UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number 811-07774
SCUDDER INVESTMENT PORTFOLIOS
------------------------------
(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: 9/30
Date of reporting period: 3/31/2004
ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
Scudder
PreservationPlus Fund
|
| |
| Semiannual Report to Shareholders |
| March 31, 2004 |
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. This fund invests primarily in fixed income securities. Management enters into wrapper agreements, which are contracts with financial institutions such as insurance companies and banks, that are designed to permit the portfolio, under most circumstances, to maintain a constant share price. Wrapper agreements are designed to offset the fluctuations in prices normally associated with fixed-income securities. Thus, if the market value of a portfolio of fixed-income securities falls below the book value of those securities due to general market conditions, the wrapper provider may become obligated to pay the difference to the portfolio. Conversely, should the market value of the portfolio rise above the book value, the portfolio may become obligated to pay the difference to the wrapper provider. The fund seeks to maintain a constant $10.00 per share net asset value. The fund is not a money market fund, and there can be no assurance that the fund will be able to maintain a stable value per share. The fund invests in individual bonds whose yields and market values fluctuate so that your investment may be worth more or less than its original cost. Derivatives may be more volatile and less liquid than traditional securities and the fund could suffer losses on its derivatives positions. Please read the fund's prospectus for specific details regarding this fund's 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.
Performance Summary March 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.
The investment advisor and administrator have voluntarily agreed to waive their fees and/or reimburse expenses. This waiver may be terminated or adjusted at any time without notice. Returns and rankings during all periods shown reflect this and other nonvoluntary fee and/or expense waivers. Without these waivers/reimbursement, returns would have been lower and any rankings/ratings might have been less favorable.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares. Returns and rankings may differ by share class.
Performance excludes the impact of the 2% maximum redemption fee, which may apply or be waived in certain limited circumstances. Advance notice of plan withdrawal may be necessary to avoid a redemption fee (see the prospectus for details).
The Fund seeks to maintain a constant $10.00 per share net asset value. The Fund is not a money market fund, and there can be no assurance that the Fund will be able to maintain a stable net asset value per share. The Fund holds fixed income securities, money market instruments, futures, options and other instruments and enters into Wrapper Agreements with insurance companies, banks and other financial institutions. These Wrapper Agreements are intended to stabilize the net asset value per share. Please see the prospectus for more information on these Wrapper Agreements.
Average Annual Total Returns as of 3/31/04 |
Scudder PreservationPlus Fund | 6-Month++ | 1-Year | 3-Year | 5-Year | Life of Class* |
Investment Class
| 1.90% | 4.27% | 4.98% | 5.20% | 5.21% |
Lehman 1-3 Year US Government/Credit Index+
| 1.43%
| 3.12%
| 5.32%
| 5.89%
| 5.63%
|
iMoneyNet First-Tier Retail Money Funds Average++
| .19%
| .42%
| 1.31%
| 2.90%
| 3.02%
|
Wrapped Lehman Intermediate Aggregate Bond Index+++
| 2.44%
| 5.18%
| 5.77%
| 5.95%
| 5.58%
|
Sources: Lipper Inc., Deutsche Asset Management, Inc., Aegon N.V. and iMoneyNet
++ Total returns shown for periods less than one year are not annualized.* Investment Class shares commenced operations on September 23, 1998. Index returns begin September 30, 1998.Average Annual Total Returns as of 3/31/04 |
Scudder PreservationPlus Fund | 6-Month++ | 1-Year | 3-Year | 5-Year | Life of Class** |
Institutional Class
| 2.03% | 4.53% | 5.24% | 5.47% | 5.54% |
Lehman 1-3 Year US Government/Credit Index+
| 1.43%
| 3.12%
| 5.32%
| 5.89%
| 5.94%
|
iMoneyNet First-Tier Retail Money Funds Average++
| .19%
| .42%
| 1.31%
| 2.90%
| 3.25%
|
Wrapped Lehman Intermediate Aggregate Bond Index+++
| 2.44%
| 5.18%
| 5.77%
| 5.95%
| 5.99%
|
Sources: Lipper Inc., Deutsche Asset Management, Inc., Aegon N.V. and iMoneyNet
++ Total returns shown for periods less than one year are not annualized.** Institutional Class shares commenced operations on December 12, 1997. Index returns begin December 31, 1997.Net Asset Value and Distribution Information |
| Investment Class | Institutional Class |
Net Asset Value:
3/31/04
| $ 10.00 | $ 10.00 |
9/30/03
| $ 10.00 | $ 10.00 |
Distribution Information:
Six Months:
Income Dividends as of 3/31/04 | $ .19 | $ .20 |
Capital Gains Distributions++++ as of 3/31/04 | $ .06 | $ .06 |
March Income Dividend | $ .0288 | $ .0309 |
++++ The Fund declared a capital gain distribution of $.06 per share and a corresponding reverse stock split of .994 per share.Institutional Class Lipper Rankings - Intermediate Investment Grade Debt Funds Category as of 3/31/04 |
Period | Rank | | Number of Funds Tracked | Percentile Ranking |
1-Year
| 324 | of | 435 | 75 |
3-Year
| 305 | of | 337 | 91 |
5-Year
| 212 | of | 241 | 88 |
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; other shares may vary.
Growth of an Assumed $10,000 Investment |
[] Scudder PreservationPlus Fund - Institutional Class [] Lehman 1-3 Year US Government/Credit Index+
[] iMoneyNet First-Tier Retail Money Fund Average++
[] Wrapped Lehman Intermediate Aggregate Bond Index+++
|
 |
Yearly periods ended March 31 |
The growth of $10,000 is cumulative.
** Institutional Class shares commenced operations on December 12, 1997. Index returns begin December 31, 1997.Comparative Results as of 3/31/04 |
Scudder PreservationPlus Fund | 1-Year | 3-Year | 5-Year | Life of Class* | Life of Class** |
Investment Class | Growth of $10,000
| $10,427 | $11,569 | $12,883 | $13,235 | N/A |
Average annual total return
| 4.27% | 4.98% | 5.20% | 5.21% | N/A |
Institutional Class | Growth of $10,000
| $10,453 | $11,655 | $13,054 | N/A | $14,049 |
Average annual total return
| 4.53% | 5.24% | 5.47% | N/A | 5.54% |
Lehman 1-3 Year US Government/ Credit Index+
| Growth of $10,000
| $10,312 | $11,681 | $13,315 | $13,517 | $14,343 |
Average annual total return
| 3.12% | 5.32% | 5.89% | 5.63% | 5.94% |
iMoneyNet First-Tier Retail Money Funds Average++
| Growth of $10,000
| $10,042 | $10,397 | $11,528 | $11,835 | $12,282 |
Average annual total return
| .42% | 1.31% | 2.90% | 3.02% | 3.25% |
Wrapped Lehman Intermediate Aggregate Bond Index+++
| Growth of $10,000
| $10,518 | $11,834 | $13,356 | $13,482 | $14,385 |
Average annual total return
| 5.18% | 5.77% | 5.95% | 5.58% | 5.99% |
The growth of $10,000 is cumulative.
* Investment Class shares commenced operations on September 23, 1998. Index returns begin September 30, 1998.** Institutional Class shares commenced operations on December 12, 1997. Index returns begin December 31, 1997.+ Lehman 1-3 Year US Government/Credit Index, our primary benchmark, is an unmanaged index consisting of all US government agency and Treasury securities, as well as all investment grade corporate debt securities with maturities of one to three years.++ iMoneyNet-First Tier Retail Money Funds Average is compiled by iMoneyNet, Inc., an independent money market mutual fund rating service, and includes retail money market funds containing securities rated in the highest short-term rating category by two or more nationally recognized ratings organizations.+++ Wrapped Lehman Intermediate Aggregate Bond Index is a custom benchmark representing investment in a portfolio consisting of the Lehman Intermediate Aggregate Bond Index, an unmanaged index representing domestic taxable investment grade bonds with index components for government, corporate, mortgage pass-through and asset-backed securities with average maturities and durations in the intermediate range, and a book value wrapper agreement with an assumed expense level of 0.15%. This benchmark more closely reflects the market sector in which the Fund invests.Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.Portfolio Management Review |
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Scudder PreservationPlus Fund was the first SEC registered mutual fund specifically designed as an investment alternative to traditional GIC commingled funds and other stable value products. The fund is open to investors in participant-directed employee benefit plans that meet certain eligibility criteria, including corporate 401(k), public 457 and not-for-profit 403(b) plans. In the following interview, New York-based Portfolio Managers John Axtell, Eric Kirsch and Sean McCaffrey discuss the fund's strategy and the market environment during the six-month period ended March 31, 2004.
Q: How did the Scudder PreservationPlus Fund perform during its semiannual period ended March 31, 2004?
A: PreservationPlus Fund Institutional Class shares produced a cumulative total return of 2.03% for the semiannual period ended March 31, 2004. (Please see pages 3 through 6 for the performance of other share classes and more complete performance information.) The Lehman 1-3 Year US Government/Credit Index produced a total return of 1.43% for the same period. Past performance is no guarantee of future results.
The fund delivered on its objective to maintain a stable share price each day during the period. The fund also produced strong returns relative to other conservative investments, such as the iMoneyNet First-Tier Retail Money Fund Average, which returned 0.19% for the six-month period ended March 31, 2004.
PreservationPlus Fund received a 5-star Overall Morningstar Rating™ as of 3/31/04. There were 69 funds in the ultrashort bond fund category for the overall rating period.
