This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
72-6-85
MIS22S
Scudder
Short Term
Bond Fund
Semiannual Report
June 30, 1995
o Seeks to provide a high level of income consistent with a high degree of
principal stability.
o A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER SHORT TERM BOND FUND
--------------------------------------------------------------------------------
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
18 Financial Statements
21 Financial Highlights
22 Notes to Financial Statements
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
IN BRIEF
* Bonds rallied sharply and yields declined in the first half of 1995, as the
threat of inflationary economic growth dissipated. Scudder Short Term Bond
Fund returned 5.78% for the period.
* In view of the dramatic bond market rally, the Fund benefited from a longer
effective maturity of three years as of June 30, 1995. The longer maturity
relative to the start of the year provided greater potential for price
appreciation while capturing higher yields as interest rates dropped.
* In an effort to reduce potential price volatility, the Fund eliminated
investments outside of the United States, while continuing to emphasize
high-quality fixed-income securities.
* The Fund provided a 6.47% 30-day net annualized SEC yield on June 30, 1995,
significantly higher than the average 5.48% yield of taxable money market
funds as tracked by IBC/Donoghue.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
--------------------------------------------------------------------------------
Dear Shareholders,
We are pleased to report a 5.78% total return for the Scudder Short Term
Bond Fund in the first six months of the year. After a difficult 1994, these
results are gratifying -- and for investors who rode out the price fluctuations
and maintained a long-term investment stance, your patience has been rewarded.
The value of holding on despite difficult market conditions is evident in
the results of the past six months. The dramatic rally in bonds so far this year
reflects a much more positive interest rate environment than existed last year.
Indeed, the Federal Reserve's recent easing of interest rates, coming after a
series of rate hikes, testifies to its confidence in the current trend of slow
economic growth and low inflation.
The change in rates over the past eight months and the resultant bond
market rally are also reminders of the often short-term nature of dramatic
market fluctuations. And, while we are pleased with Scudder Short Term Bond
Fund's performance, it is important to remember that the Fund does not seek
price appreciation as its primary objective. Rather, the Fund seeks to provide
higher income than is available from money market or savings accounts and with
greater stability of principal than investments in potentially higher yielding
longer-maturity bonds (although the Fund is not insured or guaranteed by the
U.S. Government). Our outlook for the next few months is for generally lower
rates and therefore continued positive bond market conditions. Looking ahead, we
are confident that the Fund will continue to meet its investment objectives.
If you have questions about your Fund or your investments, please contact a
Scudder Investor Relations representative at 1-800-225-2470. Page 31 provides
more information on how to contact Scudder. Thank you for choosing Scudder Short
Term Bond Fund to help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Short Term Bond Fund
3
<PAGE>
Scudder Short Term Bond Fund
Performance Update as of June 30, 1995
-----------------------------------------------------------------
Growth of a $10,000 Investment
-----------------------------------------------------------------
Scudder Short Term Bond Fund
----------------------------------------
Total Return
Period Growth -------------
Ended of Average
6/30/95 $10,000 Cumulative Annual
--------- ------- ---------- -------
1 Year $10,517 5.17% 5.17%
5 Year $14,204 42.04% 7.27%
10 Year* $22,357 123.57% 8.38%
Salomon Brothers Inc. Broad Investment
Grade Bond Index (1-3 years)
--------------------------------------
Total Return
Period Growth -------------
Ended of Average
6/30/95 $10,000 Cumulative Annual
--------- ------- ---------- -------
1 Year $10,768 7.68% 7.68%
5 Year $14,245 42.45% 7.33%
10 Year $21,579 115.79% 7.99%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended June 30
Scudder Short Term Bond Fund
Year Amount
----------------------
85 10000
86 11640
87 12514
88 13113
89 14397
90 15740
91 17720
92 19488
93 21135
94 21258
95 22357
Salomon Brothers Inc. Broad Investment
Grade Bond Index (1-3 years)
Year Amount
----------------------
85 10000
86 11193
87 11916
88 12832
89 13974
90 15149
91 16704
92 18459
93 19707
94 20041
95 21579
Salomon Brothers Inc. Broad Investment Grade Bond Index (1-3 years)
is composed of Treasury, Government Sponsored Agency, and Corporate
securities with maturities of one to three years. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any
fees or expenses.
