SCUDDER
INVESTMENTS(SM)
[LOGO]
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Money Market
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Scudder U.S. Treasury
Money Fund
Fund #059
Annual Report
May 31, 2000
The fund seeks current income consistent with safety, liquidity, and stability
of capital.
A no-load fund with no commissions to buy, sell, or exchange
shares.
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Contents
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4 Letter from the Fund's President
6 Portfolio Management Discussion
12 Glossary of Investment Terms
13 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
21 Report of Independent Accountants
22 Tax Information
23 Officers and Trustees
24 Investment Products and Services
26 Scudder Solutions
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Scudder U.S. Treasury Money Fund
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ticker symbol SCGXX fund number 059
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Date of o Short-term interest rates continued to rise over the
Inception: 12-month period, directly benefiting money market
11/23/81 securities.
o Scudder U.S. Treasury Money Fund reflected the rate
increases as its 7-day average yield rose from 4.17% to
Total Net 5.43% over the 12 months.
Assets as of
5/31/00: o An opportunistic strategy and commitment to high
$365.4 million quality money market securities resulted in a total
return of 4.83% for the fund, essentially matching the
average return of 95 U.S. Treasury money market funds
for the 12-month period ended May 31, 2000.^1
o Management maintained a shorter average maturity than
its peers over most of the period, which provided
liquidity and the flexibility to reinvest in higher
yielding securities, especially toward the end of the
period.
^1 Source: Lipper Analytical Services, Inc., an independent analyst of
investment performance. Performance includes reinvestment of dividends and
is no guarantee of future results.
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Letter from the Fund's President
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Dear Shareholders,
Until March 10 the great bull market for "new economy" stocks seemed
unstoppable. However, rising interest rates eventually proved too much, as many
stocks with high valuations and little or no earnings experienced sharp
declines. While we believe the economy is being transformed by a technological
revolution, the now lower valuations have helped reduce the level of market
risk.
This kind of economic revolution combined with wide market swings can be
unnerving for investors. Yet, experience tells us that the best approach during
such periods is to take a step back and review one's long-term investment goals.
It is easy to get caught up in the quickly shifting winds, especially when it
has become only more convenient and economical to move from one investment to
the next. While adjusting your investment portfolio by adding new investments
and harvesting others should be a regular ritual, I encourage you to remain
focused on your original purposes for investing.
If you are investing for retirement in 20 years and are seeking long-term gains,
you should continue to invest in funds that will help you best achieve those
ends, such as domestic and international equity funds. If you are investing for
the short term (1-2 years) and don't want to risk your principal, you should not
be considering technology or other narrowly focused funds for a substantial
portion of your portfolio. Stick to your plan, stay focused, and avoid the
latest fad. Unless you plan to devote your full-time energies to investing every
day, we think you will be
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better served by taking a long-term approach that includes exposure to several
asset classes. This includes domestic and international stock, small-cap, fixed
income, and money market funds.
As a shareholder in Scudder U.S. Treasury Money Fund you already hold a key
element of a well-diversified portfolio. The fund's conservative, high quality,
and very liquid investments provide relative stability, high current income, and
a short-term parking place for a portion of your investment portfolio. With
short-term interest rates rising and inflation moderate, investors are seeing
some of the best real yields for money market funds in years. For a detailed
discussion of management's investment strategy and portfolio positioning, I
encourage you to read the Portfolio Management Discussion with Frank Rachwalski
and Christopher Proctor beginning on page 6.
For current information on the fund and your account, visit our Internet Web
site at www.scudder.com. There you'll find a wealth of information, including
the most recent performance, the latest news on Scudder products and services,
and the opportunity to perform account transactions. You can also speak with one
of our representatives by calling 1-800-SCUDDER (1-800-728-3337).
Thank you for your continued investment in Scudder U.S. Treasury Money Fund.
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President,
Scudder U.S. Treasury Money Fund
5
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Portfolio Management Discussion
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May 31, 2000
In the following interview, portfolio managers Frank J. Rachwalski, Jr. and
Christopher Proctor discuss the market environment and their approach to
managing the fund.
Q: The U.S. stock and bond markets winced with each increase in short-term
interest rates by the Federal Reserve. How did the rate increases affect money
market securities over the 12-month period?