Source: Morningstar, Inc. Morningstar ratings are based on risk-adjusted performance. The Overall Morningstar Rating™ for a fund is derived from a weighted average of the performance figures associated with its applicable 3-, 5- and 10-year Morningstar Rating metrics. This fund was rated 5 stars for the 3-year and 5 stars for the 5-year periods ending 3/31/04. For these time periods, there were 69 and 46 US-domiciled funds, respectively, in the Ultrashort Bond category. There were 69 funds in this category for the Overall Rating period. Ratings are for Class INST shares; other share classes may vary.1
1 © 2004 Morningstar, Inc. All rights reserved. Morningstar, Inc. shall not be responsible for investment decisions, damages or other losses resulting from use of this rating. For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on a Morningstar risk-adjusted return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in a category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)The fund has maintained a high-quality portfolio overall. Measured using Standard & Poor's ratings, the average credit quality of investments in the fund was AAA at the end of the semiannual period, and the average credit quality of the issuers of the Wrapper Agreements was AA- on March 31, 2004. The fund's average duration at the end of the period stood at 2.45 years.2
2 The ratings of Standard & Poor's Corporation (S&P) represent this company's opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The fund's credit quality does not remove market risk.The fund was primarily diversified across the major sectors of the investment-grade fixed-income market. As of March 31, 2004, the portfolio was invested 25.9% in corporate bonds, 32.6% in mortgage-backed securities, 15.8% in asset-backed securities, 5.0% in US Treasuries, 1.9% in agencies and 18.8% in cash equivalents and other investments, including futures contracts and Wrapper Agreements. This allocation of fixed-income securities was intentionally weighted towards the corporate, asset-backed and mortgage sectors, as these sectors have historically offered higher yields than US government securities. Of course, diversification does not eliminate risk.
Q: Could you provide us with more details about these Wrapper Agreements?
A: The PreservationPlus Fund was the first SEC registered mutual fund to make use of Wrapper Agreements to seek to maintain principal stability. Generally speaking, Wrapper Agreements were issued by insurance companies, banks and other financial institutions. As of the end of the period, we were using three Wrapper Agreements, each of which covers a portion of the fixed-income securities in the portfolio covered by such agreements. This was a successful strategy for the fund. The Wrapper Agreements held by the portfolio as of March 31, 2004 are issued by Bank of America NA and Transamerica Life Insurance & Annuity Co., each of which covered approximately 38.5% of the fixed income securities in the portfolio covered by such agreements, and National Westminster Bank PLC, which covered approximately 23% of the fixed income securities in the portfolio covered by such agreements.
Q: Did the fixed-income environment support the fund's positive performance?
A: Overall, the US fixed-income markets performed well during the semiannual period. The Lehman Aggregate Bond Index produced a cumulative return of 2.98%, for the six-month period ended March 31, 2004. Commercial mortgage-backed securities returned 3.33% on a cumulative basis. US credits, which account for approximately 25% of the Lehman Aggregate Bond Index, had a cumulative return of 3.78%. Within the Lehman Aggregate Bond Index, lower-rated credits outperformed higher-rated credits. The Lehman Aaa Index returned 2.66% for the six-month
period, while the Lehman Baa Index returned 4.67% for the same time frame.3
3 Source: Lehman Brothers.As we entered the period, improving economic indicators combined with the effects of strict cost cutting by businesses to produce a recovery in corporate profits. Jobless claims fell, industrial production jumped and housing starts continued to be strong, despite higher mortgage rates. Core inflation continued to inch lower, with economic indicators suggesting that the economy will continue to build on the momentum that began to emerge over the summer. As we entered the first quarter of 2004, continued weakness in the US labor market reinforced the Federal Reserve's intention to keep official interest rates low. In fact, the Federal Reserve Board held the targeted federal funds rate steady throughout the period. Towards the end of March, however, US Treasury yields moved off their lows, as measures of inflation and consumer confidence rose more than expected. For the period, however, the US Treasury yield curve flattened with shorter term rates rising slightly and longer term rates declining somewhat. Despite volatility throughout the period, the three-month Treasury bill yields remained unchanged at 0.94 %, and two-year Treasury note yields rose 11 basis points to 1.57%. Ten-year Treasury yields declined 10 basis points to 3.84%, and the 30-year Treasury yield fell 11 basis points to 4.77%.
Q: How did the corporate, asset-backed and mortgage sectors perform?
A: All three sectors outperformed US Treasuries on a total return basis for the semiannual period. For that period, these segments of the Lehman Aggregate Bond Index produced total returns as follows: mortgage-backed securities, 2.87%; asset-backed securities, 2.63%; and US credits, 3.78%. Keep in mind, the government guarantees the prompt payment of principal and interest of US Treasuries, however, such guarantee does not remove market risks if the investment is sold prior to maturity. At the beginning of the period, US credit yield spreads over US Treasuries continued to tighten from historically wide levels, driven by a combination improving fundamentals, solid technicals, and attractive relative valuations vs. other asset classes. However, by the first quarter of 2004, there was much variability among sectors. The longer-dated paper of higher volatility sectors including autos, media-cable, and particularly airlines, witnessed spread widening. Mortgage-backed securities (MBSs) outperformed, against the backdrop of lower interest rates and strong refinancing activity. The asset-backed sector generally performed well, as the manufactured housing sub-sector held strong.
We maintain our long-term perspective for the fund, monitoring economic conditions and how they affect the financial markets, as we seek to provide a high level of current income while seeking to maintain a stable value potential per share. Our strategy is to continue to focus on selecting spread sector assets - corporate, mortgage- and asset-backed securities - offering the best relative value at the maximum yield possible, while normally maintaining a 10% cash allocation to help provide liquidity. This liquidity facilitates the management of daily investor cash flows.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Portfolio Summary March 31, 2004 |
|
Asset Allocation | 3/31/04 | 9/30/03 |
|
Corporate Bonds
| 21%
| 20%
|
US Government Agency Sponsored Pass-Thrus
| 19%
| 21%
|
Asset Backed
| 16%
| 23%
|
Collateralized Mortgage Obligations
| 9%
| 7%
|
Foreign Bonds - US$ Denominated
| 5%
| 5%
|
US Government Backed
| 5%
| 9%
|
Government National Mortgage Association
| 4%
| 4%
|
US Government Sponsored Agencies
| 2%
| 3%
|
Cash Equivalents and Other Assets and Liabilities, Neta
| 19%
| 8%
|
| 100%
| 100%
|
a Wrapper Agreements included.Asset allocation is subject to change.
For more complete details about the Fund's investment portfolio, see page 25. 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.
Statement of Assets and Liabilities as of March 31, 2004 (Unaudited) |
Assets
|
Investment in the PreservationPlus Portfolio, at value
| $ 223,163,834 |
Receivable for Fund shares sold
| 6,611 |
Other assets
| 16,449 |
Total assets
| 223,186,894 |
Liabilities
|
Dividends payable
| 126,917 |
Other accrued expenses and payables
| 738,613 |
Total liabilities
| 865,530 |
Net assets, at value
| $ 222,321,364 |
Net Assets
|
Net assets consist of:
Undistributed net investment income
| 49,637 |
Net unrealized appreciation (depreciation) on:
Investments
| 6,634,693 |
Wrapper agreements
| (14,720,548) |
Accumulated net realized gain (loss)
| 26,790 |
Paid-in capital
| 230,330,792 |
Net assets, at value
| $ 222,321,364 |
Net Asset Value
|
Investment Class
Net Asset Value, offering and redemption price per share ($135,502,480 / 13,550,831 shares of capital stock outstanding, $.001 par value, unlimited number of shares authorized)
| $ 10.00 |
Institutional Class
Net Asset Value, offering and redemption price per share ($86,818,884 / 8,683,326 shares of capital stock outstanding, $.001 par value, unlimited number of shares authorized)
| $ 10.00 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended March 31, 2004 (Unaudited) |
Investment Income
|
Net investment income allocated from the PreservationPlus Portfolio:
Interest
| $ 3,878,764 |
Credit rate income
| 366,510 |
Mortgage dollar roll income
| 2,477 |
Dividends from affiliated investment companies
| 162,336 |
Expensesa
| (351,828) |
Net investment income from the PreservationPlus Portfolio
| 4,058,259 |
Expenses:
Administrator service fee
| 185,125 |
Shareholder servicing fee
| 141,738 |
Auditing
| 13,746 |
Legal
| 34,898 |
Trustees' fees and expenses
| 3,437 |
Reports to shareholders
| 24,433 |
Registration fees
| 14,060 |
Other
| 2,558 |
Total expenses, before expense reductions
| 419,995 |
Expense reductions
| (229,978) |
Total expenses, after expense reductions
| 190,017 |
Net investment income
| 3,868,242 |
Realized and Unrealized Gain (Loss) on Investment Transactions
|
Net realized gain (loss) from:
Investments
| 532,082 |
Futures
| (317,395) |
| 214,687 |
Net unrealized appreciation (depreciation) during the period on:
Investments and futures
| 33,945 |
Wrapper agreements
| (251,109) |
| (217,164) |
Net gain (loss) on investments
| (2,477) |
Net increase (decrease) in net assets resulting from operations
| $ 3,865,765 |
a For the six months ended March 31, 2004, the Advisor of the PreservationPlus Portfolio waived fees of which $237,284 was allocated to the Fund on a prorated basis.The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets
| Six Months Ended March 31, 2004 (Unaudited) | Year Ended September 30, 2003 |
Operations:
Net investment income
| $ 3,868,242 | $ 8,077,611 |
Net realized gain (loss) on investment transactions
| 214,687 | 940,056 |
Net unrealized appreciation (depreciation) on investments and futures during the period
| 33,945 | (1,847,948) |
Net unrealized appreciation (depreciation) on wrapper agreements during the period
| (251,109) | 613,087 |
Net increase (decrease) in net assets resulting from operations
| 3,865,765 | 7,782,806 |
Distributions to shareholders:
Net investment income:
Investment Class
| (1,742,313) | (3,754,289) |
Institutional Class
| (2,125,042) | (4,028,082) |
Net realized gains:
Investment Class
| (660,094) | (2,101,230) |
Institutional Class
| (552,705) | (2,427,878) |
Fund share transactions:
Proceeds from shares sold
| 49,803,692 | 76,222,298 |
Reinvestment of distributions
| 5,045,291 | 12,100,690 |
Cost of shares redeemed
| (19,073,831) | (133,401,506) |
Net increase (decrease) in net assets from Fund share transactions
| 35,775,152 | (45,078,518) |
Increase (decrease) in net assets
| 34,560,763 | (49,607,191) |
Net assets at beginning of period
| 187,760,601 | 237,367,792 |
Net assets at end of period (including undistributed net investment income of $49,637 and $48,750, respectively)
| $ 222,321,364 | $ 187,760,601 |
The accompanying notes are an integral part of the financial statements.