-------------------------------------------------------------------
Returns and Per Share Information
-------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended June 30
----------------------------------
<TABLE>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------------------------------------------------------------------------------
Net Asset Value... $11.68 $11.62 $11.33 $11.63 $11.58 $11.89 $12.01 $12.12 $11.37 $11.19
Income Dividends.. $ .91 $ .74 $ .75 $ .71 $ 1.03 $ 1.09 $ 1.03 $ .87 $ .76 $ .74
Capital Gains
Distributions..... $ .05 $ .19 $ .08 $ .03 $ .06 $ -- $ -- $ -- $ .07 $ --
Fund Total
Return (%)........ 16.40 7.52 4.79 9.80 9.33 12.58 9.98 8.45 .58 5.17
Index Total
Return (%)........ 11.93 6.46 7.69 8.91 8.41 10.27 10.50 6.76 1.69 7.68
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
Returns may be higher due to the Adviser's maintenance of the Fund's expenses.
See Financial Highlights on page 21.
*The Fund, with its current name and investment objective, commenced operations
on July 3, 1989. Performance figures include the performance of its predecessor,
the General 1994 Portfolio of Scudder Target Fund. Since adopting its current
objectives, the cumulative and average annual returns are 51.96% and 7.33%,
respectively.
4
<PAGE>
Portfolio Summary as of June 30, 1995
---------------------------------------------------------------------------
Diversification
---------------------------------------------------------------------------
Collateralized Mortgage
Obligations 25%
Asset-Backed Securities 24% The Fund increased its holdings
U.S. Gov't Guaranteed of mortgage-related securities
Mortgages 21% during the period to take advantage
Corporate Bonds 16% of their attractive yields relative
Indexed Securities 7% to U.S. Treasuries.
U.S. Government &
Agencies 5%
Commercial Paper 1%
Other 1%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
--------------------------------------------------------------------------
Quality
--------------------------------------------------------------------------
U.S. Gov't & Agencies 39%
AAA* 32% Historically, the Fund has maintained
AA 3% a high-quality portfolio with more
A 11% than 80% of Fund holdings rated A or
BBB 15% above.
----
100%
====
Weighted average quality: AAA-
*Category includes cash equivalents
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
--------------------------------------------------------------------------
Effective Maturity
--------------------------------------------------------------------------
Under 1 year 13%
1 < 5 years 78% The Fund's weighted average effective
5 < 8 years 3% maturity was extended to roughly
8 years or greater 6% three years, its limit by prospectus,
---- to take advantage of the recent rally
100% in bond prices.
====
Weighted average effective maturity: 2.96 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
For more complete details about the Fund's Investment Portfolio, see page 9.
A monthly Investment Portfolio Summary is available upon request.
5
<PAGE>
SCUDDER SHORT TERM BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
--------------------------------------------------------------------------------
Dear Shareholders,
After enduring a difficult year in 1994, bond investors were rewarded with
strong returns in the first six months of 1995. Scudder Short Term Bond Fund
returned 5.78% during the period, resulting from $0.35 per share in income
distributions and a $0.28 increase in net asset value or price per share.
Reflecting falling yields throughout the maturity spectrum and a renewed focus
on U.S. investments, the Fund provided a 30-day net annualized SEC yield of
6.47% on June 30. While significantly higher than the average yield of money
market funds, the Fund's yield reflects a decline from 7.70% at the start of the
year.
The Bond Market Bounces Back
In contrast to 1994, when the strength of the U.S. economy surprised
investors, 1995 has been characterized by slower-than-expected growth. Gross
domestic product (GDP) grew at a 2.7% annualized pace in the first quarter, down
from 5% in the fourth quarter of 1994. The Federal Reserve continued to tighten
monetary policy in February by raising the targeted federal funds rate, the
interest rate charged on overnight loans between Federal Reserve member banks,
to 6%. Evidence of slower economic growth early in the period convinced bond
investors that inflation was not an immediate concern, boosting bond prices and
driving yields lower.
Meanwhile, the U.S. dollar weakened further against the Japanese yen and
most European currencies. In an effort to stem the dollar's fall, central
bankers around the globe purchased dollars through the acquisition of U.S.
Treasuries. Given the spate of currency volatility in Latin America, investment
dollars once earmarked for emerging markets also started flowing into
Treasuries. Lastly, investors were encouraged by the rallying cries for smaller
government and deficit reduction in the U.S. Congress, which, if achieved, would
ultimately result in a more favorable interest rate environment.