A: Money market securities are directly impacted by changes in short-term rates,
especially the federal funds rate, an important benchmark that is widely watched
by fixed income investors. With the U.S. economy strong, unemployment near an
all time low, and consumer confidence high, concerns over an acceleration of the
inflation rate took center stage. Since the Federal Reserve ("the Fed") has the
responsibility to conduct the nation's monetary policy and maintain stability of
the financial system, it continued to raise the federal funds rate in response
to these trends (see Changes in the Federal Funds Rate below).
One thing that investors have witnessed over the past year is the surprising
resiliency of the U.S. economy. Despite raising rates six times and
one-and-three-quarters percentage points over the 12 months in attempts to slow
growth, the U.S. economy continued to expand at a rapid clip. In the first
quarter of this year gross domestic product
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Changes in the Federal Funds Rate
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Federal Funds New rate Change
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June 30, 1999 5.00% +0.25%
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August 24 5.25% +0.25%
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November 16 5.50% +0.25%
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February 2, 2000 5.75% +0.25%
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March 21 6.00% +0.25%
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May 16 6.50% +0.50%
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The federal funds rate is the interest rate charged by banks with excess
reserves at the Federal Reserve district bank to banks needing overnight loans
to meet reserve requirements. The federal funds rate is the most sensitive
indicator of the direction of interest rates, since it is set daily by the
market and represents a very short maturity -- an overnight loan.
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grew 5.5%. Reflecting signs that inflationary pressures have been building, the
consumer price index rose 3.1%, up significantly from the beginning of the
12-month period.
While we think the Fed is closer to achieving its objectives of slowing the
economy and controlling inflation, we believe another rate hike is likely. With
recent consumer confidence numbers suggesting that consumers are not afraid and
are continuing their buying spree, we think the Fed will have to pursue a policy
of raising interest rates for the near term. However, the Fed may take a
cautious approach to raising rates prior to the November elections.
Q: How did you manage the portfolio in this environment?
A: We pursued two strategies, reflecting the two distinct environments over the
12 months -- the period leading up to the end of 1999 and the year-to-date
period. Toward the end of 1999, we continued to focus on maintaining a
sufficient level of liquidity in the portfolio while taking advantage of what
the market was offering. Generally, this meant maintaining a shorter average
maturity than the fund's peers. This strategy was driven by our cautionary
approach to the Y2K changeover, which some had speculated might result in a
shift to short-term money market instruments at year-end. We maintained a higher
than normal level of liquidity in the portfolio in order to be prepared for
potentially high investor demand for cash. By maintaining a shorter maturity in
the rising rate environment, our existing holdings matured more quickly, which
enabled us to invest in higher yielding securities sooner than if we had
maintained a longer average maturity. A limitation of this strategy is that we
gave up a small amount of current yield by maintaining a shorter maturity.
As it turned out, the Fed pumped a great deal of money into the financial system
by allowing monetary reserves to grow rapidly in the fourth quarter of 1999.
Some speculated that this super-liquid market helped to fuel the
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strong stock market rally. We think that remaining very liquid (by maintaining a
relatively short maturity at year-end) was the right approach. If the fund's
portfolio had been invested in longer term securities and there had been a high
demand for cash by investors, it could have been costly to raise cash at that
time.
Q: How did the environment change at the beginning of 2000?
A: Y2K concerns essentially evaporated at the beginning of this year, as it
became clear that fears were overdone and the Fed would likely begin reducing
the excess market liquidity. We viewed this as an opportunity to pick up some
higher yielding paper by extending the portfolio's average maturity slightly.
However, the portfolio's maturity still remained shorter than its peers, given
our expectations that rates would continue to rise. At the end of the period,
the portfolio had an average maturity of 21 days, which compares to about 35
days for the average U.S. Treasury money market fund.
Q: How did the fund perform?
A: Reflecting the rising interest rate environment, the fund's yield rose.
Scudder U.S. Treasury Money Fund's
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Portfolio Maturity
(Average number of days)
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE SHOWING THE PORTFOLIO MATURITY
FROM 5/99 TO 5/00
5/99 47
6/99 32
7/99 43
8/99 39
9/99 21
10/99 38
11/99 40
12/99 35
1/00 31
2/00 26
3/00 14
4/00 19
5/00 21
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7-day yield increased from 4.17% to 5.43% over the 12 months, which translated
into compound effective yields of 4.26% and 5.57%, respectively. From a total
return standpoint, the fund's 4.83% one-year return essentially matched the
4.84% average total return for 95 U.S. Treasury money market funds as ranked by
Lipper Analytical Services, Inc.