Investment Classa |
Years Ended September 30, | 2004b | 2003 | 2002 | 2001 | 2000 | 1999 |
Selected Per Share Data
| | | | | | |
Net asset value, beginning of period
| $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 |
Income from investment operations:
Net investment income
| .19 | .52 | .51 | .54 | .55 | .51 |
Net realized and unrealized gain (loss) on investment transactions
| (.00)*** | (.02) | - | - | - | - |
Total from investment operations | .19 | .50 | .51 | .54 | .55 | .51 |
Less distributions from:
Net investment income
| (.19) | (.50) | (.51) | (.54) | (.55) | (.51) |
Net realized gain on investment transactions
| (.06) | (.34) | (.10) | - | - | (.05) |
Reverse stock splitc
| .06 | .34 | .10 | - | - | .05 |
Total distributions | (.19) | (.50) | (.51) | (.54) | (.55) | (.51) |
Net asset value, end of period
| $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 |
Total Return (%)d
| 1.90** | 5.16 | 5.18 | 5.50 | 5.64 | 5.25 |
Ratios to Average Net Assets and Supplemental Data
|
Net assets, end of period ($ millions)
| 136 | 97 | 54 | 51 | 36 | 17 |
Ratio of expenses before expense reductions, including expenses allocated from PreservationPlus Portfolio (%)
| 1.17* | 1.19 | 1.16 | 1.07 | 1.05 | 1.18 |
Ratio of expenses after expense reductions, including expenses allocated from PreservationPlus Portfolio (%)
| .65* | .65 | .65 | .65 | .65 | .80 |
Ratio of net investment income (%)
| 3.75* | 5.16 | 5.56 | 5.34 | 5.49 | 5.20 |
a On January 31, 2000, PreservationPlus Fund Service Class was renamed PreservationPlus Fund Investment Class.
b For the six months ended March 31, 2004 (Unaudited).
c See Note F in Notes to Financial Statements.
d Total returns would have been lower had certain expenses not been reduced.
* Annualized ** Not annualized
*** Amount is less than $(.005) per share.
|
Institutional Class |
Years Ended September 30, | 2004a | 2003 | 2002 | 2001 | 2000 | 1999 |
Selected Per Share Data
|
Net asset value, beginning of period
| $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 |
Income from investment operations:
Net investment income
| .20 | .55 | .54 | .56 | .58 | .55 |
Net realized and unrealized gain (loss) on investment transactions
| (.00)*** | (.02) | - | - | - | - |
Total from investment operations | .20 | .53 | .54 | .56 | .58 | .55 |
Less distributions from:
Net investment income
| (.20) | (.53) | (.54) | (.56) | (.58) | (.55) |
Net realized gain on investment transactions
| (.06) | (.34) | (.10) | - | - | (.05) |
Reverse stock splitb
| .06 | .34 | .10 | - | - | .05 |
Total distributions | (.20) | (.53) | (.54) | (.56) | (.58) | (.55) |
Net asset value, end of period
| $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 | $ 10.00 |
Total Return (%)c
| 2.03** | 5.40 | 5.45 | 5.77 | 5.91 | 5.66 |
Ratios to Average Net Assets and Supplemental Data
|
Net assets, end of period ($ millions)
| 87 | 91 | 184 | 199 | 199 | 187 |
Ratio of expenses before expense reductions, including expenses allocated from PreservationPlus Portfolio (%)
| .81* | .79 | .69 | .65 | .60 | .66 |
Ratio of expenses after expense reductions, including expenses allocated from PreservationPlus Portfolio (%)
| .40* | .40 | .40 | .40 | .40 | .40 |
Ratio of net investment income (%)
| 4.00* | 5.41 | 5.81 | 5.61 | 5.76 | 5.53 |
a For the six months ended March 31, 2004 (Unaudited).
b See Note F in Notes to Financial Statements.
c Total returns would have been lower had certain expenses not been reduced.
* Annualized ** Not annualized
*** Amount is less than $(.005) per share.
|
Notes to Financial Statements (Unaudited) |
|
A. Significant Accounting Policies
PreservationPlus Fund ("Scudder PreservationPlus Fund" or the "Fund") is a diversified series of the Scudder Advisor Funds III (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 PreservationPlus Portfolio (the "Portfolio"), a diversified, open-end management investment company having the same investment objective as the Fund and advised by Deutsche Asset Management, Inc. ("DeAM, Inc."). At March 31, 2004, the Fund owned approximately 100% of the PreservationPlus 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.
The Fund offers multiple classes of shares: Institutional and Investment Class. Institutional Class shares are offered to a limited group of investors and have lower ongoing expenses than the Investment Class.
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 service fees, administrative fees and certain other class-specific expenses. Differences in class-level expenses 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, including Wrapper Agreements, 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.
Distribution of Income and Gains. Substantially all of the net investment income is declared as a daily dividend and distributed to shareholders monthly. 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. These differences primarily relate to securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
Other. The Fund receives a daily allocation of the Portfolio's net investment income and net realized and unrealized gains and losses, including Wrapper Agreements, 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.
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.
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. ("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 Fund, both wholly owned subsidiaries of Deutsche Bank AG.
For the six months ended March 31, 2004, the Advisor and Administrator voluntarily agreed to waive their fees and reimburse expenses of the Fund to the extent necessary to maintain the annualized expenses of the classes of the Fund as follows: Institutional Class shares at 0.40% and Investment Class shares at 0.65%, including expenses allocated from the Portfolio. These voluntary waivers and reimbursements may be terminated or adjusted at any time without notice to shareholders. Under these agreements, the Advisor reimbursed additional expenses of $44,853.
Administrator Service Fee. ICCC serves as Administrator and receives a fee (the "Administrator Service Fee") of 0.10% of the Institutional Class average daily net assets and 0.25% of the Investment Class average daily net assets, computed and accrued daily and payable monthly. For the six months ended March 31, 2004, the Administrator Service Fee was as follows:
Administrator Service Fee | Total Aggregated | Not Imposed |
Institutional Class
| $ 43,387 | $ 43,387 |
Investment Class
| 141,738 | 141,738 |
| $ 185,125 | $ 185,125 |
Shareholder Service Agreement. ICCC provides information and administrative services to the Fund and receives a fee ("Shareholder Servicing Fee") at an annual rate of up to 0.25% of average daily net assets for the Investment Class. ICCC in turn has various agreements with financial services firms that provide these services and pay these fees based upon the assets of shareholder accounts the firms service. For the six months ended March 31, 2004, the Shareholder Servicing Fee was as follows:
Shareholder Servicing Fee | Total Aggregated | Total
Unpaid | Annualized Effective Rate |
Investment Class
| $ 141,738 | $ 141,738 | .25% |
Scudder Investments Service Company ("SISC"), an affiliate of the Advisor and Administrator, is the Fund's transfer agent. Pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. The costs and expenses of such delegation are borne by SISC, not by the Fund.
Scudder Distributors, Inc., an affiliate of the Advisor and Administrator, serves as the distributor for the Fund.
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.
C. Other
Under normal circumstances, redemptions of shares that are qualified are not subject to a redemption fee. Redemptions of shares that are not qualified and that are made when the redemptions of shares are not directed by plan participants and that are made on less than 12 months prior notice are subject to a redemption fee of 2% of the amount redeemed which is recorded as a payable to the wrapper provider. If the aggregate fair value of the Wrapper Agreements is less than zero at the time of redemption, the Fund will waive the 2% redemption fee.
D. Ownership of the Fund
From time to time the Fund may have a concentration of several shareholders holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the Fund.
As of March 31, 2004, there were two holders of record who individually held greater than 10% of the outstanding shares of the PreservationPlus Fund. These shareholders held 30% and 25%, respectively, of the total shares outstanding of the Fund.
E. Share Transactions
The following table summarizes the share and dollar activity of the Fund:
| Six Months Ended
March 31, 2004 | Year Ended
September 30, 2003 |
| Shares | Dollars | Shares | Dollars |
Shares sold
|
Institutional Class
| 288,921 | $ 2,889,214 | 2,533,154 | $ 25,337,040 |
Investment Class
| 4,690,633 | 46,914,478 | 5,088,526 | 50,885,258 |
| | $ 49,803,692 | | $ 76,222,298 |
Shares issued to shareholders in reinvestment of distributions
|
Institutional Class
| 230,405 | $ 2,304,045 | 636,830 | $ 6,368,317 |
Investment Class
| 274,125 | 2,741,246 | 573,238 | 5,732,373 |
| | $ 5,045,291 | | $ 12,100,690 |
Reverse stock split
|
Institutional Class
| (55,271) | $ - | (241,840) | $ - |
Investment Class
| (66,010) | - | (210,123) | - |
| | $ - | | $ - |
Shares redeemed
|
Institutional Class
| (849,907) | $ (8,499,071) | (12,214,774) | $ (122,147,699) |
Investment Class
| (1,057,476) | (10,574,760) | (1,125,405) | (11,253,807) |
| | $ (19,073,831) | | $ (133,401,506) |
Net increase (decrease)
|
Institutional Class
| (385,852) | $ (3,305,812) | (9,286,630) | $ (90,442,342) |
Investment Class
| 3,841,272 | 39,080,964 | 4,326,236 | 45,363,824 |
| | $ 35,775,152 | | $ (45,078,518) |
F. Additional Distributions
In order to comply with requirements of the Internal Revenue Code of 1986 applicable to regulated investment companies, the Fund is required to distribute accumulated net realized gains, if any, on an annual basis. When such distributions are made, the immediate impact is a corresponding reduction in the net asset value per share of each Class. Given the objective of the Fund to maintain a stable net asset value of $10 per share, the Fund intends to declare a reverse stock split immediately subsequent to any such distributions at a rate that will cause the total number of shares held by each shareholder, including shares acquired on reinvestment of that distribution, to remain the same as before the distribution was paid and in effect reinstate a net asset value of $10 per share.
