% of the 18.84% return of
the MSCI EAFE Index.1
1 The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged, capitalization-
weighted index that tracks international stock performance in the 21 developed markets in Europe,
Australasia and the Far East. Index returns assume reinvestment of all distributions and do not
reflect fees or expenses. It is not possible to invest directly in an index.
The strong performance of the international markets
occurred despite ongoing investor nervousness over
geopolitical tensions, soaring oil prices, a possible
economic slowdown in China and rising interest rates in
the United States. This investor nervousness led to
volatility in the world markets, particularly during the
second quarter. Investors therefore tended to favor
stocks perceived to be more conservative, helping value
stocks outperform their growth counterparts. Given this
value bent in the market, it is no surprise that some of the
top-performing industry groups were the traditional "safe
havens" — the higher-yielding utility and energy sectors
— while on the other end of the spectrum, the higher-risk
technology sector lagged the performance of the broader
MSCI EAFE Index by roughly 20 percentage points.
On a regional basis, the European markets outpaced
Japan, which lagged during the second half of the period
as investor concerns about the impact of a strong yen on
exporters outweighed the positive news of a six-year high
in Japanese business confidence and strong industrial
production results.2 Stocks in the emerging markets
performed particularly well, generally benefiting from
growth in domestic consumption and rising returns on
equity. Despite recent strong performance, valuations in
emerging markets remain compelling, as emerging-market
stocks are still priced at a discount to developed markets.3
2 A strong currency can slow a region's economy by making their goods and services more expensive
to consumers in other countries.
3 "Valuation" refers to the price investors pay for a given security. An asset can be undervalued,
meaning that it trades for less than its true worth, or overvalued, which means that it trades at a
more expensive price than its underlying worth.
4 Funds in the Lipper International Large-Cap Core Funds category are defined as those that invest at
least 75% of their equity assets in companies strictly outside of the United States with market
capitalizations (on a three-year-weighted basis) greater than 400% of the 75th market
capitalization percentile of the S&P/Citigroup World ex-US Broad Market Index (BMI). Large-cap
core funds typically have an average price-to-cash flow ratio, price-to-book ratio and three-year
sales-per-share growth value compared with the S&P/Citigroup World ex-US BMI.
Q: How did the fund perform in this environment?
A: The total return of the fund's Institutional Class
shares for the 12 months ended October 31, 2004, was
12.42%.(Past performance is no guarantee of future
results. Please see pages 3 through 4 for performance of
other shares classes and more complete performance
information.) For the period, the MSCI EAFE benchmark
returned 18.84%, and the average return of the Lipper
International Large-Cap Core category was 14.63%.4
A key component of the fund's underperformance was its
"hedged" position with respect to currency movements.
"Hedging" means that we buy securities that will set the
fund's currency exposure at a certain level. For instance, if
a fund holds 100% of assets in foreign stocks, 100% of its
currency exposure will be in foreign currencies. However,
the fund can gain exposure to the US dollar through
hedging, so that the portfolio does not have to be 100%
exposed to foreign currency movements. This sort of
hedge will help if the US dollar rises, but hurt if it
declines. Since the US dollar weakened during the
reporting period, this aspect of the fund's positioning
was detrimental to performance.
A second reason for underperformance was that much of
the strength in the benchmark, in relation to the fund and
to the Lipper peer group, was due to the substantial
outperformance of value stocks as investors flocked to
perceived safe harbors. Still, we believe that the best way
to achieve long-term outperformance is to stay true to
our approach, which is to emphasize companies with
sustainable earnings growth and have strong business
models or franchises that allow them pricing power.
Examples of such companies are: Natural price leaders in
industries with high barriers to entry; companies in
regulated industries or in industries that benefit from state
monopolies; and dominant brand or service franchises.
Q: What elements of the fund's positioning contributed
to its underperformance?
A: The most challenging sector for the period was
financials. Although many banking names within the
sector were strong performers, OTP Bank RT (Hungary)
and Alpha Bank AE (Greece) were two of the portfolio's
top contributors to performance. European insurers and
financial services were the main detractors. European
insurers such as Allianz AG (Germany) and Munich Re
(Switzerland) posted disappointing results over the period
and are continuing to undergo restructuring efforts to
improve efficiency. (As of October 31, 2004, the positions
in Allianz AG and Munich Re were sold.)
Health care stocks also disappointed during the
period. Our holding in Smith & Nephew PLC, a UK
manufacturer of orthopedic medical devices, performed
well in the first half of the year, but declined significantly
in July when it reported softer-than-expected sales. We
believe this disappointment is indicative of a short-term
market overreaction rather than long-term weakness in the
company's business, and we continue to hold the stock in
the portfolio. Pharmaceutical stocks, which make up the
balance of our holdings in the sector, continued to be
weighed down ahead of the US election. Share valuations
also reflected overly pessimistic investor sentiment about
future product development and existing drug pipelines.
Extraordinary and well-publicized circumstances
surrounding the Russian oil company Yukos also
impacted the portfolio's performance. The shares
declined dramatically during the period on fears of an
impending liquidity crisis following the arrest of its largest
individual shareholder (Mikhail Khodorkovsky), the
Russian government's announcement of a radical change
of stance on its taxation policy and the freezing of the
company's assets by the government. As greater clarity
emerged with respect to the situation and it became
evident that any resolution would favor the Russian tax
authorities instead of shareholders, we decided to sell
the position. (As of October 31, 2004, the positions in
Yukos was sold.)
Q: What factors helped performance?
A: Fund returns were helped by holdings in the basic
materials sector. Stocks in this group were aided by the
combination of continued economic growth worldwide,
increasing demand for raw materials from the booming
Chinese infrastructure build-out, and the resulting rise in
commodities prices. Our stock selection in this area was
strong, as we generated outperformance from holdings in
metals and mining companies such as Companhia Vale do
Rio Doce (Brazil), BHP Billiton PLC (UK) and the
Korean steel producer POSCO.
Information technology was a poor performer within the
index this year, posting negative returns. However, our
stock selection within the portfolio was strong and
technology was one of our top performing sectors. An
overweight position in Telefonaktiebolaget LM Ericsson
(Sweden) lifted performance, as the company reported
stronger than expected results, considerable improvement
in gross margins and a recovery in wireless equipment
capital spending.
Although the fund was slightly underweight in utilities,
the top-performing index sector this period, the portfolio's
utilities stocks significantly exceeded the index sector
return. Thus, our utilities exposure was a very strong
contributor to return, benefiting from a market
environment that favored companies with stable cash
flows. The German utility E.ON AG, the fund's top
holding in the sector, benefited from its decision to
restructure its operations in order to streamline its
business to a more focused electric and gas energy
company, as well as from the recent completion of an
attractive acquisition.
Q: What is your broad view of the international stock
markets as we move into 2005?
A: Evaluating the spectrum of international equities right
now, we believe the disparity in relative valuation between
different sectors, regions or investment styles is minimal.
Since the peak of the market in early 2000, value has
outperformed growth by an annualized difference of
approximately eight percentage points. Interestingly, based
on our measure of trend earnings, we believe growth is
now priced at a discount to value. At the same time, the
gap between large and small-cap stocks has also narrowed,
leaving little room for a further convergence of valuations
in this area. This is a clear reflection of the challenges in
the current investment environment, and it has resulted in
investors focusing on generating a larger percentage of
their total return through income rather than price
appreciation. Although there are initial signs that some of
the clouds of uncertainty may be dissipating, the
investment environment is likely to prove challenging into
2005. Importantly though, we believe overall valuation
levels remain quite supportive for stocks (particularly
relative to bonds), and we therefore remain optimistic on
the prospects for international equities.
The views expressed in this report reflect those of the portfolio manager only through the
end of the period of the report as stated on the cover. The manager's views are subject to
change at any time based on market and other conditions and should not be construed as
a recommendation.
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Portfolio Summary October 31, 2004
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Geographic Diversification (Excludes Cash Equivalents
and Securities Lending Collateral)
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10/31/04
|
10/31/03
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Japan
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23%
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22%
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United Kingdom
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22%
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19%
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Switzerland
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12%
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11%
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France
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10%
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6%
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Italy
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5%
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2%
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Germany
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5%
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12%
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Netherlands
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4%
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4%
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Spain
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2%
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2%
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Greece
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2%
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1%
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Other
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15%
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21%
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100%
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100%
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Sector Diversification (Excludes Cash Equivalents and
Securities Lending Collateral)
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10/31/04
|
10/31/03
|
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Financials
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27%
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27%
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Consumer Discretionary
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12%
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12%
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Energy
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11%
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7%
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Health Care
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9%
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8%
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Industrials
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9%
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11%
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Telecommunication Services
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8%
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9%
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Information Technology
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6%
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11%
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Materials
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5%
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7%
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Consumer Staples
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5%
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5%
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Other
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8%
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3%
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|
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100%
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100%
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Geographic and sector diversification are based on market value of the Total Investment Portfolio and
are subject to change.
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Ten Largest Portfolio Equity Holdings at October 31, 2004
(26.8% of Net Assets)
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1. Total SA
Producer of oil and natural gas
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France
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3.5%
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2. Vodafone Group PLC
Provider of mobile telecommunication services
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United Kingdom
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2.9%
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3. Shell Transport & Trading Co., PLC
Provider of oil and gas
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United Kingdom
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2.8%
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4. Toyota Motor Corp.
Manufacturer of diversified automotive products
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Japan
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2.7%
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5. HSBC Holdings PLC
Provider of international banking and financial services
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United Kingdom
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2.7%
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6. Royal Bank of Scotland Group PLC
Provider of a wide range of financial services
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United Kingdom
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2.6%
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7. Nestle SA
Producer and seller of food products
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Switzerland
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2.6%
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8. UBS AG
Provider of commercial and investment banking services
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Switzerland
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2.4%
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9. E.ON AG
Distributor of electricity to commercial and residential
customers
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Germany
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2.3%
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10. Eni SpA
Provider of oilfield and engineering services
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Italy
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2.3%
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Portfolio holdings are subject to change.