Bond prices rose into April and May as economic indicators pointed to slow
or even no growth in the second quarter. Yields of bonds of various maturities
declined in turn. By June 30, short to intermediate rates had dropped
approximately 1.90 percentage points from year-end levels while long-term
interest rates fell roughly 1.25 percentage points. In an effort to keep the
economy from slowing too abruptly, the Federal Reserve lowered short-term
interest rates for the first time since 1992.
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
--------------------------------------------------------------------------------
Portfolio Review: An Emphasis on
Longer Maturities, Mortgage-Backed Securities
The Fund began 1995 with an average duration slightly in excess of six
months. Duration measures a bond's sensitivity to interest rates by giving
relative weight to both interest and principal payments and has become the
industry standard among professional investors. Generally, the shorter the
duration, the less sensitive a portfolio will be to changes in interest rates.
The defensive positioning reflected our belief that short-term interest rates
were headed higher, given the strong economic growth exhibited in the fourth
quarter of 1994. In early February, we extended the Fund's duration to
approximately two years as evidence suggested that 1994's higher rates were
beginning to slow economic activity. The Fund's duration was further extended to
2.3 years during June as the extent of the economic slowdown became clearer. The
Fund's average effective maturity, a somewhat less sophisticated measure of
interest-rate sensitivity, was roughly three years at the end of June -- its
limit under the Fund's investment policies.
During the six-month period, we maintained the portfolio's emphasis on
high-quality investments such as asset-backed securities, mortgage-backed
issues, and corporate bonds. Foreign bonds were eliminated during the period in
an effort to reduce potential price volatility as the likelihood of a
strengthening dollar increased. The Fund's investments in asset-backed issues
(24% of the portfolio as of June 30) have been concentrated in bonds with
relatively short effective maturities. Asset-backeds are a form of debt security
issued by companies that offer such services as credit cards and home equity
loans to consumers. The bonds are collateralized with pools of receivables from
the credit cards and loans and offer several protections against default.
The Fund's holdings in mortgage-backed securities were increased over the
prior six months from 34% to 46% of the portfolio and include U.S. government
guaranteed mortgages and collateralized mortgage obligations. In particular, we
increased the Fund's holdings of "seasoned" GNMA 10% coupon bonds and FNMA
7-year "balloons." GNMA 10's provide an attractive yield advantage over
comparable Treasuries without the prepayment sensitivity of newer issues.
(Homeowners with these mortgages already have had several opportunities to
7
<PAGE>
SCUDDER SHORT TERM BOND FUND
--------------------------------------------------------------------------------
refinance at lower rates and for one reason or another have not.) FNMA balloon
mortgages, so-called because of their relatively short life before maturity,
provide higher current income than comparable Treasuries and more price
stability than 15 or 30-year mortgage-backed securities.
The Fund's corporate holdings (16% of Fund holdings on June 30) have
focused largely on bonds that we believe are likely to be upgraded and thus have
the potential for appreciation. Current holdings include issuers such as Time
Warner, McDonnell Douglas, RJR Nabisco, and Lyondell Petrochemical -- of which
the latter benefited from a rating agency upgrade during the past quarter.
Outlook
The current behavior of bond market participants suggests that investors
will remain fixated on the performance of the domestic economy in the coming
months. As the U.S. economy approaches the end of its current cycle, indicators
continue to point toward slower growth, although the possibility exists for a
late-cycle reacceleration. Meanwhile, the economies of our major trading
partners such as Canada, Mexico, Japan, and Germany have also slowed or are
exhibiting signs of weakness. The good news for bond investors is that
inflation, which eats away the value of fixed-income payments, appears to have
reached a cyclical peak and may be poised to decline. In this slow-growth
environment, we will seek additional opportunities to reward shareholders with
higher yields and relative stability of principal.