G. Wrapper Agreement Valuation
The staff of the Securities and Exchange Commission has inquired as to the valuation methodology for Wrapper Agreements utilized by "stable value" mutual funds including this Fund. In the event that the commissioners of the Securities Exchange Commission determine that the valuation method currently utilized by "stable value" mutual funds is no longer an acceptable practice, and wrapper contracts should be valued based on their probable cash flows, the fair value of the Portfolio's Wrapper Agreements would be different and the Fund would not be able to maintain a stable net asset value per share. To the extent that the Wrapper Agreements are valued as a payable/receivable under the current method, the change would result in a net asset value per share of greater/less than $10 per share. At March 31, 2004, the Portfolio's Wrapper Agreements had a fair value of $8,509,718, which the Portfolio reflected as a payable to the wrapper providers.
H. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. We are unable to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisers. Publicity about mutual fund practices arising from these industry wide inquiries serves as the general basis of a number of private lawsuits against the Scudder Funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, Deutsche Asset Management ("DeAM") and its affiliates, certain individuals, including in some cases Fund Trustees/Directors, and other parties. DeAM has undertaken to bear all liabilities and expenses incurred by the Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding fund valuation, market timing, revenue sharing or other subjects of the pending inquiries. Based on currently available information, DeAM believes the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect its ability to perform under its investment management agreements with the Scudder funds.
(The following financial statements of the PreservationPlus Portfolio should be read in conjunction with the Fund's financial statements.)
Investment Portfolio as of March 31, 2004 (Unaudited) | |
|
| Principal Amount ($) | Value ($) |
|
|
Corporate Bonds 20.7% |
Consumer Discretionary 1.1%
|
DaimlerChrysler NA Holdings Corp.:
|
|
|
6.4%, 5/15/2006 | 350,000
| 376,603
|
6.9%, 9/1/2004 | 175,000
| 178,519
|
7.2%, 9/1/2009 | 425,000
| 483,747
|
FPL Group Capital, Inc., 6.125%, 5/15/2007
| 75,000
| 82,715
|
Gannett Co., Inc., 6.375%, 4/1/2012
| 50,000
| 57,352
|
Target Corp., 5.95%, 5/15/2006
| 100,000
| 108,228
|
Walt Disney Co., 6.75%, 3/30/2006
| 1,000,000
| 1,082,499
|
| 2,369,663 |
Consumer Staples 1.7%
|
Anheuser-Busch Companies, Inc., 9.0%, 12/1/2009
| 400,000
| 510,606
|
Bottling Group LLC, 5.0%, 11/15/2013
| 100,000
| 104,100
|
Campbell Soup Co., 6.75%, 2/15/2011
| 100,000
| 116,698
|
Coca-Cola Co., 5.75%, 3/15/2011
| 50,000
| 55,812
|
Coca-Cola Enterprises, Inc., 2.5%, 9/15/2006
| 500,000
| 504,548
|
Kimberly-Clark Corp., 5.0%, 8/15/2013
| 50,000
| 52,869
|
Kraft Foods, Inc.:
|
|
|
4.625%, 11/1/2006 | 120,000
| 126,666
|
5.625%, 11/1/2011 | 250,000
| 271,094
|
McDonald's Corp., 6.5%, 8/1/2007
| 500,000
| 561,817
|
Proctor & Gamble Co., 4.3%, 8/15/2008
| 100,000
| 105,678
|
Sara Lee Corp., 3.875%, 6/15/2013
| 100,000
| 95,549
|
Unilever Capital Corp., 7.125%, 11/1/2010
| 150,000
| 178,808
|
UST, Inc., 6.625%, 7/15/2012
| 100,000
| 113,433
|
Wal-Mart Stores, Inc.:
|
|
|
4.125%, 2/15/2011 | 200,000
| 203,077
|
4.55%, 5/1/2013 | 250,000
| 253,597
|
6.875%, 8/10/2009 | 300,000
| 352,074
|
Whitman Corp., 6.0%, 5/1/2004
| 160,000
| 160,441
|
| 3,766,867 |
Energy 0.6%
|
Alabama Power Co., 2.8%, 12/1/2006
| 350,000
| 354,550
|
ChevronTexaco Capital Co., 3.5%, 9/17/2007
| 250,000
| 258,192
|
Conoco Funding Co., 6.35%, 10/15/2011
| 100,000
| 114,783
|
Conoco, Inc., 6.35%, 4/15/2009
| 360,000
| 409,943
|
Florida Power & Light, 6.875%, 12/1/2005
| 200,000
| 216,606
|
| 1,354,074 |
Financials 12.4%
|
ABN Amro Bank NV, 7.125%, 6/18/2007
| 200,000
| 227,827
|
Allstate Corp.:
|
|
|
6.125%, 2/15/2012 | 100,000
| 112,080
|
7.2%, 12/1/2009 | 250,000
| 298,840
|
American Express Co., 4.875%, 7/15/2013
| 125,000
| 129,818
|
American General Finance Corp.:
|
|
|
4.5%, 11/15/2007 | 750,000
| 793,020
|
4.625%, 9/1/2010 | 100,000
| 104,191
|
American International Group, Inc., 144A, 4.25%, 5/15/2013
| 50,000
| 49,142
|
Bank of America Corp.:
|
|
|
3.875%, 1/15/2008 | 200,000
| 207,309
|
4.375%, 12/1/2010 | 100,000
| 103,045
|
4.75%, 10/15/2006 | 500,000
| 531,449
|
4.875%, 1/15/2013 | 400,000
| 414,762
|
6.25%, 4/15/2012 | 100,000
| 113,531
|
7.125%, 5/12/2005 | 400,000
| 424,400
|
Bank of New York Co., Inc., 7.3%, 12/1/2009
| 200,000
| 238,890
|
Bank One Corp., 5.25%, 1/30/2013
| 500,000
| 524,721
|
Bear Stearns Co., Inc.:
|
|
|
3.0%, 3/30/2006 | 400,000
| 407,933
|
4.5%, 10/28/2010 | 100,000
| 103,260
|
Berkshire Hathaway, Inc., 144A, 3.375%, 10/15/2008
| 200,000
| 201,939
|
Boeing Capital Corp.:
|
|
|
5.8%, 1/15/2013 | 200,000
| 216,234
|
6.1%, 3/1/2011 | 100,000
| 111,074
|
Caterpillar Financial Service Corp., 4.875%, 6/15/2007
| 200,000
| 214,736
|
Chubb Corp., 6.0%, 11/15/2011
| 100,000
| 111,136
|
CIT Group, Inc., 7.75%, 4/2/2012
| 150,000
| 181,172
|
Citigroup, Inc.:
|
|
|
6.5%, 1/18/2011 | 250,000
| 288,499
|
6.5%, 2/7/2006 | 300,000
| 324,481
|
6.75%, 12/1/2005 | 750,000
| 811,057
|
7.25%, 10/1/2010 | 400,000
| 476,385
|
Credit Suisse First Boston USA, Inc.:
|
|
|
4.625%, 1/15/2008 | 500,000
| 529,677
|
6.125%, 11/15/2011 | 400,000
| 446,800
|
First Union National Bank, 7.125%, 10/15/2006
| 300,000
| 335,420
|
FleetBoston Financial Corp., 7.375%, 12/1/2009
| 200,000
| 239,575
|
Ford Motor Credit Co.:
|
|
|
6.5%, 1/25/2007 | 250,000
| 267,051
|
7.375%, 10/28/2009 | 700,000
| 768,351
|
7.6%, 8/1/2005 | 400,000
| 425,238
|
General Electric Capital Corp.:
|
|
|
2.85%, 1/30/2006 | 400,000
| 407,330
|
5.0%, 2/15/2007 | 500,000
| 536,568
|
5.375%, 3/15/2007 | 100,000
| 108,473
|
6.0% , 6/15/2012 | 700,000
| 782,175
|
6.8%, 11/1/2005 | 200,000
| 215,826
|
8.625%, 6/15/2008 | 500,000
| 607,809
|
General Motors Acceptance Corp.:
|
|
|
4.5%, 7/15/2006 | 400,000
| 413,341
|
6.125%, 9/15/2006 | 500,000
| 534,589
|
6.75%, 1/15/2006 | 300,000
| 320,642
|
6.875%, 8/28/2012 | 200,000
| 216,027
|
7.0%, 2/1/2012 | 250,000
| 271,696
|
Goldman Sachs Group, Inc.:
|
|
|
4.125%, 1/15/2008 | 200,000
| 208,716
|
4.75%, 7/15/2013 | 250,000
| 249,973
|
6.65%, 5/15/2009 | 175,000
| 200,814
|
6.875%, 1/15/2011 | 325,000
| 377,611
|
Hartford Financial Services Group, 7.9%, 6/15/2010
| 100,000
| 121,562
|
Household Finance Corp.:
|
|
|
3.375%, 2/21/2006 | 265,000
| 271,804
|
6.375%, 11/27/2012 | 400,000
| 452,632
|
6.5%, 1/24/2006 | 225,000
| 243,258
|
6.75%, 5/15/2011 | 200,000
| 231,013
|
8.0%, 7/15/2010 | 300,000
| 367,509
|
John Deere Capital Corp.:
|
|
|
6.0%, 2/15/2009 | 250,000
| 280,538
|
7.0%, 3/15/2012 | 150,000
| 177,571
|
John Hancock Financial Services, Inc., 5.625%, 12/1/2008
| 50,000
| 54,937
|
JP Morgan Chase & Co.:
|
|
|
5.25%, 5/30/2007 | 500,000
| 539,931
|
6.75%, 2/1/2011 | 325,000
| 378,973
|
Key Bank NA, 7.25%, 6/1/2005
| 200,000
| 212,751
|
KFW International Finance, Inc.:
|
|
|