For more complete details about the fund's investment portfolio, see page 33. A quarterly Fact Sheet
is available upon request. Information concerning portfolio holdings of the Fund as of month end is
available upon request on the 16th of the following month. Please see the Account Management
Resources section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio
holdings listing is filed with the SEC on Form N-Q. The form will be
available on the SEC's Web site at www.sec.gov, and it also may be reviewed
and copied at the SEC's Public Reference Room in Washington, DC.
Information on the operation of the SEC's Public Reference Room may be
obtained by calling (800) SEC-0330.
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Statement of Assets and Liabilities as of October 31, 2004
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Assets
|
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Investment in the International Equity Portfolio, at value
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$ 43,903,302
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Receivable for Fund shares sold
|
3,319
|
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Other assets
|
1,920
|
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Total assets
|
43,908,541
|
|
Liabilities
|
|
Payable for Fund shares redeemed
|
6,741
|
|
Other accrued expenses and payables
|
97,369
|
|
Total liabilities
|
104,110
|
|
Net assets, at value
|
$ 43,804,431
|
|
Net Assets
|
|
Net assets consist of:
Undistributed net investment income
|
458,866
|
|
Net unrealized appreciation (depreciation) on investments
|
40,827,878
|
|
Accumulated net realized gain (loss)
|
(134,880,839)
|
|
Paid-in capital
|
137,398,526
|
|
Net assets, at value
|
$ 43,804,431
|
|
Net Asset Value
|
|
Institutional Class
Net Asset Value, offering and redemption price per share
($43,804,431 ÷ 4,233,145 shares of capital stock outstanding, $.001 par
value, unlimited number of shares authorized)
|
$ 10.35
|
The accompanying notes are an integral part of the financial statements.
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Statement of Operations for the year ended October 31, 2004
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|
Investment Income
|
|
Total investment income allocated from the International Equity Portfolio:
Dividends (net of foreign taxes withheld of $188,262)
|
$ 1,438,358
|
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Interest
|
49,950
|
|
Securities lending income, including income from Daily Assets Fund
Institutional
|
30,904
|
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Expenses(a)
|
(547,562)
|
|
Net investment income (loss) allocated from the International Equity
Portfolio
|
971,650
|
|
Expenses:
Administrator service fee
|
335,318
|
|
Registration fees
|
31,700
|
|
Reports to shareholders
|
16,254
|
|
Auditing
|
31,963
|
|
Legal
|
10,002
|
|
Trustees' fees and expenses
|
9,330
|
|
Other
|
7,210
|
|
Total expenses, before expense reductions
|
441,777
|
|
Expense reductions
|
(246,049)
|
|
Total expenses, after expense reductions
|
195,728
|
|
Net investment income (loss)
|
775,922
|
|
Realized and Unrealized Gain (Loss) on Investment Transactions
|
|
Net realized gain (loss) from:
Investments (net of foreign taxes of $10,614)
|
10,513,017
|
|
Foreign currency related transactions
|
(390,606)
|
|
|
10,122,411
|
|
Net unrealized appreciation (depreciation) during the period on:
Investment and foreign currency related transactions
|
28,204
|
|
Net gain (loss) on investment transactions
|
10,150,615
|
|
Net increase (decrease) in net assets resulting from operations
|
$ 10,926,537
|
a For the year ended October 31, 2004, the Advisor/Administrator waived fees in the amount of
$111,704 which was allocated to the Fund on a pro-rated basis.
The accompanying notes are an integral part of the financial statements.
|
Statement of Changes in Net Assets
|
|
Increase (Decrease) in Net Assets
|
Years Ended October 31,
|
|
2004
|
2003
|
|
Operations:
Net investment income (loss)
|
$ 775,922
|
$ 2,744,784
|
|
Net realized gain (loss) on investment transactions
|
10,122,411
|
(7,525,089)
|
|
Net unrealized appreciation (depreciation) on
investment transactions during the period
|
28,204
|
34,885,241
|
|
Net increase (decrease) in net assets resulting from
operations
|
10,926,537
|
30,104,936
|
|
Distributions to shareholders from:
Net investment income:
Institutional Class
|
(4,759,918)
|
(15,276,858)
|
|
Institutional Class II
|
—
|
(1,529,406)
|
|
Fund share transactions:
Proceeds from shares sold
|
14,961,378
|
166,654,074
|
|
Reinvestment of distributions
|
3,158,694
|
11,516,385
|
|
Cost of shares redeemed
|
(97,015,346)
|
(318,460,318)
|
|
Net increase (decrease) in net assets from Fund share
transactions
|
(78,895,274)
|
(140,289,859)
|
|
Increase (decrease) in net assets
|
(72,728,655)
|
(126,991,187)
|
|
Net assets at beginning of period
|
116,533,086
|
243,524,273
|
|
Net assets at end of period (including undistributed
net investment income of $458,866 and $4,631,539,
respectively)
|
$ 43,804,431
|
$ 116,533,086
|
The accompanying notes are an integral part of the financial statements.
|
Institutional Class+
|
|
Years Ended October 31,
|
2004
|
2003
|
2002
|
2001
|
2000
|
|
Selected Per Share Data
|
|
Net asset value, beginning of period
|
$ 9.65
|
$ 8.62
|
$ 10.09
|
$ 14.09
|
$ 14.58
|
|
Income (loss) from investment operations:
Net investment income (loss)
|
.11a
|
.12a
|
.09a
|
.11
|
.09
|
|
Net realized and unrealized gain (loss) on
investment transactions
|
1.07
|
1.55
|
(1.40)
|
(4.03)
|
.24
|
|
Total from investment operations
|
1.18
|
1.67
|
(1.31)
|
(3.92)
|
.33
|
|
Less distributions from:
|
|
Net investment income
|
(.48)
|
(.64)
|
(.16)
|
(.08)
|
(.82)
|
|
Net asset value, end of period
|
$ 10.35
|
$ 9.65
|
$ 8.62
|
$ 10.09
|
$ 14.09
|
|
Total Return (%)b
|
12.42
|
20.86c
|
(13.28)
|
(27.92)
|
1.43
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
Net assets, end of period ($ millions)
|
44
|
105
|
216
|
392
|
606
|
|
Ratio of expenses before expense
reductions, including expenses allocated
from the International Equity Portfolio (%)
|
1.25
|
1.29
|
1.25
|
1.23
|
1.25
|
|
Ratio of expenses after expense reductions,
including expenses allocated from the
International Equity Portfolio (%)
|
.95
|
.95
|
.95
|
.95
|
.95
|
|
Ratio of net investment income (loss) (%)
|
.99
|
1.53
|
.89
|
.85
|
.39
|
|
+ On August 13, 2004, Class I was renamed Institutional Class.
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
c In 2003, the Advisor fully reimbursed the Portfolio for currency transactions which did not meet
the Portfolio's investment guidelines. Excluding this reimbursement, the total return would have
been 20.49% and the impact to the Class was $0.02 per share.
|
|
Notes to Financial Statements
|
|
|
A. Significant Accounting Policies
International Equity Fund ("Scudder International Equity Fund" or the "Fund") is a
diversified series of the Scudder Institutional Funds (the "Trust") which is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management investment company organized as a Massachusetts business
trust.
The Fund seeks to achieve its investment objective by investing substantially all of its
assets in the Scudder International Equity Portfolio (the "Portfolio"), a diversified,
open-end management investment company advised by Deutsche Asset
Management, Inc. ("DeAM, Inc."). On October 31, 2004, the Fund owned
approximately 13% of the Portfolio. The financial statements of the Portfolio,
including the Investment Portfolio, are contained elsewhere in this report and should
be read in conjunction with the Fund's financial statements.
On August 13, 2004, Institutional Class II shares consolidated into Institutional
Class I shares, and subsequently Institutional Class I shares were renamed
Institutional Class shares. Institutional Class shares are offered to limited groups of
investors and are not subject to initial or contingent deferred sales charges.
Investment income, realized and unrealized gains and losses, and certain fund-level
expenses and expense reductions, if any, are borne pro rata on the basis of relative net
assets by the holders of all classes of shares, except that each class bears certain
expenses unique to that class such as services to shareholders, distribution service fees
and certain other class-specific expenses. Differences in class-level expenses during the
period may result in payment of different per share dividends by class. All shares of
the Fund have equal rights with respect to voting subject to class-specific
arrangements.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require the use of
management estimates. Actual results could differ from those estimates. The policies
described below are followed consistently by the Fund in the preparation of its
financial statements.
Security Valuation. The Fund determines the valuation of its investment in the
Portfolio by multiplying its proportionate ownership of the Portfolio by the total
value of the Portfolio's net assets.
The Portfolio's policies for determining the value of its net assets are discussed in the
Portfolio's Financial Statements, which accompany 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. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
At October 31, 2004 the Fund had a net tax basis capital loss carryforward of
approximately $134,881,000 which may be applied against any realized net taxable
capital gains, of each succeeding year until fully utilized or until October 31, 2009
($121,694,000) and October 31, 2011 ($13,187,000), the expiration dates,
whichever occurs first, which may be subject to certain limitations under Sections
382-383 of the Internal Revenue Code.
Distribution of Income and Gains. Distributions of net investment income, if any,
are made annually. Net realized gains from investment transactions, in excess of
available capital loss carryforwards, would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions
are determined annually in accordance with federal tax regulations which may differ
from accounting principles generally accepted in the United States of America. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions during
such period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the Fund.