Q: In what kinds of securities can the fund invest?
A: The fund invests exclusively in short-term securities unconditionally
guaranteed by the U.S. government (as to payment of principal and interest) and
repurchase agreements backed fully by U.S. Treasury securities. While an
investment in the fund itself is not insured by the FDIC or guaranteed, these
securities are considered to be among the safest available due to the government
guarantee and relatively short maturities.
From a tax standpoint the fund offers an important benefit: income earned from
direct obligations of the U.S. government (primarily U.S. Treasuries) is
typically exempt from state and local income taxes. Most, but not all, states
allow this tax-exempt character of the fund's income to pass through to
shareholders so that distributions from the fund (to the extent derived from
interest that is exempt from state and local income taxes) are exempt from such
taxes. For the 1999 calendar year, 24.08% of the fund's income was derived from
U.S. Treasury obligations. (Shareholders should consult their tax adviser for
additional information about the tax treatment of interest from U.S. government
securities.)
Q: The fund can invest in a variety of short-term securities. How did you
allocate the fund's assets?
A: In managing the portfolio, we focus on maintaining its average life (the
average maturity of the portfolio) within a target range given current interest
rate trends. As a result, we generally do not make big asset allocation shifts
within the fund's portfolio. We attempt to maintain exposure to a broad
selection of U.S. government guaranteed short-term
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securities, including U.S. Treasury obligations, U.S. government-backed
securities, and repurchase agreements.
We continued to emphasize repurchase agreements (commonly called "repos"), which
comprised 51% of assets. These very short-term loans (usually seven days or
less) are collateralized by U.S. government notes and provide a private sector
yield, or a yield that is comparable to non-government issued money market
securities. These securities tend to trade more cheaply than comparable Treasury
bills and often represent good value from our standpoint. Because repos are
collateralized by Treasuries and have relatively short maturities, these
securities tend to react quickly when interest rates change. Our holdings of
repos benefited the portfolio as rates rose over the period.
Q: What is your outlook for interest rates?
A: As we mentioned earlier, we think the Fed will raise rates at least one more
time before the November elections. Since we have recently begun to see signs
that the economy may be slowing in reaction to the higher rate environment, we
think the Fed may eventually be able to ease off its current policy of raising
short-term interest rates. Knowing when to stop raising rates is a tough job for
the Fed since the rate increases take time to work their way through the
economy. Typically it takes six months for the effects to begin showing up, so
the braking effects of this year's rate hikes on growth may be still yet to
come. In any case, we believe that this is a great environment for money market
fund investors because interest rates are rising and real yields (after
subtracting inflation) are still providing investors with very attractive
returns.
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Fund Yields
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7-day 7-day
average compounded
yield effective yield
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May 31, 1999 4.17% 4.26%
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May 31, 2000 5.43% 5.57%
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Scudder U.S. Treasury Money Fund:
A Team Approach to Investing
Scudder U.S. Treasury Money Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays an important
role in the fund's management process. Team members work together to develop
investment strategies and select securities for the fund's portfolio. They are
supported by the Adviser's large staff of economists, research analysts,
traders, and other investment specialists who work in offices across the United
States and abroad. The Adviser believes that a team approach benefits fund
investors by bringing together many disciplines and leveraging the firm's
extensive resources.
Lead portfolio manager Frank J. Rachwalski, Jr. joined the Adviser in 1973 as a
money market specialist within the fixed income group and assumed responsibility
for the fund's day-to-day management and overall investment strategies on
January 1, 1998. Mr. Rachwalski has been responsible for the trading and
portfolio management of money market funds since 1974.
Portfolio manager Christopher Proctor joined the Adviser in 1999 as a money
market manager. Mr. Proctor has ten years of investment industry experience.
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Glossary of Investment Terms
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Federal Open The committee that sets interest rate and credit policies
Market for the Federal Reserve System. The committee decides
Committee whether to increase or decrease interest rates through
(FOMC) open-market operations. The committee's actions are
closely watched and interpreted by economists and stock
and bond market analysts, who try to predict whether the
Fed is seeking to tighten credit to reduce inflation or to
loosen credit to stimulate the economy.
Gross Gross domestic product is a commonly referenced measure of
Domestic the health of the U.S. economy and refers to the market
Product (GDP) value of the goods and services produced by labor and
property in the United States. Economic growth that is
overly strong can lead to accelerating inflation;
weakening growth can lead to a recession.