4.25%, 4/18/2005 | 1,000,000
| 1,029,710
|
8.2%, 6/1/2006 | 120,000
| 135,604
|
Lehman Brothers Holdings, Inc.:
|
|
|
6.25%, 5/15/2006 | 200,000
| 217,662
|
6.625%, 1/18/2012 | 100,000
| 115,567
|
7.0%, 2/1/2008 | 300,000
| 343,911
|
7.875%, 11/1/2009 | 150,000
| 182,439
|
Mellon Funding Corp., 6.375%, 2/15/2010
| 100,000
| 113,660
|
Merrill Lynch & Co., Inc.:
|
|
|
4.125%, 1/15/2009 | 400,000
| 412,542
|
5.0%, 2/3/2014 | 100,000
| 102,412
|
MetLife, Inc., 6.125%, 12/1/2011
| 100,000
| 112,781
|
Morgan Stanley Dean Witter & Co.:
|
|
|
5.3%, 3/1/2013
| 150,000
| 157,445
|
6.75%, 4/15/2011
| 150,000
| 173,267
|
Morgan Stanley Group, Inc., 8.33%, 1/15/2007
| 750,000
| 864,656
|
National City Bank:
|
|
|
2.5%, 4/17/2006 | 500,000
| 507,203
|
Series BKNT, 6.2%, 12/15/2011 | 100,000
| 113,105
|
SLM Corp.:
|
|
|
3.625%, 3/17/2008 | 150,000
| 153,664
|
5.125%, 8/27/2012 | 100,000
| 104,863
|
SunTrust Banks, Inc., 6.375%, 4/1/2011
| 100,000
| 114,093
|
Toyota Motor Credit Corp.:
|
|
|
2.875%, 8/1/2008 | 200,000
| 199,457
|
5.5%, 12/15/2008 | 500,000
| 554,989
|
Travelers Property Casualty Corp., 3.75%, 3/15/2008
| 100,000
| 102,302
|
US Bancorp, 2.75%, 3/30/2006
| 100,000
| 102,282
|
US Bank National Association:
|
|
|
6.3%, 2/4/2014 | 100,000
| 114,060
|
6.375%, 8/1/2011 | 200,000
| 229,594
|
Verizon Global Funding Corp., 7.25%, 12/1/2010
| 100,000
| 117,828
|
Wachovia Bank NA, 4.85%, 7/30/2007
| 100,000
| 107,385
|
Wachovia Corp., 7.55%, 8/18/2005
| 500,000
| 540,818
|
Washington Mutual Finance Corp., 6.875%, 5/15/2011
| 200,000
| 235,741
|
Washington Mutual, Inc., 2.4%, 11/3/2005
| 150,000
| 151,216
|
Wells Fargo & Co.:
|
|
|
5.125%, 2/15/2007 | 350,000
| 376,376
|
5.125%, 9/1/2012 | 200,000
| 210,935
|
6.45%, 2/1/2011 | 100,000
| 114,999
|
7.25%, 8/24/2005 | 150,000
| 161,602
|
| 27,791,280 |
Health Care 0.6%
|
Abbott Laboratories, 3.75%, 3/15/2011
| 200,000
| 198,818
|
Aetna, Inc., 7.125%, 8/15/2006
| 50,000
| 55,721
|
Eli Lilly & Co., 2.9%, 3/15/2008
| 450,000
| 454,285
|
Johnson & Johnson, 3.8%, 5/15/2013
| 95,000
| 93,060
|
Pfizer, Inc., 4.5%, 2/15/2014
| 250,000
| 253,565
|
UnitedHealth Group, Inc., 5.2%, 1/17/2007
| 100,000
| 107,410
|
Wyeth, 5.25%, 3/15/2013
| 200,000
| 209,929
|
| 1,372,788 |
Industrials 0.6%
|
Caterpillar, Inc., 7.25%, 9/15/2009
| 100,000
| 118,741
|
Emerson Electric Co., 4.5%, 5/1/2013
| 250,000
| 252,405
|
General Dynamics Corp., 2.125%, 5/15/2006
| 250,000
| 250,582
|
Honeywell, Inc., 7.0%, 3/15/2007
| 100,000
| 112,843
|
Rockwell Automation, Inc., 6.15%, 1/15/2008
| 250,000
| 279,603
|
United Technologies Corp., 7.0%, 9/15/2006
| 200,000
| 222,076
|
| 1,236,250 |
Information Technology 0.3%
|
Computer Sciences Corp., 7.375%, 6/15/2011
| 100,000
| 119,659
|
First Data Corp., 4.7%, 8/1/2013
| 50,000
| 51,133
|
Hewlett-Packard Co., 3.625%, 3/15/2008
| 100,000
| 102,211
|
IBM Corp., 5.375%, 2/1/2009
| 300,000
| 328,929
|
Scana Corp., 6.25%, 2/1/2012
| 100,000
| 112,373
|
| 714,305 |
Materials 0.7%
|
Alcoa, Inc., 6.0%, 1/15/2012
| 655,000
| 716,435
|
E.I. du Pont de Nemours, 6.875%, 10/15/2009
| 300,000
| 353,199
|
Praxair, Inc., 3.95%, 6/1/2013
| 100,000
| 96,707
|
Weyerhaeuser Co., 7.25%, 7/1/2013
| 250,000
| 291,489
|
| 1,457,830 |
Telecommunication Services 1.6%
|
BellSouth Corp., 6.0%, 10/15/2011
| 100,000
| 110,907
|
Cingular Wireless:
|
|
|
5.625%, 12/15/2006
| 200,000
| 215,891
|
6.5%, 12/15/2011
| 150,000
| 168,159
|
GTE North, Inc., 5.65%, 11/15/2008
| 500,000
| 545,858
|
GTE Southwest, Inc., 6.23%, 1/1/2007
| 1,000,000
| 1,092,752
|
SBC Communications, Inc., 6.25%, 3/15/2011
| 1,200,000
| 1,233,240
|
Verizon New York, Inc., Series A, 6.875%, 4/1/2012
| 60,000
| 68,270
|
Verizon Wireless, Inc., 5.375%, 12/15/2006
| 200,000
| 215,417
|
| 3,650,494 |
Utilities 1.1%
|
Consolidated Edison Co. of New York, Inc., 3.85%, 6/15/2013
| 100,000
| 96,173
|
Consolidated Natural Gas Corp., 6.625%, 12/1/2008
| 400,000
| 452,129
|
KeySpan Corp., 7.25%, 11/15/2005
| 200,000
| 217,388
|
National Rural Utilities Co.:
|
|
|
3.0%, 2/15/2006 | 500,000
| 508,806
|
6.0%, 5/15/2006 | 100,000
| 108,088
|
PacifiCorp., 5.45%, 9/15/2013
| 50,000
| 53,483
|
Southern California Gas Co., 4.375%, 1/15/2011
| 100,000
| 103,717
|
Virginia Electric & Power, Series A, 5.375%, 2/1/2007
| 100,000
| 107,659
|
Wisconsin Energy Corp., 6.5%, 4/1/2011
| 150,000
| 170,038
|
Wisconsin Power & Light Co., 7.0%, 6/15/2007
| 570,000
| 641,781
|
| 2,459,262 |
Total Corporate Bonds (Cost $43,660,107)
| 46,172,813 |
|
Asset Backed 15.8% |
Automobile Receivables 5.6%
|
Capital Auto Receivables Asset Trust, "CTFS", Series 2002-2, 4.18%, 10/15/2007
| 267,917
| 273,306
|
Capital One Prime Auto Receivable Trust, "A4", Series 2003-B, 3.18%, 9/15/2010
| 420,000
| 428,326
|
Chase Manhattan Auto Owner Trust:
|
|
|
"A4", Series 2003-A, 2.06%, 12/15/2009 | 1,600,000
| 1,592,305
|
"A4", Series 2003-B, 2.57%, 2/16/2010 | 1,000,000
| 1,006,672
|
Daimler Chrysler Auto Trust, "A4", Series 2002-C, 3.09%, 1/8/2008
| 1,200,000
| 1,227,994
|
Ford Credit Auto Owner Trust:
|
|
|
"B", Series 2002-C, 4.22%, 12/15/2006 | 320,000
| 330,641
|
"A4", Series 2002-B, 4.75%, 8/15/2006 | 1,000,000
| 1,038,039
|
"B", Series 2001-D, 5.01%, 3/15/2006 | 740,000
| 753,793
|
Household Automotive Trust, "A4", Series 2003-1, 2.22%, 11/17/2009
| 1,500,000
| 1,498,694
|
MMCA Automobile Trust, "B", Series 2001-2, 5.75%, 6/15/2007
| 75,300
| 76,387
|
Superior Wholesale Inventory Financing, "A1", Series 1999-A, 1.225%, 5/15/2006
| 2,000,000
| 2,000,625
|
WFS Financial Owner Trust:
|
|
|
"A4", Series 2003-2, 2.41%, 12/20/2010 | 1,800,000
| 1,806,831
|
"A4", Series 2003-1, 2.74%, 9/20/2010 | 500,000
| 505,205
|
| 12,538,818 |
Credit Card Receivables 4.4%
|
Chase USA Master Trust, "A", Series 2000-1, 7.49%, 8/17/2009
| 110,000
| 111,474
|
Chemical Master Credit Card Trust, "A", Series 1996-3, 7.09%, 2/15/2009
| 300,000
| 332,306
|
Citibank Credit Card Master Trust I:
|
|
|
"A", Series 1999-2, 5.875%, 3/10/2011 | 2,500,000
| 2,799,941
|
"A", Series 1999-5, 6.1%, 5/15/2008 | 1,650,000
| 1,796,420
|
Citibank OMNI-S Master Trust, "A", Series 1999-1, 5.65%, 3/17/2009
| 250,000
| 255,243
|
Discover Card Master Trust, "A", Series 2000-9, 6.35%, 7/15/2008
| 1,350,000
| 1,459,607
|
Fleet Credit Card Master Trust II, "A", Series 1999-C, 6.9%, 4/16/2007
| 250,000
| 257,112
|
MBNA Credit Card Master Note Trust, "B1", Series 2002-B1, 5.15%, 7/15/2009
| 1,190,000
| 1,273,147
|
MBNA Master Credit Card Trust, "A", Series 2000-E, 7.8%, 10/15/2012
| 500,000
| 614,868
|
MBNA Master Credit Card Trust USA, "A", Series 1999-B, 5.9% , 8/15/2011
| 850,000
| 953,653
|
| 9,853,771 |
Home Equity Loans 2.4%
|
Bank One Issuance Trust, "A4", Series 2002-A4, 2.94%, 6/16/2008
| 1,000,000
| 1,019,858
|
Centex Home Equity, "AF6", Series 2004-B, 4.186%, 3/25/2034
| 440,000
| 445,135
|
Chase Funding Mortgage Loan:
|
|
|
"1A6", Series 2004-1, 4.266%, 6/25/2015 | 220,000
| 218,457
|
"1A6", Series 2003-5, 4.597%, 1/25/2015 | 470,000
| 475,089
|
"1A6", Series 1999-4, 7.407%, 9/25/2011 | 224,080
| 238,655
|
Residential Asset Mortgage Products, Inc., "AI2", Series 2004-RZ1, 2.34%, 7/25/2027
| 1,310,000
| 1,307,339
|
Residential Asset Securities Corp., "AI6", Series 2004-KS2, 4.3%, 3/25/2034