The net unrealized appreciation/depreciation of the Fund's investment in the
Portfolio consists of an allocated portion of the Portfolio's appreciation/depreciation.
Please refer to the Portfolio's financial statements for a breakdown of the
appreciation/depreciation from investments.
At October 31, 2004, the Fund's components of distributable earnings (accumulated
losses) on a tax-basis were as follows:
|
Undistributed ordinary income*
|
$ 704,440
|
|
Undistributed net long-term capital gains
|
$ —
|
|
Capital loss carryforwards
|
$ (134,881,000)
|
In addition, during the year ended October 31, 2003 and October 31, 2004, the tax
character of distributions paid to shareholders by the Fund is summarized as follows:
|
|
Years ended October 31,
|
|
2004
|
2003
|
|
Distributions from ordinary income*
|
$ 4,759,918
|
$ 16,806,264
|
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.
Other. The Fund receives a daily allocation of the Portfolio's income, expenses and
net realized and unrealized gains and losses in proportion to its investment in the
Portfolio. Expenses of the Trust arising in connection with a specific Fund are
allocated to that Fund. Other Trust expenses which cannot be directly attributed to a
Fund are apportioned among the Funds in the Trust.
B. Related Parties
Scudder Investments is part of Deutsche Asset Management, which is the marketing
name in the US for the asset management activities of Deutsche Bank AG. Deutsche
Asset Management, Inc. (the "Advisor") is the Advisor for the Portfolio and
Investment Company Capital Corporation ("ICCC" or the "Administrator") is the
Administrator for the Fund, both wholly owned subsidiaries of Deutsche Bank AG.
For the year ended October 31, 2004, the Advisor and Administrator contractually
agreed to waive their fees and reimburse expenses of the Fund to the extent necessary
to maintain the annualized expenses of 0.95% including expenses of the Portfolio.
Administrator Service Fee. For its services as Administrator, ICCC receives a fee
(the "Administrator Service Fee") of 0.40% of the Institutional Class shares' and
0.70% of the Institutional Class II shares' average daily net assets, computed and
accrued daily and payable monthly. For the year ended October 31, 2004, the
Administrator Service Fee was as follows:
|
Administrator Service Fee
|
Total
Aggregated
|
Administrator
Service Fee
Waived by ICCC
|
Unpaid at
October 31,
2004
|
|
Institutional Class
|
$ 282,841
|
$ 232,002
|
$ 61,661
|
|
Institutional Class II
|
$ 52,477
|
$ 14,047
|
$ —
|
|
|
$ 335,318
|
$ 246,049
|
$ 61,661
|
Trustees' Fees and Expenses. As compensation for his or her services, each
Independent Trustee receives an aggregate annual fee, plus a fee for each meeting
attended (plus reimbursement for reasonable out-of-pocket expenses incurred in
connection with his or her attendance at board and committee meetings) from each
Fund in the Fund Complex for which he or she serves. In addition, the Chairman of
the Fund Complex's Audit Committee receives an annual fee for his services.
Payment of such fees and expenses is allocated among all such Funds described above
in direct proportion to their relative net assets.
C. Share Transactions
The following table summarizes share and dollar activity in the Fund:
|
|
Year Ended
October 31, 2004
|
Year Ended
October 31, 2003
|
|
|
Shares
|
Dollars
|
Shares
|
Dollars
|
|
Shares sold
|
|
Institutional Class*
|
1,253,509
|
$ 12,698,893
|
17,484,635
|
$ 145,759,831
|
|
Institutional Class II
|
219,011
|
$ 2,262,485
|
2,516,440
|
$ 20,894,243
|
|
|
|
$ 14,961,378
|
|
$ 166,654,074
|
|
Share transactions in tax-free exchange
|
|
Institutional Class*
|
680,262
|
$ 6,482,895
|
—
|
$ —
|
|
Institutional Class II
|
(676,600)
|
$ (6,482,895)
|
—
|
$ —
|
|
Shares issued to shareholders in reinvestment of distributions
|
|
Institutional Class*
|
284,589
|
$ 2,777,590
|
1,275,254
|
$ 10,202,033
|
|
Institutional Class II
|
38,730
|
$ 381,104
|
163,071
|
$ 1,314,352
|
|
|
|
$ 3,158,694
|
|
$ 11,516,385
|
|
Shares redeemed
|
|
Institutional Class*
|
(8,885,704)
|
$ (89,213,046)
|
(32,945,006)
|
$ (278,907,454)
|
|
Institutional Class II
|
(756,013)
|
$ (7,802,300)
|
(4,652,526)
|
$ (39,552,864)
|
|
|
|
$ (97,015,346)
|
|
$ (318,460,318)
|
|
Net increase (decrease)
|
|
Institutional Class*
|
(6,667,344)
|
$ (67,253,668)
|
(14,185,117)
|
$ (122,945,590)
|
|
Institutional Class II
|
(1,174,872)
|
$ (11,641,606)
|
(1,973,015)
|
$ (17,344,269)
|
|
|
|
$ (78,895,274)
|
|
$ (140,289,859)
|
* On August 13, 2004, Institutional Class II shares of the Fund were consolidated with Institutional
Class I shares and subsequently Class I shares were renamed Institutional Class.
D. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting
ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and
have requested information from numerous mutual fund companies, including
Scudder Investments. It is not possible to determine what the outcome of these
inquiries will be or what the effect, if any, would be on the funds or their advisors.
Publicity about mutual fund practices arising from these industry-wide inquiries
serves as the general basis of a number of private lawsuits against the Scudder funds.
These lawsuits, which previously have been reported in the press, involve purported
class action and derivative lawsuits, making various allegations and naming as
defendants various persons, including certain Scudder funds, the funds' investment
advisors and their affiliates, certain individuals, including in some cases fund
Trustees/Directors, officers, and other parties. Each Scudder fund's investment
advisor has agreed to indemnify the applicable Scudder funds in connection with
these lawsuits, or other lawsuits or regulatory actions that may be filed making
allegations similar to these lawsuits regarding market timing, revenue sharing, fund
valuation or other subjects arising from or related to the pending inquiries. Based on
currently available information, the funds' investment advisors believe the likelihood
that the pending lawsuits will have a material adverse financial impact on a Scudder
fund is remote and such actions are not likely to materially affect their ability to
perform under their investment management agreements with the Scudder funds.
|
Report of Independent Registered
Public Accounting Firm
|
|
|
To the Trustees of the Scudder Institutional Funds and Shareholders of
International Equity Fund Institutional:
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
International Equity Fund Institutional (the "Fund") at October 31, 2004,
and the results of its operations, the changes in its net assets and the financial
highlights for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States of America.
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 the standards of the Public Company Accounting Oversight
Board (United States). Those standards 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 provide a reasonable basis for our opinion.
|
Boston, Massachusetts
December 30, 2004
|
PricewaterhouseCoopers LLP
|
|
Tax Information (Unaudited)
|
|
|
The Fund paid foreign taxes of $188,262 and earned $909,394 of foreign
source income during the year ended October 31, 2004. Pursuant to section
853 of the Internal Revenue Code, the Fund designates $0.04 per share as
foreign taxes paid and $0.21 per share as income earned from foreign sources
for the year ended October 31, 2004.
For Federal Income tax purposes, the Fund designates $1,700,000 or the
maximum amount allowable under tax law, as qualified dividend income.
Please consult a tax advisor if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-621-1048.
|
Independent Trustees
|
|
Name, Date of
Birth, Position
with the Fund
and Length of
Time Served1,2
|
Business Experience and Directorships
During the Past 5 Years
|
Number of
Funds in
the Fund
Complex
Overseen
|
|
Joseph R.
Hardiman
5/27/37
Chairman since
2004
Trustee since
2002
|
Private Equity Investor (January 1997 to present); Director,
Corvis Corporation3 (optical networking equipment)
(July 2000 to present), Brown Investment Advisory & Trust
Company (investment advisor) (February 2001 to present),
The Nevis Fund (registered investment company) (July 1999
to present), and ISI Family of Funds (registered investment
companies) (March 1998 to present). Formerly, Director,
Soundview Technology Group Inc. (investment banking)
(July 1998-January 2004) and Director, Circon Corp.3 (medical
instruments) (November 1998-January 1999); President and
Chief Executive Officer, The National Association of Securities
Dealers, Inc. and The NASDAQ Stock Market, Inc. (1987-1997);
Chief Operating Officer of Alex. Brown & Sons Incorporated
(now Deutsche Bank Securities Inc.) (1985-1987); General
Partner, Alex. Brown & Sons Incorporated (now Deutsche Bank
Securities Inc.) (1976-1985).
|
55
|
|
Richard R. Burt
2/3/47
Trustee since
2002
|
Chairman, Diligence LLC (international information collection
and risk-management firm) (September 2002 to present);
Chairman, IEP Advisors, Inc. (July 1998 to present); Chairman
of the Board, Weirton Steel Corporation3 (April 1996 to
present); Member of the Board, Hollinger International, Inc.3
(publishing) (September 1995 to present), HCL Technologies
Limited (information technology) (April 1999 to present), UBS
Mutual Funds (formerly known as Brinson and Mitchell
Hutchins families of funds) (registered investment companies)
(September 1995 to present); and Member, Textron Inc.3
International Advisory Council (July 1996 to present). Formerly,
Partner, McKinsey & Company (consulting) (1991-1994) and US
Chief Negotiator in Strategic Arms Reduction Talks (START)
with former Soviet Union and US Ambassador to the Federal
Republic of Germany (1985-1991); Member of the Board,
Homestake Mining3 (mining and exploration) (1998-February
2001), Archer Daniels Midland Company3 (agribusiness
operations) (October 1996-June 2001) and Anchor Gaming
(gaming software and equipment) (March 1999-December
2001).
|
57
|
|
S. Leland Dill
3/28/30
Trustee since
1986
|
Trustee, Phoenix Euclid Market Neutral Funds (since May
1998), Phoenix Funds (24 portfolios) (since May 2004)
(registered investment companies); Retired (since 1986).