Sincerely,
Your Portfolio Management Team
/s/Thomas M. Poor /s/Scott E. Dolan
Thomas M. Poor Scott E. Dolan
/s/Christopher L. Gootkind
Christopher L. Gootkind
8
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of June 30, 1995 (Unaudited)
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
0.6% COMMERCIAL PAPER
-------------------------------------------------------------------------------------
12,600,000 Household Finance Corp., 6.12%, 7/3/95
(Cost $12,600,000).................................... 12,600,000
-----------
-------------------------------------------------------------------------------------
5.4% U.S. GOVERNMENT & AGENCIES
-------------------------------------------------------------------------------------
30,000,000 U.S. Treasury Note, 5.125%, 2/28/98..................... 29,446,800
95,000,000 U.S. Treasury Separate Trading Registered
Interest and Principal, Interest only, 11/15/03....... 56,605,750
105,000,000 U.S. Treasury Separate Trading Registered
Interest and Principal, Interest only, 2/15/20........ 19,231,800
-----------
TOTAL U.S. GOVERNMENT & AGENCIES
(Cost $105,361,254)................................... 105,284,350
-----------
-------------------------------------------------------------------------------------
20.8% U.S. GOV'T GUARANTEED MORTGAGES
-------------------------------------------------------------------------------------
130,331,704 Government National Mortgage Association Pass-thru
10% with various maturities to 2/15/25................ 141,755,565
3,979,375 Government National Mortgage Association Pass-thru 11%
with various maturities to 10/20/20................... 4,318,856
30,239,902 Government National Mortgage Association Pass-thru 11.5%
with various maturities to 7/20/20.................... 33,834,769
19,032,890 Federal Home Loan Mortgage Corp., 5 year Balloon, 5%
with various maturities to 8/1/99..................... 18,390,530
17,434,343 Federal Home Loan Mortgage Corp., 5 year Balloon, 7%,
9/1/98................................................ 17,608,686
44,996,097 Federal Home Loan Mortgage Corp., 9.5% with various
maturities to 3/1/25.................................. 47,327,833
1,080,501 Federal National Mortgage Association, 5.5% with various
maturities to 1/1/01.................................. 1,044,705
1,719,143 Federal National Mortgage Association, 7 year Balloon,
5.5% with various maturities to 6/1/01................ 1,662,186
428,788 Federal National Mortgage Association, 7 year Balloon,
6%, 6/1/01............................................ 421,417
105,651,514 Federal National Mortgage Association, 7 year Balloon,
8%, 3/1/02............................................ 108,160,737
30,949,692 Federal National Mortgage Association, 7 year Balloon,
8.5% with various maturities to 5/1/02................ 31,781,310
-----------
TOTAL U.S. GOVERNMENT GUARANTEED
MORTGAGES (Cost $400,910,938)......................... 406,306,594
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
SCUDDER SHORT TERM BOND FUND
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
25.0% COLLATERALIZED MORTGAGE OBLIGATIONS
-------------------------------------------------------------------------------------
8,169,386 CMC Security Corp.,1992-D, 7.2%, 12/25/08............... 8,042,711
6,303,296 Chase Mortgage Finance Corp., Series 1992-L, 5.5%,
11/25/09.............................................. 6,263,900
38,846,000 Chase Mortgage Finance Corp., Series 1993-N, 6.75%,
11/25/24.............................................. 37,971,965
7,073,633 Chase Mortgage Finance Corp., Series 1993-I2 A2, 7.25%,
7/25/24............................................... 7,063,023
20,589,000 Chase Mortgage Finance Corp., Series 1993-I2 A3, 7.25%,
7/25/24............................................... 20,537,527
4,175,000 Chemical Mortgage Securities Inc., Series 1993-1 A4,
7.45%, 2/25/23........................................ 4,148,874
55,944,984 Countrywide Funding Corp., Series 1994A, 6.25%,
3/25/24............................................... 53,497,390
34,747,000 Countrywide Funding Corp., Series 1994A, 6.75%,
3/25/24............................................... 33,834,891
3,617,486 Daiwa Mortgage Acceptance Corp., Series 1991A, 8.625%,
4/15/10............................................... 3,622,008