Inflation An overall increase in prices usually measured by the
Consumer Price Index (CPI) and the Producer Price Index
(PPI). CPI is calculated by the U.S. Bureau of Labor
Statistics and measures the cost of a basket of goods and
services over time. The PPI is calculated by the U.S.
Department of Labor and measures the wholesale cost of
goods over a specified period.
Repurchase An agreement between a seller and a buyer, usually of U.S.
Agreements government securities, whereby the seller agrees to
("Repo") repurchase the securities at an agreed-upon price and,
usually, at a stated time.
Treasuries Negotiable debt obligations of the U.S. government secured
by its full faith and credit and issued at various
schedules and maturities. These include Treasury bills,
notes, and bonds. The income from Treasury securities is
exempt from state and local, but not federal taxes.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
Additional glossary terms are available at our Internet Web site--
www.scudder.com.
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Investment Portfolio as of May 31, 2000
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Principal
Amount ($) Value ($)
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Repurchase Agreements 51.0%
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Goldman Sachs Inc., 6.2%, to be repurchased
at $50,180,833 on 6/20/2000** .................. 50,000,000 50,000,000
Goldman Sachs Inc., 6.22%, to be repurchased
at $20,024,189 on 6/7/2000** ................... 20,000,000 20,000,000
Morgan Stanley Inc., 6.23%, to be repurchased
at $50,060,569 on 6/7/2000** ................... 50,000,000 50,000,000
Salomon Brothers Inc., 6.26%, to be repurchased
at $50,060,861 on 6/1/2000** ................... 50,000,000 50,000,000
State Street Bank and Trust Company, 6.37%, to be
repurchased at $13,944,467 on 6/1/2000** ....... 13,942,000 13,942,000
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Total Repurchase Agreements (Cost $183,942,000) 183,942,000
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U.S. Treasury Obligations 28.3%
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U.S. Treasury Bill, 6/1/2000 ...................... 40,000,000 40,000,000
U.S. Treasury Bill, 6/1/2000 ...................... 22,000,000 22,000,000
U.S. Treasury Note, 8/31/2000 ..................... 40,000,000 40,030,910
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Total U.S. Treasury Obligations (Cost $102,030,910) 102,030,910
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U.S. Government Backed Securities 20.7%
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Overseas Private Invest Corp.*, 6.2%, 4/2/2007 ----------
(Cost $74,500,000) ............................. 74,500,000 74,500,000
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Total Investment Portfolio -- 100.0% (Cost $360,472,910) (a) 360,472,910
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(a) The cost for federal income tax purposes was $360,472,910.
* Floating rate notes are securities whose yields vary with a designated
market index or market rate, such as the coupon-equivalent of the Treasury
bill rate. These securities are shown at their rate as of May 31, 2000.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
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Financial Statements
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Statement of Assets and Liabilities as of May 31, 2000
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Assets
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Investments in securities, at value (including repurchase
agreements of $183,942,000) (cost $360,472,910) ...... $360,472,910
Cash .................................................... 3,318
Interest receivable ..................................... 1,466,780
Receivable for Fund shares sold ......................... 6,776,092
Due from Adviser ........................................ 235,797
Other assets ............................................ 2,792
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Total assets ............................................ 368,957,689
Liabilities
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Dividends payable ....................................... 69,357
Payable for Fund shares redeemed ........................ 3,083,193
Accrued management fee .................................. 200,825
Accrued Trustees' fees and expenses ..................... 29,568
Other accrued expenses and payables ..................... 201,413
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Total liabilities ....................................... 3,584,356
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Net assets, at value .................................... $365,373,333
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Net Assets
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Net assets consist of:
Paid-in capital ......................................... 365,373,333
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Net assets, at value $365,373,333
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Net Asset Value
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NetAsset Value, offering and redemption price per share
($365,373,333 / 365,376,374 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) ................................ $ 1.00
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The accompanying notes are an integral part of the financial statements.
14
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Statement of Operations for the year ended May 31, 2000
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Investment Income
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Income:
Interest .......................................... $ 21,496,633
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Expenses:
Management fee .................................... 2,010,597
Services to shareholders .......................... 1,914,348
Custodian and accounting fees ..................... 81,114
Auditing .......................................... 35,953
Legal ............................................. 10,407
Trustees' fees and expenses ....................... 90,735
Reports to shareholders ........................... 44,891
Registration fees ................................. 27,993
Other ............................................. 17,855
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Total expenses, before expense reductions ......... 4,233,893
Expense reductions ................................ (1,600,945)
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Total expenses, after expense reductions .......... 2,632,948
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Net investment income 18,863,685
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Net increase (decrease) in net assets resulting
from operations $ 18,863,685
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The accompanying notes are an integral part of the financial statements.