Formerly, Partner, KPMG Peat Marwick (June 1956-June 1986);
Director, Vintners International Company Inc. (wine vintner)
(June 1989-May 1992), Coutts (USA) International (January
1992-March 2000), Coutts Trust Holdings Ltd., Coutts Group
(private bank) (March 1991-March 1999); General Partner,
Pemco (investment company) (June 1979-June 1986); Trustee,
Phoenix Zweig Series Trust (September 1989-May 2004).
|
55
|
|
Martin J. Gruber
7/15/37
Trustee since
1999
|
Nomura Professor of Finance, Leonard N. Stern School of
Business, New York University (since September 1964); Trustee
(since January 2000) and Chairman of the Board (since
February 2004), CREF (pension fund); Trustee of the TIAA-CREF
mutual funds (53 portfolios) (since February 2004); Director,
Japan Equity Fund, Inc. (since January 1992), Thai Capital
Fund, Inc. (since January 2000) and Singapore Fund, Inc. (since
January 2000) (registered investment companies). Formerly,
Trustee, TIAA (pension fund) (January 1996-January 2000);
Director, S.G. Cowen Mutual Funds (January 1985-January
2001).
|
55
|
|
Richard J.
Herring
2/18/46
Trustee since
1999
|
Jacob Safra Professor of International Banking and Professor,
Finance Department, The Wharton School, University of
Pennsylvania (since July 1972); Director, Lauder Institute of
International Management Studies (since July 2000);
Co-Director, Wharton Financial Institutions Center (since
July 2000). Formerly, Vice Dean and Director, Wharton
Undergraduate Division (July 1995-June 2000).
|
55
|
|
Graham E. Jones
1/31/33
Trustee since
2002
|
Senior Vice President, BGK Realty, Inc. (commercial real estate)
(since 1995); Trustee, 8 open-end mutual funds managed by
Weiss, Peck & Greer (since 1985) and Trustee of 18 open-end
mutual funds managed by Sun Capital Advisers, Inc. (since
1998).
|
55
|
|
Rebecca W.
Rimel
4/10/51
Trustee since
2002
|
President and Chief Executive Officer, The Pew Charitable
Trusts (charitable foundation) (1994 to present); Executive Vice
President, The Glenmede Trust Company (investment trust and
wealth management) (1983 to present).
|
55
|
|
Philip Saunders,
Jr.
10/11/35
Trustee since
1986
|
Principal, Philip Saunders Associates (economic and financial
consulting) (since November 1988). Formerly, Director,
Financial Industry Consulting, Wolf & Company (consulting)
(1987-1988); President, John Hancock Home Mortgage
Corporation (1984-1986); Senior Vice President of Treasury and
Financial Services, John Hancock Mutual Life Insurance
Company, Inc. (1982-1986).
|
55
|
|
William N.
Searcy
9/3/46
Trustee since
2002
|
Private investor (since October 2003); Trustee of 18 open-end
mutual funds managed by Sun Capital Advisers, Inc. (since
October 1998). Formerly, Pension & Savings Trust Officer, Sprint
Corporation3 (telecommunications) (November 1989-October
2003).
|
55
|
|
Robert H.
Wadsworth
1/29/40
Trustee since
2002
|
President, Robert H. Wadsworth Associates, Inc. (consulting
firm) (May 1983 to present). Formerly, President and Trustee,
Trust for Investment Managers (registered investment
company) (April 1999-June 2002); President, Investment
Company Administration, L.L.C. (January 1992*-July 2001);
President, Treasurer and Director, First Fund Distributors, Inc.
(June 1990-January 2002); Vice President, Professionally
Managed Portfolios (May 1991-January 2002) and Advisors
Series Trust (October 1996-January 2002) (registered
investment companies).
* Inception date of the corporation which was the predecessor
to the L.L.C.
|
58
|
|
Interested Trustee
|
|
Name, Date of
Birth, Position
with the Fund
and Length of
Time Served1,2
|
Business Experience and Directorships
During the Past 5 Years
|
Number of
Funds in
the Fund
Complex
Overseen
|
|
William N.
Shiebler4
2/6/42
Trustee,
2004-present
|
Chief Executive Officer in the Americas for Deutsche Asset
Management ("DeAM") and a member of the DeAM Global
Executive Committee (since 2002); Vice Chairman of Putnam
Investments, Inc. (1999); Director and Senior Managing
Director of Putnam Investments, Inc. and President, Chief
Executive Officer, and Director of Putnam Mutual Funds Inc.
(1990-1999).
|
140
|
|
Officers
|
|
Name, Date of Birth,
Position with the Fund and
Length of Time Served1,2
|
Business Experience and Directorships
During the Past 5 Years
|
|
Julian F. Sluyters5
7/14/60
President and Chief Executive
Officer, 2004-present
|
Managing Director, Deutsche Asset Management (since May
2004); President and Chief Executive Officer of The Germany
Fund, Inc., The New Germany Fund, Inc., The Central Europe
and Russia Fund, Inc., The Brazil Fund, Inc., The Korea Fund,
Inc., Scudder Global High Income Fund, Inc. and Scudder
New Asia Fund, Inc. (since May 2004); President and Chief
Executive Officer, UBS Fund Services (2001-2003); Chief
Administrative Officer (1998-2001) and Senior Vice President
and Director of Mutual Fund Operations (1991-1998) UBS
Global Asset Management.
|
|
Kenneth Murphy6
10/13/63
Vice President and Anti-Money
Laundering Compliance Officer
since 2002
|
Vice President, Deutsche Asset Management (September
2000 to present). Formerly, Director, John Hancock Signature
Services (1992-2000).
|
|
Paul H. Schubert5
1/11/63
Chief Financial Officer,
2004-present
|
Managing Director, Deutsche Asset Management (since July
2004); formerly, Executive Director, Head of Mutual Fund
Services and Treasurer for UBS Family of Funds at UBS Global
Asset Management (1994-2004).
|
|
Charles A. Rizzo6
8/5/57
Treasurer since 2002
|
Managing Director, Deutsche Asset Management (since April
2004). Formerly, Director, Deutsche Asset Management (April
2000-March 2004); Vice President and Department Head,
BT Alex. Brown Incorporated (now Deutsche Bank Securities
Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P.
(now PricewaterhouseCoopers LLP) (1993-1998).
|
|
John Millette6
8/23/62
Secretary since 2003
|
Director, Deutsche Asset Management.
|
|
Lisa Hertz4
8/21/70
Assistant Secretary since 2004
|
Assistant Vice President, Deutsche Asset Management
|
|
Daniel O. Hirsch
3/27/54
Assistant Secretary since 2003
|
Managing Director, Deutsche Asset Management (2002 to
present) and Director, Deutsche Global Funds Ltd. (2002 to
present). Formerly, Director, Deutsche Asset Management
(1999-2002); Principal, BT Alex. Brown Incorporated (now
Deutsche Bank Securities Inc.) (1998-1999); Assistant General
Counsel, United States Securities and Exchange Commission
(1993-1998).
|
|
Caroline Pearson6
4/1/62
Assistant Secretary since 2002
|
Managing Director, Deutsche Asset Management.
|
|
Bruce A. Rosenblum
9/14/60
Vice President since 2003
Assistant Secretary since 2002
|
Director, Deutsche Asset Management.
|
|
Kevin M. Gay6
11/12/59
Assistant Treasurer since 2004
|
Vice President, Deutsche Asset Management.
|
|
Salvatore Schiavone6
11/3/65
Assistant Treasurer since 2003
|
Director, Deutsche Asset Management.
|
|
Kathleen Sullivan D'Eramo6
1/25/57
Assistant Treasurer since 2003
|
Director, Deutsche Asset Management.
|
1 Unless otherwise indicated, the mailing address of each Trustee and Officer with respect to fund
operations is One South Street, Baltimore, MD 21202.
2 Length of time served represents the date that each Trustee or Officer first began serving in that
position with Scudder Advisor Funds of which this fund is a series.
3 A publicly held company with securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
4 Mr. Shiebler is a Trustee who is an "interested person" within the meaning of Section 2(a)(19) of
the 1940 Act. Mr. Shiebler is a Managing Director of Deutsche Asset Management, the US asset
management unit of Deutsche Bank AG and its affiliates. Mr. Shiebler's business address is
280 Park Avenue, New York, New York.
5 Address: 345 Park Avenue, New York, New York.
6 Address: Two International Place, Boston, Massachusetts.
The fund's Statement of Additional Information includes additional information about the fund's
Trustees. To receive your free copy of the Statement of Additional Information, call toll-free:
1-800-621-1048.