60,702,988 Federal Home Loan Mortgage Corp., REMIC, 1724-PO,
5/15/01............................................... 48,790,027
60,043,803 Federal Home Loan Mortgage Corp., STRIP, 167-A, PO,
5/1/99................................................ 50,586,904
46,099,451 Federal Home Loan Mortgage Corp., Series 1719-C, PO,
4/15/99............................................... 38,838,787
5,415,940 Federal Home Loan Mortgage Corp., Series 1381 Z, 6%,
7/15/05............................................... 5,310,979
4,400,000 Federal Home Loan Mortgage Corp., Series 1406 E, 6%,
12/15/18.............................................. 4,246,000
5,250,000 Federal Home Loan Mortgage Corp., Series 1250 F, 7%,
4/15/19............................................... 5,292,630
9,850,000 Federal Home Loan Mortgage Corp., Series 1267 O, 7.25%,
12/15/05.............................................. 9,973,125
12,453,863 Federal Home Loan Mortgage Corp., Series 1276-G, 7.5%,
12/15/05.............................................. 12,605,551
1,283,364 Federal National Mortgage Association, REMIC, Series
G93-4 B, 9/25/22...................................... 1,272,198
1,468,788 Federal National Mortgage Association, REMIC, 1989-68 G,
8.75%, 8/25/18........................................ 1,493,111
20,469,000 First Bank System Inc. Series 1993-F, 7.187%, 11/25/24.. 20,216,336
30,075,000 General Electric Capital Mortgage Services, Inc. Series
1993, 6.5%, 1/25/18................................... 29,144,555
14,018,649 General Electric Capital Mortgage Services, Inc. Series
1994-27, 6.5%, 7/25/24................................ 13,902,557
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500,000 General Electric Capital Mortgage Services, Inc. Series
1992-2F, 7%, 6/25/07.................................. 480,372
187,977 Kidder, Peabody & Co. Mortgage Assets Trust, 2-B, 8.2%,
1/20/18............................................... 189,973
715,570 Merrill Lynch Mortgage Investors Inc. 37-B, 8.5%,
8/1/15................................................ 719,814
1,824,000 Paine Webber Mortgage Acceptance Corp., Series 1993-6,
6.9%, 8/25/08......................................... 1,833,405
8,082,161 Prudential Home Mortgage Securities Co., 1993-4 Series
A3, 7%, 2/25/24....................................... 8,037,661
3,276,856 Prudential Home Mortgage Securities Co., Series 1992-47
A7, 7.5%, 1/25/23..................................... 3,287,080
3,220,000 Residential Funding Mortgage Securities, Series 1993-A2,
6.85%, 9/25/23........................................ 3,132,959
19,500,000 Residential Funding Mortgage Securities, Series 1993-A5,
7.112%, 10/25/23...................................... 19,097,813
905,000 Resolution Trust Corp., Series A, Zero Coupon, 7/15/97.. 803,296
3,261,996 Resolution Trust Corp., Series 1992 A2A, 7.5%, 8/25/23.. 3,256,389
6,108,000 Resolution Trust Corp., Series 1992 A2C, 7.5%, 8/25/23.. 6,106,094
16,320,000 Ryland Acceptance Corp., Four, Series 97-H, 8.95%,
8/20/19............................................... 17,186,918
7,050,000 Sears Mortgage Security Corp., Series 1993-11T4, 7.125%,
11/25/20.............................................. 6,955,266
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $504,217,067)................................... 487,742,089
-----------
-------------------------------------------------------------------------------------
24.2% ASSET-BACKED SECURITIES
-------------------------------------------------------------------------------------
AUTOMOBILE
RECEIVABLES 1.5% 3,065,582 Navistar Financial Corp., Series 1993-A, 4.8%,
10/15/98.............................................. 3,024,381
10,575,046 Premier Auto Trust Asset Backed Certificate, Series
1993-2, 5%, 10/15/98.................................. 10,429,639
2,945,368 Premier Auto Trust, Series 1994-1, 4.7%, 2/2/00......... 2,876,335
7,964,568 Premier Auto Trust, Series 1993-5, 4.875%, 1/3/00....... 7,822,639
5,874,003 Premium Auto Trust Asset Backed Certificate, Series
1993-5, 4.45%, 3/2/99................................. 5,751,002
-----------
29,903,996
-----------
CREDIT
CARD RECEIVABLES 3.8% 1,910,000 Discover Card Trust, Series 1993-A, 6.8%, 8/15/00........ 1,918,347
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