| 290,000
| 293,934
|
Residential Funding Mortgage Securities, "A2", Series 2004-HI1, 2.49%, 7/25/2013
| 1,320,000
| 1,322,610
|
| 5,321,077 |
Manufactured Housing Receivables 1.3%
|
Green Tree Financial Corp., "A6", Series 1997-5, 6.82%, 5/15/2029
| 2,730,990
| 2,916,450 |
Miscellaneous 2.1%
|
Conseco Recreational Enthusiast Consumer Trust, "A3", Series 2001-A, 4.6%, 6/15/2012
| 1,183,872
| 1,201,356
|
Illinois Power Special Purpose Trust, "A6", Series 1998-1, 5.54%, 6/25/2009
| 400,000
| 430,934
|
PECO Energy Transition Trust, "A7", Series 1999-A, 6.13%, 3/1/2009
| 1,200,000
| 1,345,142
|
PSE&G Transition Funding LLC, "A5", Series 2001-1, 6.45%, 3/15/2013
| 700,000
| 810,779
|
West Penn Funding LLC, "A4", Series 1999-A, 6.98%, 12/26/2008
| 750,000
| 856,864
|
| 4,645,075 |
Total Asset Backed (Cost $33,575,177)
| 35,275,191 |
|
Foreign Bonds - US$ Denominated 5.2% |
Abbey National PLC, 6.69%, 10/17/2005
| 200,000
| 215,150
|
Aegon NV, 4.75%, 6/1/2013
| 100,000
| 101,641
|
African Development Bank, 3.25%, 8/1/2008
| 50,000
| 50,540
|
Barclays Bank PLC, 7.4%, 12/15/2009
| 140,000
| 168,145
|
BHP Billiton Finance BV, 4.8%, 4/15/2013
| 200,000
| 206,735
|
BP Capital Markets PLC, 2.75%, 12/29/2006
| 250,000
| 254,683
|
British Telecommunications PLC, 7.875%, 12/15/2005
| 300,000
| 328,889
|
Canadian Government, 5.25%, 11/5/2008
| 1,000,000
| 1,104,176
|
Diageo Finance BV:
|
|
|
3.0%, 12/15/2006 | 200,000
| 203,642
|
3.875%, 4/1/2011 | 100,000
| 99,543
|
European Investment Bank, 4.625%, 3/1/2007
| 750,000
| 804,123
|
France Telecom, 7.2%, 3/1/2006
| 100,000
| 110,510
|
HSBC Holding PLC, 7.5%, 7/15/2009
| 200,000
| 238,251
|
Inter-American Development Bank:
|
|
|
5.375%, 11/18/2008 | 750,000
| 830,819
|
6.125%, 3/8/2006 | 1,000,000
| 1,083,654
|
6.375%, 10/22/2007 | 100,000
| 113,217
|
6.5%, 10/20/2004 | 150,000
| 154,363
|
KFW Group, 3.375%, 1/23/2008
| 200,000
| 205,928
|
National Westminster Bank, 7.375%, 10/1/2009
| 200,000
| 239,484
|
Nippon Telegraph & Telephone Corp., 6.0%, 3/25/2008
| 150,000
| 166,844
|
Province of British Columbia, 4.3%, 5/30/2013
| 100,000
| 102,053
|
Province of Nova Scotia, 5.75%, 2/27/2012
| 100,000
| 111,965
|
Province of Ontario, 6.0%, 2/21/2006
| 1,150,000
| 1,236,720
|
Province of Quebec:
|
|
|
5.75%, 2/15/2009 | 150,000
| 167,294
|
6.125%, 1/22/2011 | 100,000
| 114,508
|
7.0%, 1/30/2007 | 500,000
| 563,865
|
Repsol International Finance, 7.45%, 7/15/2005
| 325,000
| 347,307
|
Republic of Chile, 6.875%, 4/28/2009
| 75,000
| 86,198
|
Republic of Italy:
|
|
|
3.625%, 9/14/2007 | 900,000
| 931,525
|
4.375%, 6/15/2013 | 200,000
| 205,108
|
5.625%, 6/15/2012 | 200,000
| 222,963
|
Rio Tinto Financial (USA) Ltd., 2.625%, 9/30/2008
| 50,000
| 48,969
|
Santander Financial Issuances, 7.0%, 4/1/2006
| 150,000
| 164,520
|
Telefonica Europe BV, 7.35%, 9/15/2005
| 35,000
| 37,767
|
The International Bank for Reconstruction & Development, 3.625%, 5/21/2013
| 250,000
| 248,512
|
Vodafone Group PLC, 7.5%, 7/15/2006
| 200,000
| 223,272
|
Total Foreign Bonds - US$ Denominated (Cost $10,781,107)
| 11,492,883 |
|
|
US Government Agency Sponsored Pass-Thrus 19.5% |
Federal Home Loan Mortgage Corp.:
|
|
|
4.5% with various maturities from 6/1/2018 until 10/1/2018
| 2,813,300
| 2,853,305
|
5.0% with various maturities from 12/1/2017 until 12/1/2033 (d)
| 8,149,198
| 8,247,446
|
5.5% with various maturities from 11/1/2013 until 11/1/2033
| 4,787,720
| 4,915,310
|
6.0% with various maturities from 12/1/2008 until 12/1/2031 (d)
| 4,642,883
| 4,834,903
|
6.5% with various maturities from 3/1/2029 until 8/1/2032
| 961,782
| 1,011,417
|
7.0% with various maturities from 9/1/2025 until 8/1/2032
| 597,942
| 634,173
|
7.5% with various maturities from 6/1/2027 until 10/1/2027
| 13,049
| 14,064
|
Federal National Mortgage Association:
|
|
|
4.5% with various maturities from 10/1/2018 until 10/1/2033
| 2,557,388
| 2,567,879
|
5.0% with various maturities from 6/1/2018 until 10/1/2033
| 2,804,108
| 2,839,715
|
5.5% with various maturities from 3/1/2018 until 11/1/2033
| 6,453,217
| 6,636,126
|
6.0% with various maturities from 2/1/2017 until 8/1/2033 (e)
| 2,257,443
| 2,359,756
|
6.5% with various maturities from 5/1/2005 until 6/1/2033
| 4,259,592
| 4,478,940
|
7.0% with various maturities from 9/1/2012 until 9/1/2032
| 781,572
| 831,169
|
7.25%, 1/15/2010
| 170,000
| 204,377
|
8.0% with various maturities from 5/1/2017 until 12/1/2023
| 765,458
| 838,811
|
8.5% with various maturities from 1/1/2020 until 8/1/2031
| 221,271
| 239,367
|
Total US Government Agency Sponsored Pass-Thrus (Cost $42,551,568)
| 43,506,758 |
|
Collateralized Mortgage Obligations 9.1% |
Bear Stearns Commercial Mortgage Securities, "A2", Series 2003-T10, 4.74%, 3/13/2040
| 1,300,000
| 1,341,672
|
Capco America Securitization Corp., "A1B", Series 1998-D7, 6.26%, 10/15/2030
| 1,000,000
| 1,126,010
|
Chase Commercial Mortgage Securities Corp., "A2", Series 1997-2, 6.6%, 12/19/2029
| 1,460,179
| 1,595,856
|
Commercial Mortgage Asset Trust:
|
|
|
"A1", Series 1999-C1, 6.25%, 1/17/2032 | 1,372,193
| 1,452,058
|
"A2", Series 1999-C2, 7.546%*, 11/17/2032 | 1,300,000
| 1,541,396
|
DLJ Commercial Mortgage Corp., "A1B", Series 1998-CG1, 6.41%, 6/10/2031
| 1,000,000
| 1,124,459
|
Federal Home Loan Mortgage Corp., "PL", Series 2693, 4.0%, 8/15/2009
| 1,930,000
| 1,979,274
|
First Union - Lehman Brothers Commercial Mortgage, "A3", Series 1997-C2, 6.65%, 11/18/2029
| 3,600,000
| 4,002,917
|
First Union - Lehman Brothers - Bank of America, "A2", Series 1998-C2, 6.56%, 11/18/2035
| 1,020,000
| 1,151,978
|
GS Mortgage Securities Corp. II, "A2", Series 1999-C1, 6.11%, 11/18/2030
| 1,300,000
| 1,445,747
|
JP Morgan Commercial Mortgage Finance Corp., "A3", Series 1997-C5, 7.088%, 9/15/2029
| 167,990
| 186,944
|
LB-UBS Commercial Mortgage Trust, "A4", Series 2001-C2, 4.367%, 3/1/2036
| 1,500,000
| 1,507,409
|
Morgan Stanley Dean Witter Capital I, "A2", Series 2002-TOP7, 5.98%, 1/15/2039
| 650,000
| 727,907
|
Nomura Asset Securities Corp., "A1B", Series 1998-D6, 6.59%, 3/15/2030
| 1,000,000
| 1,134,531
|
Total Collateralized Mortgage Obligations (Cost $19,857,082)
| 20,318,158 |
|
US Government Sponsored Agencies 1.9% |
Federal Home Loan Mortgage Corp.:
|
|
|
1.875%, 2/15/2006 | 3,100,000
| 3,110,686
|
4.5%, 1/15/2013 | 1,220,000
| 1,253,562
|
Total US Government Sponsored Agencies (Cost $4,292,893)
| 4,364,248 |
|
Government National Mortgage Association 4.0% |
Government National Mortgage Association:
|
|
|
5.0% with various maturities from 2/20/2033 until 11/15/2033 | 2,231,062
| 2,249,528
|
5.5% with various maturities from 7/20/2032 until 1/20/2034 | 2,351,606
| 2,419,119
|
6.0% with various maturities from 7/15/2029 until 5/20/2033 | 975,624
| 1,018,853
|
6.5% with various maturities from 7/15/2016 until 10/15/2032 | 1,227,762
| 1,306,522
|
7.0% with various maturities from 3/15/2023 until 9/15/2032 | 787,252
| 838,573
|
8.0% with various maturities from 5/15/2022 until 4/15/2033 | 875,078
| 957,877
|
8.5% with various maturities from 2/15/2023 until 8/15/2028 | 137,233
| 151,906
|
9.0%, 11/15/2020 | 60,359
| 67,723
|
Total Government National Mortgage Association (Cost $8,847,739)