(The following financial statements of the
International Equity Portfolio should be read in
conjunction with the Fund's financial statements.)
|
Investment Portfolio as of October 31, 2004
|
 |
 |
|
|
|
|
Shares
|
Value ($)
|
|
|
|
|
Common Stocks 99.2%
|
|
Australia 1.4%
|
|
Australia & New Zealand Banking Group Ltd. (Cost $3,703,859)
|
295,263
|
4,499,152
|
|
Austria 1.1%
|
|
Wienerberger AG (Cost $3,135,016)
|
94,524
|
3,739,439
|
|
Brazil 1.5%
|
|
Companhia Vale do Rio Doce (ADR)
|
164,784
|
3,486,829
|
|
Petroleo Brasileiro SA (ADR)
|
45,500
|
1,615,705
|
|
(Cost $2,985,362)
|
5,102,534
|
|
Finland 1.0%
|
|
Nokia Oyj (Cost $4,912,289)
|
221,404
|
3,404,989
|
|
France 9.6%
|
|
BNP Paribas SA
|
85,160
|
5,779,284
|
|
France Telecom SA
|
149,400
|
4,264,591
|
|
PSA Peugeot Citroen
|
33,211
|
2,034,992
|
|
Sanofi-Aventis
|
67,824
|
4,943,585
|
|
Schneider Electric SA
|
49,676
|
3,279,578
|
|
Total SA (d)
|
55,772
|
11,563,992
|
|
(Cost $23,841,029)
|
31,866,022
|
|
Germany 5.2%
|
|
Bayerische Motoren Werke AG
|
16,955
|
714,966
|
|
E.ON AG
|
94,089
|
7,633,564
|
|
Hypo Real Estate Holdings AG*
|
93,400
|
3,483,492
|
|
Metro AG
|
60,578
|
2,884,289
|
|
Siemens AG
|
33,378
|
2,477,451
|
|
(Cost $12,172,454)
|
17,193,762
|
|
Greece 1.9%
|
|
Alpha Bank AE
|
121,676
|
3,451,547
|
|
Hellenic Telecommunications Organization SA
|
181,700
|
2,805,935
|
|
(Cost $4,779,929)
|
6,257,482
|
|
Hong Kong 1.2%
|
|
Esprit Holdings Ltd. (Cost $2,831,494)
|
718,717
|
3,841,332
|
|
Hungary 0.9%
|
|
OTP Bank RT (Cost $1,107,852)
|
112,011
|
2,823,122
|
|
India 0.6%
|
|
ICICI Ltd. (Cost $2,169,234)
|
318,300
|
2,097,910
|
|
Italy 5.2%
|
|
Banca Intesa SpA
|
1,011,700
|
4,131,053
|
|
Enel SpA
|
226,746
|
2,044,984
|
|
Eni SpA
|
330,874
|
7,491,808
|
|
Terna SpA* (d)
|
1,504,562
|
3,655,505
|
|
(Cost $12,162,183)
|
17,323,350
|
|
Japan 22.8%
|
|
Aiful Corp.
|
19,900
|
1,982,691
|
|
Canon, Inc.
|
139,200
|
6,855,787
|
|
Dai Nippon Printing Co., Ltd.
|
125,083
|
1,709,158
|
|
Daito Trust Construction Co., Ltd.
|
45,200
|
1,906,922
|
|
FANUC Ltd.
|
46,200
|
2,784,443
|
|
Hoya Corp.
|
39,100
|
4,006,102
|
|
KDDI Corp.
|
659
|
3,164,987
|
|
Kirin Brewery Co., Ltd.
|
460,995
|
4,132,849
|
|
Mitsubishi Corp. (d)
|
561,000
|
6,186,374
|
|
Mitsubishi Tokyo Financial Group, Inc.
|
415
|
3,517,280
|
|
Mitsui Fudosan Co., Ltd.
|
313,000
|
3,315,990
|
|
Mizuho Financial Group, Inc.
|
1,421
|
5,473,105
|
|
Nippon Mining Holdings, Inc.
|
368,000
|
1,746,605
|
|
Nippon Steel Corp.
|
2,170,564
|
5,069,214
|
|
Nissan Motor Co., Ltd.
|
448,953
|
5,052,254
|
|
Sekisui Chemical Co., Ltd.
|
259,000
|
1,643,902
|
|
Sharp Corp.
|
139,000
|
1,916,339
|
|
Sony Corp.
|
87,000
|
3,023,166
|
|
Toyota Motor Corp.
|
232,000
|
9,023,072
|
|
Yamanouchi Pharmaceutical Co., Ltd. (d)
|
83,042
|
3,042,032
|
|
(Cost $58,267,235)
|
75,552,272
|
|
Korea 1.8%
|
|
POSCO
|
21,870
|
3,272,197
|
|
Samsung Electronics Co., Ltd.
|
6,809
|
2,673,118
|
|
(Cost $3,606,232)
|
5,945,315
|
|
Netherlands 4.2%
|
|
European Aeronautic Defence & Space Co.
|
138,000
|
3,923,382
|
|
ING Groep NV
|
269,300
|
7,108,180
|
|
Koninklijke (Royal) Philips Electronics NV
|
126,530
|
2,985,667
|
|
(Cost $10,862,701)
|
14,017,229
|
|
Norway 1.7%
|
|
DNB NOR ASA
|
240,144
|
2,028,798
|
|
Statoil ASA
|
243,323
|
3,511,745
|
|
(Cost $4,915,820)
|
5,540,543
|
|
Russia 0.5%
|
|
LUKOIL (ADR) (Cost $742,426)
|
12,880
|
1,606,780
|
|
Singapore 0.8%
|
|
DBS Group Holdings Ltd. (Cost $2,944,109)
|
302,000
|
2,829,125
|
|
Spain 2.2%
|
|
Gestevision Telecinco SA*
|
31,202
|
594,166
|
|
Telefonica SA
|
412,372
|
6,787,775
|
|
(Cost $3,923,715)
|
7,381,941
|
|
Sweden 1.2%
|
|
Telefonaktiebolaget LM Ericsson "B"* (Cost $1,040,492)
|
1,385,262
|
4,011,781
|
|
Switzerland 11.7%
|
|
ABB Ltd.*
|
661,030
|
3,807,339
|
|
Credit Suisse Group (Registered)*
|
106,790
|
3,639,811
|
|
Nestle SA (Registered)
|
36,845
|
8,686,459
|
|
Novartis AG (Registered)
|
99,432
|
4,725,596
|
|
Roche Holding AG
|
63,440
|
6,463,070
|
|
UBS AG (Registered)
|
112,173
|
8,057,372
|
|
Zurich Financial Services AG
|
23,600
|
3,349,120
|
|
(Cost $29,398,246)
|
38,728,767
|
|
Thailand 0.6%
|
|
Bangkok Bank PCL (Foreign Registered)*
|
758,500
|
1,773,189
|
|
Thai Oil PCL*
|
348,654
|
347,083
|
|
(Cost $2,141,167)
|
2,120,272
|
|
United Kingdom 22.1%
|
|
AstraZeneca PLC
|
124,521
|
5,092,529
|
|
BAA PLC
|
281,544
|
2,958,533
|
|
BHP Billiton PLC
|
562,391
|
5,703,648
|
|
GlaxoSmithKline PLC
|
133,732
|
2,810,577
|
|
HSBC Holdings PLC
|
554,523
|
8,936,184
|
|
Imperial Tobacco Group PLC
|
195,200
|
4,549,500
|
|
National Grid Transco PLC
|
414,216
|
3,593,714
|
|
Prudential PLC
|
440,576
|
3,233,107
|
|
Reuters Group PLC
|
326,097
|
2,215,260
|
|
Royal Bank of Scotland Group PLC
|
295,442
|
8,688,483
|
|
Shell Transport & Trading Co., PLC
|
1,180,917
|
9,277,270
|
|
Smith & Nephew PLC
|
394,778
|
3,345,503
|
|
Vodafone Group PLC
|
3,820,007
|
9,764,164
|
|
WPP Group PLC
|
307,160
|
3,075,754
|
|
(Cost $56,164,464)
|
73,244,226
|
|
Total Common Stocks (Cost $247,807,308)
|
329,127,345
|
|
|
|
Rights 0.0%
|
|
United Kingdom 0.0%
|
|
Prudential PLC* (Cost $138,997)
|
72,488
|
122,194
|
|
|
|
Securites Lending Collateral 6.9%
|
|
Daily Asset Fund Institutional, 1.62% (c) (e) (Cost $22,750,600)
|
22,750,600
|
22,750,600
|
|
|
|
Cash Equivalents 0.5%
|
|
Scudder Cash Management QP Trust, 1.80% (b)
(Cost $1,608,746)
|
1,608,746
|
1,608,746
|
|
|
% of
Net Assets
|
Value ($)
|
|
|
|
|
Total Investment Portfolio (Cost $272,305,651) (a)
|
106.6
|
353,608,885
|
|
Other Assets and Liabilities, Net
|
(6.6)
|
(21,789,564)
|
|
Net Assets
|
100.0
|
331,819,321
|
* Non-income producing security.
(a) The cost for federal income tax purposes was $280,915,889. At October 31, 2004, net unrealized
appreciation for all securities based on tax cost was $72,692,996. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an excess of value over tax cost
of $77,712,444 and aggregate gross unrealized depreciation for all securities in which there was
an excess of tax cost over value of $5,019,448.
(b) Scudder Cash Management QP Trust is managed by Deutsche Investment Management Americas
Inc. The rate shown is the annualized seven-day yield at period end.
(c) Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management
Americas Inc. The rate shown is the annualized seven-day yield at period end.
(d) All or a portion of these securities were on loan (see notes to Financial Statements). The value of all
securities loaned at October 31, 2004 amounted to $21,473,706, which is 6.5% of net assets.
(e) Represents collateral held in connection with securities lending.