15
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<TABLE>
<CAPTION>
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Statements of Changes in Net Assets
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Eleven Months
Increase (Decrease) in Net Year Ended Ended May 31, Year Ended
Assets May 31, 2000 1999 June 30, 1998
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Operations:
<S> <C> <C> <C>
Net investment income ........................................ $ 18,863,685 $ 16,657,996 $ 18,831,772
Net realized gain (loss) on
investment transactions ................................... -- 14,161 15,357
Net unrealized appreciation
(depreciation) on investment
transactions during the period ............................ -- (11,769) (15,067)
------------- ------------- -------------
Net increase (decrease) in net
assets resulting from
operations ................................................ 18,863,685 16,660,388 18,832,062
------------- ------------- -------------
Distributions to shareholders
from:
Net investment income ........................................ (18,863,685) (16,657,996) (18,831,772)
------------- ------------- -------------
Net realized gains ........................................... -- (14,161) (15,357)
------------- ------------- -------------
Fund share transactions at net asset value of $1.00 per share:
Proceeds from shares sold .................................... 663,431,753 712,989,234 865,115,721
Reinvestment of distributions ................................ 17,880,673 15,776,229 17,248,372
Cost of shares redeemed ...................................... (742,567,207) (690,653,783) (892,417,877)
------------- ------------- -------------
Net increase (decrease) in net
assets from Fund share
transactions .............................................. (61,254,781) 38,111,680 (10,053,784)
------------- ------------- -------------
Increase (decrease) in net assets ............................ (61,254,781) 38,099,911 (10,068,851)
Net assets at beginning of period ............................ 426,628,114 388,528,203 398,597,054
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Net assets at end of period .................................. $ 365,373,333 $ 426,628,114 $ 388,528,203
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
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<TABLE>
<CAPTION>
Financial Highlights
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The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
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2000(a) 1999(b) 1998(c) 1997(c) 1996(c) 1995(c)
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<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
---------------------------------------------------
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Income (loss) from investment operations:
Net investment income (loss) .047 .040 .047 .045 .048 .046
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Less distributions from:
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Net investment income and net
realized gains on investment
transactions (d) (.047) (.040) (.047) (.045) (.048) (.046)
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Net asset value, end of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
---------------------------------------------------
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Total Return (%) (e) 4.83 4.09** 4.83 4.58 4.91 4.70
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Ratios to Average Net Assets and Supplemental Data
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Net assets, end of period
($ millions) 365 427 389 399 396 383
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Ratio of expenses before expense
reductions (%) 1.06(f) 1.08* 1.00 .94 .92 .90
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Ratio of expenses after expense
reductions (%) .66(f) .65* .65 .65 .65 .65
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Ratio of net investment income
(loss) (%) 4.70 4.37* 4.72 4.49 4.80 4.61
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</TABLE>
(a) For the year ended May 31, 2000.
(b) For the eleven months ended May 31, 1999. On August 10, 1998, the Board of
Trustees of the Fund changed the fiscal year end of the Fund from June 30
to May 31.
(c) For the year ended June 30.
(d) Net realized capital gains were less than 6/10 of 1(cent)per share.
(e) Total returns would have been lower had certain expenses not been reduced.
(f) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were 1.04% and
.65%, respectively.
* Annualized
** Not annualized
17
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Notes to Financial Statements
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A. Significant Accounting Policies
Scudder U.S. Treasury Money Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified
management investment company organized as a Massachusetts business trust. On
August 10, 1998, the Board of Trustees of the Fund changed the fiscal year end
of the Fund from June 30 to May 31.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the use of
management estimates. The policies described below are followed consistently by
the Fund in the preparation of its financial statements.
Security Valuation. The Fund values portfolio securities utilizing the amortized
cost method permitted in accordance with Rule 2a-7 under the 1940 Act and
pursuant to which the Fund must adhere to certain conditions. Under this method,
which does not take into account unrealized gains or losses on securities, an
instrument is initially valued at its cost and thereafter assumes a constant
accretion/amortization to maturity of any discount/premium.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a daily dividend and is 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.
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Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis. All discounts and premiums are accreted/amortized for
both tax and financial reporting purposes.
B. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies
and restrictions. The Adviser determines the securities, instruments and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of 0.50% of its average
daily net assets computed and accrued daily and payable monthly. In addition,
the Adviser has agreed to maintain the annualized expenses of the Fund at not
more than 0.65% of average daily net assets until September 30, 2000. Certain
expenses incurred in connection with the reorganization are excluded from the
expense limitation. For the year ended May 31, 2000, the Adviser did not impose
a portion of its fee amounting to $1,560,485, and the portion imposed amounted
to $450,112.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended May 31, 2000, the amount charged to the Fund by SSC aggregated
$700,133, of which $56,366 is unpaid at May 31, 2000.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended May 31, 2000,
the amount charged to the Fund by STC aggregated $1,032,327, of which $82,803 is
unpaid at May 31, 2000.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended May
31, 2000, the amount charged to the Fund by SFAC aggregated $49,726, of which
$3,825 is unpaid at May 31, 2000.
19
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The Fund pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended May 31, 2000, Trustees' fees and expenses aggregated $37,110. In addition,
a one-time fee of $53,625 was accrued for payment to those Trustees not
affiliated with the Adviser who are not standing for re-election, under the
reorganization discussed in Note E. Inasmuch as the Adviser will also benefit
from administrative efficiencies of a consolidated Board, the Adviser has agreed
to bear $26,812 of such costs.
C. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the year ended May 31, 2000, the
Fund's custodian and transfer agent fees were reduced by $1,656 and $11,992,
respectively, under these arrangements.
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets, among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum of 33 percent of its net
assets under the agreement.
E. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds.
20
<PAGE>
Report of Independent Accountants
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To the Trustees and the Shareholders of Scudder U.S. Treasury Money Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder U.S. Treasury Money Fund
(the "Fund") at May 31, 2000, the results of its operations, the changes in its
net assets, and the financial highlights for the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at May 31, 2000 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
July 7, 2000
21
<PAGE>
Tax Information
--------------------------------------------------------------------------------
By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund.
Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your account, please call 1-800-SCUDDER.
22
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin* Ann M. McCreary*
o President and Trustee o Vice President
Henry P. Becton, Jr. Frank J. Rachwalski, Jr.*
o Trustee; President and General o Vice President
Manager, WGBH Educational
Foundation John Millette*
o Vice President and Secretary
Dawn-Marie Driscoll
o Trustee; Executive Fellow, Center John R. Hebble*
for Business Ethics, Bentley o Treasurer
College; President, Driscoll
Associates Caroline Pearson*
o Assistant Secretary
Peter B. Freeman
o Trustee; Corporate *Scudder Kemper Investments, Inc.
Director and Trustee
George M. Lovejoy, Jr.
o Trustee; President and Director,
Fifty Associates; Chairman
Emeritus, Meredith and Grew, Inc.
Wesley W. Marple, Jr.
o Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital
23
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
The Scudder Family of Funds+++
--------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund***
Prime Reserve Shares* Scudder Small Company Value Fund
Premium Shares* Scudder Micro Cap Fund
Managed Shares*
Scudder Tax Free Money Fund+ Growth
Scudder Classic Growth Fund***
Tax Free+ Scudder Large Company Growth Fund***
Scudder Limited Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Medium Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder 21st Century Growth Fund***
Scudder High Yield Tax Free Fund***
Scudder California Tax Free Fund** Global Equity
Scudder Massachusetts Limited Term Worldwide
Tax Free Fund** Scudder Global Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder Global Discovery Fund***
U.S. Income Scudder Emerging Markets Growth Fund
Scudder Short Term Bond Fund Scudder Gold Fund
Scudder GNMA Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.***
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Health Care Fund
Asset Allocation Scudder Technology Fund
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio Preferred Series
Scudder Pathway Growth Portfolio Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund***
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
</TABLE>
24
<PAGE>
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1-800-SCUDDER www.scudder.com
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Closed-End Funds#
-----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Class S Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder
Kemper Investment's insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder Kemper Investment's insurance agencies,
1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
25
<PAGE>
Scudder Solutions
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* Dollar cost averaging involves continuous investment in
securities regardless of price fluctuations and does not
assure a profit or protect against loss in declining
markets. Investors should consider their ability to
continue such a plan through periods of low price
levels.
Around-the- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
26
<PAGE>
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
27
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
Notes
--------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of [LOGO] Zurich Financial Services Group