| 9,010,101 |
|
US Government Backed 5.0% |
US Treasury Bills, 0.89%*, 4/29/2004 (f)
| 160,000
| 159,888
|
US Treasury Bond, 5.0%, 2/15/2011
| 1,900,000
| 2,097,422
|
US Treasury Note:
|
|
|
1.5%, 7/31/2005 | 1,060,000
| 1,063,478
|
1.625%, 2/28/2006 | 1,740,000
| 1,742,718
|
1.875%, 9/30/2004 | 900,000
| 903,832
|
1.875%, 1/31/2006 | 3,310,000
| 3,331,981
|
2.0%, 8/31/2005 | 606,000
| 612,013
|
2.375%, 8/15/2006 | 1,250,000
| 1,268,409
|
Total US Government Backed (Cost $11,147,797)
| 11,179,741 |
|
Shares
| Value ($) |
|
|
Cash Equivalents 26.8% |
Scudder Cash Management QP Trust, 1.10% (b)
(Cost $59,678,606)
| 59,678,606
| 59,678,606 |
| % of
Net Assets | Value ($) |
|
|
Total Investment Portfolio (Cost $234,392,076) (a)
| 108.0
| 240,998,499 |
|
Wrapper Agreements(c) |
Bank of America NA (Book Value $ 72,580,242; crediting rate 4.71%)
| | (3,234,102)
|
National Westminister Bank PLC (Book Value $ 42,820,544; crediting rate 4.63%) (g)
| | (2,288,787)
|
Transamerica Life Insurance & Annuity Co. (Book Value $71,414,913; crediting rate 4.62%)
| | (2,986,829)
|
Total Wrapper Agreements
| (3.8) | (8,509,718) |
Other Assets and Liabilities, Net
| (4.2) | (9,324,840) |
Net Assets
| 100.0 | 223,163,941 |
* Annualized yield at time of purchase; not a coupon rate.(a) The cost for federal income tax purposes was $234,478,504. At March 31, 2004, net unrealized appreciation for all securities based on tax cost was $6,519,995. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $6,746,134 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $226,139.(b) Scudder Cash Management QP Trust, an affiliated fund, is managed by Deutsche Investment Management Americas, Inc. The rate shown is the annualized seven-day yield at period end.(c) Each Wrapper Agreement obligates the wrapper provider to maintain the Book Value of the portion of the Portfolio's assets up to a specified maximum dollar amount, upon the occurrence of certain specified events. The crediting rate shown is as of March 31, 2004.(d) When issued or forward delivery pools included (see Notes to Financial Statements).(e) Mortgage dollar rolls included.(f) At March 31, 2004, this security has been pledged to cover, in whole or in part, initial margin requirements for open futures contracts.(g) Fixed-maturity wrapper agreement. The Portfolio might not be able to obtain a replacement Wrapper Agreement by the maturity date (3/31/2006), which might adversely affect the yield and return of the Portfolio.144A: Security exempt from registration under 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Government National Mortgage Association issues which have similar coupon rates have been aggregated for presentation purposes in the investment portfolio.
At March 31, 2004, open futures contracts purchased were as follows:Futures | Expiration | Contracts | Aggregate Face Value ($) | Market Value ($) | Unrealized Appreciation (Depreciation) ($) |
US Treasury 5 Year Note
| 6/21/2004 | 16 | 1,788,822 | 1,817,000 | 28,178 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of March 31, 2004 (Unaudited) |
Assets
|
Investments:
Investments in securities, at value (cost $174,713,470)
| $ 181,319,893 |
Investment in Scudder Cash Management QP Trust (cost $59,678,606)
| 59,678,606 |
Total investments in securities, at value (cost $234,392,076)
| 240,998,499 |
Cash
| 28,438 |
Receivable for investments sold
| 120,957 |
Interest receivable
| 1,279,748 |
Receivable for daily variation margin on open futures contracts
| 6,368 |
Due from Advisor
| 146,781 |
Total assets
| 242,580,791 |
Liabilities
|
Payable for investments purchased
| 1,611,306 |
Payable for when-issued and forward delivery securities
| 9,067,875 |
Payable for investments purchased - mortgage dollar rolls
| 104,077 |
Wrapper agreements
| 8,509,718 |
Other accrued expenses and payables
| 123,874 |
Total liabilities
| 19,416,850 |
Net assets, at value
| $ 223,163,941 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended March 31, 2004 (Unaudited) |
Investment Income
|
Interest
| $ 3,878,764 |
Credit rate income
| 366,510 |
Mortgage dollar roll income
| 2,477 |
Dividends from affiliated investment companies
| 162,336 |
Total income
| 4,410,087 |
Expenses:
Advisory fee
| 352,733 |
Wrapper fees
| 125,650 |
Administrator service fee
| 50,260 |
Auditing
| 19,894 |
Legal
| 30,391 |
Trustees' fees and expenses
| 6,042 |
Other
| 4,142 |
Total expenses, before expense reductions
| 589,112 |
Expense reductions
| (237,284) |
Total expenses, after expense reductions
| 351,828 |
Net investment income
| 4,058,259 |
Realized and Unrealized Gain (Loss) on Investment Transactions
|
Net realized gain (loss) from:
Investments
| 532,082 |
Futures
| (317,395) |
| 214,687 |
Net unrealized appreciation (depreciation) during the period on:
Investments
| 5,767 |
Futures
| 28,178 |
Wrapper agreements
| (251,109) |
| (217,164) |
Net gain (loss) on investment transactions
| (2,477) |
Net increase (decrease) in net assets resulting from operations
| $ 4,055,782 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets
| Six Months Ended March 31, 2004 (Unaudited) | Year Ended September 30, 2003 |
Operations:
Net investment income
| $ 4,058,259 | $ 8,341,135 |
Net realized gain (loss) on investment transactions
| 214,687 | 940,056 |
Net unrealized appreciation (depreciation) on investments and futures during the period
| 33,945 | (1,847,948) |
Net unrealized appreciation (depreciation) on wrapper agreements during the period
| (251,109) | 613,087 |
Net increase (decrease) in net assets resulting from operations
| 4,055,782 | 8,046,330 |
Capital transactions in shares of beneficial interest:
Proceeds from capital invested
| 50,006,477 | 73,233,313 |
Value of capital withdrawn
| (19,073,831) | (130,733,865) |
Net increase (decrease) in net assets from capital transactions in shares of beneficial interest
| 30,932,646 | (57,500,552) |
Increase (decrease) in net assets
| 34,988,428 | (49,454,222) |
Net assets at beginning of period
| 188,175,513 | 237,629,735 |
Net assets at end of period
| $ 223,163,941 | $ 188,175,513 |
The accompanying notes are an integral part of the financial statements.
Years Ended September 30, | 2004a | 2003 | 2002 | 2001 | 2000 | 1999 |
Ratios to Average Net Assets and Supplemental Data
|
Net assets, end of period ($ millions)
| 223 | 188 | 238 | 286 | 309 | 341 |
Ratio of expenses before expense reductions (%)
| .59* | .57 | .54 | .54 | .49 | .50 |
Ratio of expenses after expense reductions (%)
| .35* | .35 | .35 | .35 | .35 | .35 |
Ratio of net investment income (%)
| 4.03* | 5.43 | 5.34 | 5.65 | 5.79 | 5.57 |
Portfolio turnover rate (%)
| 101b* | 304 | 233 | 249 | 237 | 291 |
Total Investment Return (%)c,d
| 2.06**
| 5.45
| 5.50 | 5.82 | 5.96 | 5.71 |
a For the six months ended March 31, 2004 (Unaudited).
b The portfolio turnover rate including mortgage dollar roll transactions was 127% for the period ended March 31, 2004.
c Total investment return would have been lower had certain expenses not been reduced.
d Total investment return for the Portfolio was derived from the performance of Institutional Class shares of PreservationPlus Fund.