ADR: American Depositary Receipts
The accompanying notes are an integral part of the financial statements.
|
Statement of Assets and Liabilities as of October 31, 2004
|
|
Assets
|
|
Investments:
Investments in securities, at value (cost $247,946,305) including
$21,473,706 of securities loaned
|
$ 329,249,539
|
|
Investment in Scudder Cash Management QP Trust (cost $1,608,746)
|
1,608,746
|
|
Investment in Daily Assets Fund Institutional (cost $22,750,600)*
|
22,750,600
|
|
Total investments in securities, at value ($272,305,651)
|
353,608,885
|
|
Foreign currency, at value (cost $132,711)
|
133,248
|
|
Receivable for investments sold
|
3,080,112
|
|
Dividends receivable
|
444,537
|
|
Interest receivable
|
16,185
|
|
Foreign taxes recoverable
|
235,502
|
|
Net receivable on closed forward foreign currency exchange contracts
|
38,860
|
|
Unrealized appreciation on forward foreign currency exchange contracts
|
713,003
|
|
Other assets
|
7,467
|
|
Total assets
|
358,277,799
|
|
Liabilities
|
|
Payable upon return of securities loaned
|
22,750,600
|
|
Payable for investments purchased
|
2,724,642
|
|
Unrealized depreciation on forward foreign currency exchange contracts
|
682,596
|
|
Accrued investment advisory fee
|
106,091
|
|
Other accrued expenses and payables
|
194,549
|
|
Total liabilities
|
26,458,478
|
|
Net assets, at value
|
$ 331,819,321
|
* Represents collateral on securities loaned.
The accompanying notes are an integral part of the financial statements.
|
Statement of Operations for the year ended October 31, 2004
|
|
Investment Income
|
|
Income:
Dividends (net of foreign taxes withheld of $995,534)
|
$ 7,777,417
|
|
Interest — Scudder Cash Management QP Trust
|
50,449
|
|
Securities lending income, including income from Daily Assets Fund
Institutional
|
182,651
|
|
Interest
|
293,288
|
|
Total Income
|
8,303,805
|
|
Expenses:
Investment advisory fee
|
2,676,490
|
|
Administrator service fees
|
617,652
|
|
Auditing
|
68,175
|
|
Legal
|
38,706
|
|
Trustees' fees and expenses
|
24,135
|
|
Interest expense
|
25,694
|
|
Other
|
18,459
|
|
Total expenses, before expense reductions
|
3,469,311
|
|
Expense reductions
|
(587,279)
|
|
Total expenses, after expense reductions
|
2,882,032
|
|
Net investment income (loss)
|
5,421,773
|
|
Realized and Unrealized Gain (Loss) on Investment Transactions
|
|
Net realized gain (loss) from:
Investments (net of foreign taxes of $81,647)
|
55,347,058
|
|
Foreign currency related transactions
|
(2,599,660)
|
|
|
52,747,398
|
|
Net unrealized appreciation (depreciation) during the period on:
|
|
|
Investments
|
(5,189,895)
|
|
Foreign currency related transactions
|
(115,731)
|
|
|
(5,305,626)
|
|
Net gain (loss) on investment transactions
|
47,441,772
|
|
Net increase (decrease) in net assets resulting from operations
|
$ 52,863,545
|
The accompanying notes are an integral part of the financial statements.
|
Statement of Changes in Net Assets
|
|
Increase (Decrease) in Net Assets
|
Years Ended October 31,
|
|
2004
|
2003
|
|
Operations:
Net investment income (loss)
|
$ 5,421,773
|
$ 9,285,504
|
|
Net realized gain (loss) on investment transactions
|
52,747,398
|
(13,136,863)
|
|
Net unrealized appreciation (depreciation) on
investment transactions during the period
|
(5,305,626)
|
99,197,177
|
|
Net increase (decrease) in net assets resulting from
operations
|
52,863,545
|
95,345,818
|
|
Capital transactions in shares of beneficial interest:
Proceeds from capital invested
|
235,493,569
|
327,205,044
|
|
Value of capital withdrawn
|
(426,402,928)
|
(619,989,987)
|
|
Net increase (decrease) in net assets from capital
transactions in shares of beneficial interest
|
(190,909,359)
|
(292,784,943)
|
|
Increase (decrease) in net assets
|
(138,045,814)
|
(197,439,125)
|
|
Net assets at beginning of period
|
469,865,135
|
667,304,260
|
|
Net assets at end of period
|
$ 331,819,321
|
$ 469,865,135
|
The accompanying notes are an integral part of the financial statements.
|
Years Ended October 31,
|
2004
|
2003
|
2002
|
2001
|
2000
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
Net assets, end of period ($ millions)
|
332
|
470
|
667
|
1,331
|
2,961
|
|
Ratio of expenses before expense
reductions (%)
|
.84
|
.84
|
.80
|
.80
|
.80
|
|
Ratio of expenses after expense
reductions (%)
|
.70
|
.70
|
.70
|
.70
|
.70
|
|
Ratio of net investment income
(loss) (%)
|
1.31
|
1.72
|
1.14
|
1.05
|
.74
|
|
Portfolio turnover rate (%)
|
63
|
123
|
179
|
137
|
140
|
|
Total Investment Return (%)a,b
|
12.60
|
20.65c
|
(13.03)
|
—
|
—
|
|
a Total return would have been lower had certain expenses not been reduced.
b Total investment return for the Portfolio was derived from the performance of the Investment
Class of Scudder International Equity Fund.
c In 2003, the Advisor fully reimbursed the Portfolio for currency transactions which did not meet
the Portfolio's investment guidelines. Excluding this reimbursement, the total return would have
been 20.33%.
|
|
Notes to Financial Statements
|
|
|
A. Significant Accounting Policies
Scudder International Equity Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified
open-end management investment company organized as a New York business trust.
The Portfolio's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require the use of
management estimates. Actual results could differ from those estimates. The policies
described below are followed consistently by the Portfolio in the preparation of its
financial statements.
Security Valuation. Investments are stated at value determined as of the close of
regular trading on the New York Stock Exchange on each day the exchange is open
for trading. Equity securities are valued at the most recent sale price or official closing
price reported on the exchange (US or foreign) or over-the-counter market on which
the security is traded most extensively. Securities for which no sales are reported are
valued at the calculated mean between the most recent bid and asked quotations on
the relevant market or, if a mean cannot be determined, at the most recent bid
quotation.
Money market instruments purchased with an original or remaining maturity of sixty
days or less, maturing at par, are valued at amortized cost. Investments in any
open-end investment companies are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for
which the above valuation procedures are deemed not to reflect fair value are valued
in a manner that is intended to reflect their fair value as determined in accordance
with procedures approved by the Directors. The Fund may use a fair valuation model
to value international equity securities in order to adjust for events which may occur
between the close of the foreign exchanges and the close of the New York Stock
Exchange.
Securities Lending. The Portfolio may lend securities to financial institutions. The
Portfolio retains beneficial ownership of the securities it has loaned and continues to
receive interest and dividends paid by the securities and to participate in any changes
in their market value. The Fund requires the borrowers of the securities to maintain
collateral with the Fund consisting of liquid, unencumbered assets having a value at
least equal to the value of the securities loaned. The Fund may invest the cash
collateral into a joint trading account in an affiliated money market fund pursuant to
Exemptive Orders issued by the SEC. The Portfolio receives compensation for
lending its securities either in the form of fees or by earning interest on invested cash
collateral net fees paid to lending agent. Either the Portfolio or the borrower may
terminate the loan. The Portfolio is subject to all investment risks associated with the
value of any cash collateral received, including, but not limited to, interest rate, credit
and liquidity risk associated with such investments.
Foreign Currency Translations. The books and records of the Portfolio are
maintained in US dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into US dollars at the prevailing
exchange rates at period end. Purchases and sales of investment securities, income
and expenses are translated into US dollars at the prevailing exchange rates on the
respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses between trade and settlement dates on securities
transactions, the disposition of forward foreign currency exchange contracts and
foreign currencies, and the difference between the amount of net investment income
accrued and the US dollar amount actually received. That portion of both realized
and unrealized gains and losses on investments that results from fluctuations in
foreign currency exchange rates is not separately disclosed but is included with net
realized and unrealized gains and losses on investment securities.
Futures Contracts. A futures contract is an agreement between a buyer or seller and
an established futures exchange or its clearinghouse in which the buyer or seller agrees
to take or make a delivery of a specific amount of a financial instrument at a specified
price on a specific date (settlement date). The Portfolio may enter into futures
contracts as a hedge against anticipated interest rate, currency or equity market
changes, and for duration management, risk management and return enhancement
purposes.
Upon entering into a futures contract, the Portfolio is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain percentage of
the face value indicated in the futures contract. Subsequent payments ("variation
margin") are made or received by the Portfolio dependent upon the daily fluctuations
in the value of the underlying security and are recorded for financial reporting
purposes as unrealized gains or losses by the Portfolio. When entering into a closing
transaction, the Portfolio will realize a gain or loss equal to the difference between the
value of the futures contract to sell and the futures contract to buy. Futures contracts
are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that
an illiquid secondary market will limit the Portfolio's ability to close out a futures
contract prior to the settlement date and that a change in the value of a futures
contract may not correlate exactly with the changes in the value of the securities or
currencies hedged. When utilizing futures contracts to hedge, the Portfolio gives up
the opportunity to profit from favorable price movements in the hedged positions
during the term of the contract.
Forward Foreign Currency Exchange Contracts. A forward foreign currency
exchange contract ("forward currency contract") is a commitment to purchase or sell
a foreign currency at the settlement date at a negotiated rate. The Portfolio may enter
into forward currency contracts in order to hedge its exposure to changes in foreign
currency exchange rates on its foreign currency denominated portfolio holdings and
to facilitate transactions in foreign currency denominated securities. The Fund may
also engage in forward currency contracts for non-hedging purposes.
Forward currency contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain (loss) is recorded daily. Sales and purchases
of forward currency contracts having the same settlement date and broker are offset
and any gain (loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of a forward currency contract to buy and a forward
currency contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward currency contracts from the
potential inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward currency contracts to hedge, the Portfolio gives up the
opportunity to profit from favorable exchange rate movements during the term of the
contract.
Federal Income Taxes. The Portfolio is considered a partnership under the Internal
Revenue Code. Therefore, no federal income tax provision is necessary.
Gains realized upon disposition of Indian securities held by the Fund are subject to
capital gains tax in India, payable prior to repatriation of sale proceeds. The tax is
computed on net realized gains; any realized losses in excess of gains may be carried
forward eight years to offset future gains. In addition, the Fund accrues a deferred
tax liability for net unrealized gains in excess of available carryforwards on Indian
securities.
Other. Investment transactions are accounted for on a trade date plus one basis for
daily net asset value calculations. However, for financial reporting purposes,
investment security transactions are reported on trade date. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend date
net of foreign withholding taxes. Certain dividends from foreign securities may be
recorded subsequent to the ex-dividend date as soon as the Portfolio is informed of
such dividends. Realized gains and losses from investment transactions are recorded
on an identified cost basis.
The Portfolio makes a daily allocation of its income, expenses and realized and
unrealized gains and losses from securities, futures and foreign currency transactions
to its investors in proportion to their investment in the Portfolio.
B. Purchases and Sales of Securities
During the year ended October 31, 2004, purchases and sales of investment
securities (excluding short-term investments) aggregated $255,890,307 and
$439,926,706, respectively.
C. Related Parties
Scudder Investments is part of Deutsche Asset Management, which is the marketing
name in the US for the asset management activities of Deutsche Bank AG. Deutsche
Asset Management, Inc. ("DeAM, Inc." or the "Advisor") is the Advisor for the
Portfolio and Investment Company Capital Corporation ("ICCC" or the
"Administrator") is the Administrator for the Portfolio, both wholly owned
subsidiaries of Deutsche Bank AG.
Investment Advisory Agreement. Under the Investment Advisory Agreement, the
Advisor directs the investments of the Portfolio in accordance with its investment
objectives, policies and restrictions. The investment advisory fee payable under the
Investment Advisory Agreement is equal to an annual rate of 0.65% of the Portfolio's
average daily net assets, computed and accrued daily and payable monthly. Deutsche
Asset Management Investment Services Ltd. ("DeAMIS"), an affiliate of the Advisor,
serves as subadvisor with respect to the investment and reinvestment of assets in the
Portfolio and is paid by the Advisor for its services. The Advisor waives a portion of its
advisory fee equivalent to the advisory fees charged by any affiliated money market
funds on assets invested in those money market funds.
In addition, for the year ended October 31, 2004, the Advisor agreed to reimburse
the Fund $3,190, which represents a portion of the fee savings expected to be realized
by the Advisor related to the outsourcing by Advisor of certain administrative services
to an unaffiliated service provider.
Administrator Service Fee. For its services as Administrator, ICCC receives a fee
(the "Administrator Service Fee") of 0.15% of the Portfolio's average daily net assets,
computed and accrued daily and payable monthly. For the year ended October 31,
2004, the Administrator Service Fee aggregated $617,652, of which $43,198 is
unpaid at October 31, 2004.
For the year ended October 31, 2004, the Advisor and Administrator agreed to waive
their fees and reimburse expenses to the Portfolio to the extent necessary to maintain
the annualized expenses of the Portfolio at 0.70%. The amount of the waiver and
whether the Advisor and/or Administrator waive its fees may vary at any time
without notice to the shareholders.
Accordingly, for the year ended October 31, 2004, the Advisor waived a portion of
its advisory fee pursuant to the Investment Advisory Agreement aggregating
$584,089 and the amount imposed aggregated $2,676,490, which was equivalent to
an annualized effective rate of 0.51% of the Portfolio's average net assets.
Trustees' Fees and Expenses. As compensation for his or her services, each
Independent Trustee receives an aggregate annual fee, plus a fee for each meeting
attended (plus reimbursement for reasonable out-of-pocket expenses incurred in
connection with his or her attendance at board and committee meetings) from each
Fund in the Fund Complex for which he or she serves. In addition, the Chairman of
the Fund Complex's Audit Committee receives an annual fee for his services.
Payment of such fees and expenses is allocated among all such Funds described above
in direct proportion to their relative net assets.
D. Forward Foreign Currency Commitments
As of October 31, 2004, the Portfolio had the following open forward foreign
currency exchange contracts:
|
Contracts to Deliver
|
|
In Exchange For
|
|
Settlement
Date
|
|
Unrealized
Appreciation
(US$)
|
|
USD
|
193,791
|
|
AUD
|
268,000
|
|
1/27/2005
|
|
4,829
|
|
USD
|
15,672,133
|
|
AUD
|
21,465,000
|
|
1/27/2005
|
|
235,993
|
|
USD
|
185,666
|
|
AUD
|
252,000
|
|
1/27/2005
|
|
1,096
|
|
USD
|
181,478
|
|
AUD
|
245,000
|
|
1/27/2005
|
|
97
|
|
EUR
|
1,088,038
|
|
CHF
|
1,668,000
|
|
1/27/2005
|
|
9,205
|
|
EUR
|
1,995,157
|
|
CHF
|
3,055,000
|
|
1/27/2005
|
|
13,833
|
|
EUR
|
1,063,722
|
|
CHF
|
1,624,000
|
|
1/27/2005
|
|
3,383
|
|
EUR
|
1,448,165
|
|
CHF
|
2,212,000
|
|
1/27/2005
|
|
5,495
|
|
EUR
|
1,657,386
|
|
CHF
|
2,530,000
|
|
1/27/2005
|
|
4,974
|
|
USD
|
656,547
|
|
EUR
|
525,000
|
|
1/27/2005
|
|
11,254
|
|
USD
|
21,697,774
|
|
EUR
|
17,230,000
|
|
1/27/2005
|
|
218,793
|
|
EUR
|
1,275,000
|
|
USD
|
1,629,412
|
|
1/27/2005
|
|
7,611
|
|
USD
|
17,798
|
|
EUR
|
14,000
|
|
1/27/2005
|
|
10
|
|
USD
|
306,826
|
|
GBP
|
169,000
|
|
1/27/2005
|
|
849
|
|
USD
|
24,994,404
|
|
GBP
|
13,782,000
|
|
1/27/2005
|
|
96,638
|
|
GBP
|
550,000
|
|
USD
|
1,003,863
|
|
1/27/2005
|
|
2,551
|
|
USD
|
466,943
|
|
GBP
|
257,000
|
|
1/27/2005
|
|
942
|
|
USD
|
258,420
|
|
GBP
|
142,000
|
|
1/27/2005
|
|
100
|
|
USD
|
2,032,903
|
|
JPY
|
221,129,000
|
|
1/27/2005
|
|
60,409
|
|
JPY
|
22,411,000
|
|
USD
|
212,197
|
|
1/27/2005
|
|
44
|
|
EUR
|
293,285
|
|
NOK
|
2,411,000
|
|
1/27/2005
|
|
4,363
|
|
EUR
|
132,215
|
|
NOK
|
1,076,000
|
|
1/27/2005
|
|
261
|
|
NZD
|
1,197,000
|
|
USD
|
813,409
|
|
1/27/2005
|
|
3,441
|
|
USD
|
2,311,338
|
|
SEK
|
16,631,000
|
|
1/27/2005
|
|
26,821
|
|
SEK
|
1,529,000
|
|
EUR
|
169,005
|
|
1/27/2005
|
|
11
|
|
Total unrealized appreciation
|
713,003
|
|
Contracts to Deliver
|
|
In Exchange For
|
|
Settlement
Date
|
|
Unrealized
Depreciation
(US$)
|
|
AUD
|
273,000
|
|
USD
|
199,937
|
|
1/27/2005
|
|
(2,389)
|
|
AUD
|
520,000
|
|
USD
|
384,748
|
|
1/27/2005
|
|
(634)
|
|
CHF
|
26,056,000
|
|
USD
|
21,492,675
|
|
1/27/2005
|
|
(270,468)
|
|
CHF
|
237,000
|
|
EUR
|
155,520
|
|
1/27/2005
|
|
(132)
|
|
EUR
|
1,976,000
|
|
USD
|
2,473,784
|
|
1/27/2005
|
|
(39,689)
|
|
EUR
|
648,000
|
|
USD
|
815,262
|
|
1/27/2005
|
|
(8,994)
|
|
NOK
|
1,474,000
|
|
EUR
|
178,995
|
|
1/27/2005
|
|
(3,060)
|
|
USD
|
675,597
|
|
EUR
|
528,000
|
|
1/27/2005
|
|
(3,981)
|
|
USD
|
1,925,858
|
|
EUR
|
1,506,000
|
|
1/27/2005
|
|
(10,225)
|
|
NOK
|
1,115,000
|
|
EUR
|
136,050
|
|
1/27/2005
|
|
(1,488)
|
|
EUR
|
13,000
|
|
USD
|
16,525
|
|
1/27/2005
|
|
(11)
|
|
GBP
|
155,000
|
|
USD
|
281,026
|
|
1/27/2005
|
|
(1,162)
|
|
GBP
|
1,530,831
|
|
USD
|
837,000
|
|
1/27/2005
|
|
(7,017)
|
|
JPY
|
37,442,000
|
|
USD
|
346,557
|
|
1/27/2005
|
|
(7,887)
|
|
JPY
|
33,263,000
|
|
USD
|
308,849
|
|
1/27/2005
|
|
(6,035)
|
|
JPY
|
634,132,000
|
|
USD
|
5,930,791
|
|
1/27/2005
|
|
(72,203)
|
|
JPY
|
1,000,151,000
|
|
USD
|
9,441,622
|
|
1/27/2005
|
|
(26,282)
|
|
NOK
|
53,711,000
|
|
EUR
|
6,528,705
|
|
1/27/2005
|
|
(103,495)
|
|
NOK
|
10,192,000
|
|
EUR
|
1,238,772
|
|
1/27/2005
|
|
(19,754)
|
|
NOK
|
28,132,000
|
|
EUR
|
4,313,004
|
|
1/27/2005
|
|
(90,826)
|
|
USD
|
816,833
|
|
NZD
|
1,197,000
|
|
1/27/2005
|
|
(6,864)
|
|
Total unrealized depreciation
|
(682,596)
|
|
Currency Abbreviation
|
|
|
|
|
|
AUD
|
Australian Dollar
|
|
CHF
|
Swiss Franc
|
|
EUR
|
Euro
|
|
GBP
|
British Pound
|
|
JPY
|
Japanese Yen
|
|
NOK
|
Norwegian
Krona
|
|
NZD
|
New Zealand
Dollar
|
|
SEK
|
Swedish Krona
|
|
USD
|
United States
Dollar
|
E. Line of Credit
The Portfolio and several other affiliated funds (the "Participants") share in a
$1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank for
temporary or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. The Participants were
charged an annual commitment fee which was allocated, based upon net assets, among
each of the Participants. Interest is calculated at the Federal Funds Rate plus
0.5 percent. The Portfolio may borrow up to a maximum of 33 percent of its net
assets under the agreement. At October 31, 2004, there were no loans outstanding.