* Annualized
** Not Annualized
|
Notes to Financial Statements (Unaudited) |
|
A. Significant Accounting Policies
PreservationPlus Portfolio ("PreservationPlus Portfolio" or the "Portfolio") is a diversified series of Scudder Investment Portfolios (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 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. Debt securities are valued by independent pricing services approved by the Trustees of the Portfolio. If the pricing services are unable to provide valuations, securities are valued at the most recent bid quotation or evaluated price, as applicable, obtained from one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
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 open-end investment companies and Scudder Cash Management QP Trust 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 Trustees.
Wrapper Agreements generally will be equal to the difference between the Book Value of the Wrapper Agreements and Market Value (plus accrued interest on the underlying securities) of the covered assets and will either be reflected as an asset or a liability of the Portfolio. The Portfolio's Board of Trustees, in performing its fair value determination of the Portfolio's Wrapper Agreements, considers the creditworthiness and the ability of Wrapper Providers to pay amounts due under the Wrapper Agreements.
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.
When-Issued/Delayed Delivery Securities. The Portfolio may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Portfolio enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Portfolio until payment takes place. At the time the Portfolio enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
Mortgage Dollar Rolls. The Portfolio may enter into mortgage dollar rolls in which the Portfolio sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities on a fixed date. The Portfolio receives compensation as consideration for entering into the commitment to repurchase. The compensation is paid in the form of a lower price for the security upon its repurchase or, alternatively, a fee. Mortgage dollar rolls may be renewed with a new sale and repurchase price and a cash settlement made at each renewal without physical delivery of the securities subject to the contract.
Certain risks may arise upon entering into mortgage dollar rolls from the potential inability of counterparties to meet the terms of their commitments. Additionally, the value of such securities may change adversely before the Portfolio is able to repurchase them.
Federal Income Taxes. The Portfolio is considered a partnership under the Internal Revenue Code. Therefore, no federal income tax provision is required.
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. Realized gains and losses from investment transactions are recorded on an identified cost basis. The credit rate income is accrued daily and represents the difference between actual interest earned on covered assets under the Portfolio's Wrapper Agreements and the product of the Book Value of the Wrapper Agreements multiplied by the credit rate as determined pursuant to the Wrapper Agreements.
The Portfolio makes a daily allocation of its net investment income and realized and unrealized gains and losses (including Wrapper Agreements) from securities to its investors in proportion to their investment in the Portfolio.
B. Purchases and Sales of Securities
During the six months ended March 31, 2004, purchases and sales of investment securities (excluding short-term instruments, US Treasury obligations and mortgage dollar roll transactions) aggregated $70,350,722 and $58,564,700, respectively. Purchases and sales of US Treasury obligations aggregated $25,326,854 and $30,418,400, respectively. Purchases and sales of mortgage dollar roll transactions aggregated $22,763,697 and $22,711,829, 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 Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Portfolio. The advisory fee payable under the Investment Advisory Agreement is equal to an annual rate of 0.35% of the Portfolio's average daily net assets, computed and accrued daily and payable monthly. This fee is not charged on assets invested in Cash Management Fund Institutional.
For the six months ended March 31, 2004, the Advisor and Administrator maintained the annualized expenses of the Portfolio at not more than 0.35% of the Portfolio's average daily net assets. The amount of the waiver and whether the Advisor and Administrator waive their fees may vary at any time without notice to the shareholders.
Accordingly, for the six months ended March 31, 2004, the Advisor did not impose a portion of its advisory fee pursuant to the Investment Advisory Agreement aggregating $237,284 and the amount imposed aggregated $115,449, which was equivalent to an annual effective rate of 0.11% of the Portfolio's average net assets.
Administrator Service Fee. ICCC serves as Administrator and receives a fee (the "Administrator Service Fee") of 0.05% of the Portfolio's average daily net assets, computed and accrued daily and payable monthly. For the six months ended March 31, 2004, the Administrator Service Fee was $50,260, of which $17,743 is unpaid at March 31, 2004.
Other. The Portfolio may invest in Cash Management Fund Institutional, an open-end management investment company managed by DeAM, Inc. Distributions from Cash Management Fund Institutional to the Portfolio for the six months ended March 31, 2004 totaled $63,035.
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.
Scudder Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Scudder Cash Management QP Trust (the "QP Trust'') and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management fee for the affiliated funds' investments in the QP Trust. Distributions from Scudder Cash Management QP Trust to the Portfolio for the six months ended March 31, 2004 totaled $99,301.
D. 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 are charged an annual commitment fee which is 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.
E. Wrapper Agreements
The Portfolio enters into Wrapper Agreements with insurance companies, banks or other financial institutions that are designed to protect the Portfolio from investment losses and, under most circumstances, permit the Fund to maintain a constant NAV per share. Since there is no market for Wrapper Agreements they are considered illiquid.
A Wrapper Agreement obligates the wrapper provider to maintain the "Book Value" of the securities covered by the Wrapper Agreement (the "covered assets") up to specified amounts, under certain circumstances. Book Value of the covered assets is generally deposits, plus interest accrued at a crediting rate established under the Wrapper Agreement, less any adjustments for withdrawals or for defaulted or impaired securities (as specified in the Wrapper Agreement). In general, if the Book Value of the Wrapper Agreement exceeds the market value of the covered assets (including accrued interest), the wrapper provider becomes obligated to pay the difference to the Portfolio in the event of shareholder redemptions. On the other hand, if the Book Value of the Wrapper Agreement is less than the market value of the covered assets (including accrued interest), the Portfolio becomes obligated to pay the difference to the wrapper provider in the event of shareholder redemptions. The circumstances under which payments are made and the timing of payments between the Portfolio and the wrapper providers may vary based on the terms of the Wrapper Agreements. At March 31, 2004, the Portfolio's Wrapper Agreements generally require that payments to or from the wrapper provider do not arise until withdrawals exceed a specified percentage (ranging from 10% to 20%) of the covered assets, after which time payment covering the difference between Book Value and covered market value will occur. There were no such payments to or from the wrapper providers during the six months ended March 31, 2004.
A default by the issuer of a portfolio security or a Wrapper Provider on its obligations might result in a decrease in the value of the Portfolio assets. The Wrapper Agreements generally do not protect the Portfolio from loss if an issuer of Portfolio securities defaults on payments of interest or principal.
F. Wrapper Agreement Valuation
The staff of the Securities and Exchange Commission has inquired as to the valuation methodology for Wrapper Agreements utilized by "stable value" mutual funds including this Portfolio. In the event that the commissioners of the Securities and Exchange Commission determine that the valuation method currently utilized by "stable value" mutual funds is no longer an acceptable practice, and wrapper contracts should be valued based on their probable cash flows, the fair value of the Wrapper Agreements would be different. To the extent that the Wrapper Agreements are valued as a payable/receivable under the current method, the change would result in an increase/decrease in net assets. At March 31, 2004, the Wrapper Agreements had a fair value of $8,509,718, which the Portfolio reflected as a payable to the wrapper providers.
G. 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. We are unable to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisers. 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, Deutsche Asset Management ("DeAM") and its affiliates, certain individuals, including in some cases Fund Trustees/Directors, and other parties. DeAM has undertaken to bear all liabilities and expenses incurred by the Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding fund valuation, market timing, revenue sharing or other subjects of the pending inquiries. Based on currently available information, DeAM believes 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 its ability to perform under its investment management agreements with the Scudder funds.
Account Management Resources |
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For shareholders of Investment and Institutional Classes
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.
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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.
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For More Information | (800) 621-1048 To speak with a Scudder service representative.
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Written Correspondence | Scudder Investments PO Box 219356
Kansas City, MO 64121-9356
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Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities can be found 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 without charge, call us toll free at (800) 621-1048.
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Principal Underwriter | If you have questions, comments or complaints, contact:
Scudder Distributors, Inc. 222 South Riverside Plaza
Chicago, IL 60606-5808
(800) 621-1148
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| Investment Class | Institutional Class |
Nasdaq Symbol | BTPSX
| BTPIX
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CUSIP Number | 81111Y 507
| 81111Y 408
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Fund Number | 823
| 555
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This privacy statement is issued by Deutsche Investment Management Americas Inc., Deutsche Asset Management, Inc., Scudder Distributors, Inc., Scudder Investor Services, Inc., Scudder Trust Company and the Scudder Funds.
We never sell customer lists or individual client information. We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our websites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third party service providers such as transfer agents, custodians, and broker-dealers to assist us in processing transactions and servicing your account with us. In addition, we may disclose all of the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. The organizations described above that receive client information may only use it for the purpose designated by the Scudder Companies listed above.
We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required or we may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.
Questions on this policy may be sent to:
Scudder Investments
Attention: Correspondence - Chicago
P.O. Box 219415
Kansas City, MO 64121-9415
August 2003
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
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.
Fund management has previously identified a significant deficiency relating to
the overall fund expense payment and accrual process. This matter relates
primarily to a bill payment processing issue. There was no material impact to
shareholders, fund net asset value, fund performance or the accuracy of any
fund's financial statements. Fund management discussed this matter with the
Registrant's Audit Committee and auditors, instituted additional procedures to
enhance its internal controls and will continue to develop additional controls
and redesign work flow to strengthen the overall control environment associated
with the processing and recording of fund expenses.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the filing period that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) 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 Preservation Plus Portfolio
By: /s/Richard T. Hale
---------------------------
Richard T. Hale
Chief Executive Officer
Date: May 28, 2004
---------------------------
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 Preservation Plus Portfolio
By: /s/Richard T. Hale
---------------------------
Richard T. Hale
Chief Executive Officer
Date: May 28, 2004
---------------------------
By: /s/Charles A. Rizzo
---------------------------
Charles A. Rizzo
Chief Financial Officer
Date: May 28, 2004
---------------------------