Interest expense incurred on the borrowings amounted to $25,694 for the year ended
October 31, 2004. The average dollar amount of the borrowings was $5,865,979 and
the weighted average interest rate on these borrowings was 1.626%.
F. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting
ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and
have requested information from numerous mutual fund companies, including
Scudder Investments. It is not possible to determine what the outcome of these
inquiries will be or what the effect, if any, would be on the funds or their advisors.
Publicity about mutual fund practices arising from these industry-wide inquiries
serves as the general basis of a number of private lawsuits against the Scudder funds.
These lawsuits, which previously have been reported in the press, involve purported
class action and derivative lawsuits, making various allegations and naming as
defendants various persons, including certain Scudder funds, the funds' investment
advisors and their affiliates, certain individuals, including in some cases fund
Trustees/Directors, officers, and other parties. Each Scudder fund's investment
advisor has agreed to indemnify the applicable Scudder funds in connection with
these lawsuits, or other lawsuits or regulatory actions that may be filed making
allegations similar to these lawsuits regarding market timing, revenue sharing, fund
valuation or other subjects arising from or related to the pending inquiries. Based on
currently available information, the funds' investment advisors believe the likelihood
that the pending lawsuits will have a material adverse financial impact on a Scudder
fund is remote and such actions are not likely to materially affect their ability to
perform under their investment management agreements with the Scudder funds.
|
Report of Independent Registered
Public Accounting Firm
|
|
|
To the Trustees and Holders of Beneficial Interest of International
Equity Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all material
respects, the financial position of the International Equity Portfolio (the
"Portfolio") at October 31, 2004, and the results of its operations, the changes
in its net assets and the financial highlights for each of the periods presented,
in conformity with accounting principles generally accepted in the United
States of America. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits 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 October 31, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
|
Boston, Massachusetts
December 30, 2004
|
PricewaterhouseCoopers LLP
|
|
Account Management Resources
|
|
|
For shareholders of Institutional Class
|
Automated
Information Lines
|
ScudderACCESS (800) 972-3060
Personalized account information, information on other Scudder
funds and services via touchtone telephone and for Classes A, B,
and C only, the ability to exchange or redeem shares.
|
|
Web Site
|
scudder.com
View your account transactions and balances, trade shares, monitor
your asset allocation, and change your address, 24 hours a day.
Obtain prospectuses and applications, blank forms, interactive
worksheets, news about Scudder funds, subscription to fund
updates by e-mail, retirement planning information, and more.
|
|
For More
Information
|
(800) 621-1048
To speak with a Scudder service representative.
|
|
Written
Correspondence
|
Scudder Investments
PO Box 219356
Kansas City, MO 64121-9356
|
|
Proxy Voting
|
A description of the fund's policies and procedures for voting
proxies for portfolio securities and information about how the
fund voted proxies related to its portfolio securities during the
12-month period ended June 30 is available on our Web site —
scudder.com (type "proxy voting" in the search field) — or on the
SEC's Web site — www.sec.gov. To obtain a written copy of the
fund's policies and procedures without charge, upon request, call
us toll free at (800) 621-1048.
|
|
Principal
Underwriter
|
If you have questions, comments or complaints, contact:
Scudder Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
(800) 621-1148
|
|
|
Institutional Class
|
|
Nasdaq Symbol
|
BEIIX
|
|
CUSIP Number
|
811162 403
|
|
Fund Number
|
520
|
|
Years Ended October 31,
|
2004
|
2003
|
2002
|
2001
|
2000
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
Net assets, end of period ($ millions)
|
332
|
470
|
667
|
1,331
|
2,961
|
|
Ratio of expenses before expense
reductions (%)
|
.84
|
.84
|
.80
|
.80
|
.80
|
|
Ratio of expenses after expense
reductions (%)
|
.70
|
.70
|
.70
|
.70
|
.70
|
|
Ratio of net investment income
(loss) (%)
|
1.31
|
1.72
|
1.14
|
1.05
|
.74
|
|
Portfolio turnover rate (%)
|
63
|
123
|
179
|
137
|
140
|
|
Total Investment Return (%)a,b
|
12.60
|
20.65c
|
(13.03)
|
—
|
—
|
|
a Total return would have been lower had certain expenses not been reduced.
b Total investment return for the Portfolio was derived from the performance of the Investment
Class of Scudder International Equity Fund.
c In 2003, the Advisor fully reimbursed the Portfolio for currency transactions which did not meet
the Portfolio's investment guidelines. Excluding this reimbursement, the total return would have
been 20.33%.
|
ITEM 2. CODE OF ETHICS.
As of the end of the period, October 31, 2004, Scudder International Equity
Portfolios has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
that applies to its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of
ethics during the period covered by this report that would require disclosure
under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr. S.
Leland Dill. This audit committee member is "independent," meaning that he is
not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
SCUDDER INTERNATIONAL EQUITY PORTFOLIO
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP
("PWC"), the Fund's auditor, billed to the Fund during the Fund's last two
fiscal years. For engagements with PWC entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that PWC provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund's Auditor Billed to the Fund
- --------------------------------------------------------------------------------
Fiscal Year Audit Fees Audit-Related Tax Fees All Other
Ended Billed Fees Billed Billed to Fees Billed
October 31, to Fund to Fund Fund to Fund
- --------------------------------------------------------------------------------
2004 $51,800 $185 $4,200 $0
- --------------------------------------------------------------------------------
2003 $47,300 $1,205 $4,000 $0
- --------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
Services that the Fund's Auditor Billed to the Adviser and
Affiliated Fund Service Providers
The following table shows the amount of fees billed by PWC to Deutsche Asset
Management, Inc. ("DeAM, Inc." or the "Adviser"), and any entity controlling,
controlled by or under common control with DeAM, Inc. ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two fiscal years.
- --------------------------------------------------------------------------------
Audit-Related Tax Fees All Other
Fees Billed Billed to Fees Billed
Fiscal to Adviser and Adviser and to Adviser and
Year Affiliated Affiliated Affiliated
Ended Fund Service Fund Service Fund Service
October 31, Providers Providers Providers
- --------------------------------------------------------------------------------
2004 $453,907 $0 $0
- --------------------------------------------------------------------------------
2003 $662,457 $50,000 $0
- --------------------------------------------------------------------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls, agreed-upon procedures and additional related
procedures.
Non-Audit Services
The following table shows the amount of fees that PWC billed during the Fund's
last two fiscal years for non-audit services. For engagements entered into on or
after May 6, 2003, the Audit Committee pre-approved all non-audit services that
PWC provided to the Adviser and any Affiliated Fund Service Provider that
related directly to the Fund's operations and financial reporting. The Audit
Committee requested and received information from PWC about any non-audit
services that PWC rendered during the Fund's last fiscal year to the Adviser and
any Affiliated Fund Service Provider. The Committee considered this information
in evaluating PWC's independence.
- --------------------------------------------------------------------------------
Total Non-Audit
Fees billed to Total
Adviser and Non-Audit Fees
Affiliated Fund billed to
Service Providers Adviser and
(engagements related Affiliated
Total directly to the Fund Service
Non-Audit operations and Providers
Fiscal Fees Billed financial reporting (all other Total of
Year to Fund of the Fund) engagements) (A),(B)
Ended
October 31, (A) (B) (C) and (C)
- --------------------------------------------------------------------------------
2004 $4,200 $0 $1,153,767 $1,157,967
- --------------------------------------------------------------------------------
2003 $4,000 $50,000 $4,947,177 $5,001,177
- --------------------------------------------------------------------------------
All other engagement fees were billed for services in connection with risk
management, tax services and process improvement/integration initiatives for
DeAM, Inc. and other related entities that provide support for the operations of
the fund.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not Applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Nominating and Governance Committee evaluates and nominates Board member
candidates. Fund shareholders may also submit nominees that will be considered
by the Committee when a Board vacancy occurs. Submissions should be mailed to
the attention of the Secretary of the Fund, One South Street, Baltimore, MD
21202.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: Scudder International Equity Portfolio
By: /s/Julian Sluyters
---------------------------
Julian Sluyters
Chief Executive Officer
Date: January 4, 2005
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: Scudder International Equity Portfolio
By: /s/Julian Sluyters
---------------------------
Julian Sluyters
Chief Executive Officer
Date: January 4, 2005
---------------------------
By: /s/Paul Schubert
---------------------------
Paul Schubert
Chief Financial Officer
Date: January 4, 2005
---------------------------