SCUDDER SHORT TERM BOND FUND
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,720,000 Discover Card Trust, Series 1991-D, 8.375%, 10/16/00.... 4,939,763
11,000,000 Discover Card Trust, Series 1991-B, 8.85%, 7/16/98...... 11,264,660
13,735,849 First USA Bank, Series 1994-1, 7.45%, 4/15/99........... 13,783,925
1,965,000 Household Credit Card Trust, Series 1993-3B, 4.95%,
3/15/99............................................... 1,926,309
15,000,000 MBNA Credit Card Trust II, 6.05%, 11/15/02.............. 14,821,800
1,000,000 Signet Credit Card Trust, Series 1990-1A Participating
Certificate, 9%, 6/15/97.............................. 1,002,180
20,000,000 Standard Credit Card Trust, Series 1992-2A, 5.875%,
7/7/95................................................ 20,000,000
2,250,000 Standard Credit Card Trust, Series 1991-6B, 8.35%,
1/7/00................................................ 2,358,270
2,000,000 Standard Credit Card Trust, Series 1990-6B, 9.625%,
9/10/97............................................... 2,116,240
-----------
74,131,494
-----------
HOME EQUITY LOANS 10.9% 1,794,063 AFC Home Equity Loan Trust, Series 1993-3A, 5.45%,
6/20/14............................................... 1,651,659
1,268,856 AFC Home Equity Loan Trust, Series 1992-3A, 7.05%,
8/15/07............................................... 1,218,895
2,886,424 AFC Home Equity Loan Trust, Series 1990-3A, 9.6%,
9/15/05............................................... 2,830,500
2,131,337 BCI Home Equity Loan, Series 1991 B, 7.5%, 9/15/06...... 2,129,994
1,908,378 CTS Home Equity Loan Trust, Series 1991-1A, 8.8%,
1/15/06............................................... 1,962,041
28,500,000 Contimortgage Home Equity Loan Trust, Series 1995-1 A2,
8.6%, 6/15/25......................................... 29,279,297
18,764,073 Contimortgage Home Equity Loan Trust, Series 1995-1 A1,
8.75%, 4/25/07........................................ 18,887,221
16,826,137 Contimortgage Home Equity Loan Trust, Series 1994-5 A1,
9.07%, 5/15/06........................................ 16,981,253
1,317,983 Contimortgage Home Equity Loan Trust, Series 1991-1,
9.52%, 3/15/06........................................ 1,370,703
4,518,580 Equity Credit Corp. Home Equity Loan Trust, 5.3%,
9/15/08............................................... 4,233,345
3,441,794 Equity Credit Corp. Home Equity Loan Trust, Series
1993-4B, 5.65%, 12/15/08.............................. 3,228,170
5,265,930 Fleet Financial Home Equity Trust, Series 1991-2A, 6.7%,
10/16/06.............................................. 5,254,414
7,845,284 Home Equity Loan Trust, Series 1992 A, 6.65%, 11/20/12.. 7,752,082
1,713,339 Home Equity Loan Trust, Series 1992 B, 6.85%, 11/20/12.. 1,695,126
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3,411,158 Household Finance Home Equity Trust, Series 1992-2 A3,
5.25%, 10/20/07......................................... 3,373,840
1,779,539 Mid-State Homes IV Series 1, 8.33%, 4/1/30................ 1,871,297
2,061,905 Old Stone Credit Corp. Home Equity Loan Series 1993-1,
5.85%, 3/15/08.......................................... 1,986,839
7,315,852 Old Stone Credit Corp. Home Equity Loan Series 1992-3 A2,
6.3%, 8/25/07........................................... 7,180,948
8,422,072 Old Stone Credit Corp. Home Equity Loan, Series 1992-2,
6.95%, 5/15/07.......................................... 8,379,961
2,763,872 Old Stone Credit Corp., Series 1991-2, 8.42%, 9/15/06..... 2,842,339
3,012,183 Security Pacific Home Equity Loan Trust, Series 1991-2A,
8.1%, 6/15/20........................................... 3,055,468
4,239,296 Security Pacific Home Equity Loan Trust, Series 1991-2B,
8.15%, 6/15/20.......................................... 4,318,783
15,600,000 Security Pacific Home Equity Trust, Series 1991-A B,
10.5%, 3/10/06.......................................... 16,489,688
31,253,315 TMS Home Equity Loan Trust, Series 1993-D, 5.075%,
2/15/18................................................. 30,091,545
4,363,110 TMS Home Equity Loan Trust, Series 1992-C1, 6.2%,
10/15/07................................................ 4,153,655
17,792,551 TMS Home Equity Loan Trust, Series 1994-D, 7.625%,
9/15/04................................................. 18,233,931
1,602,595 U.S. Home Equity Loan, Series 1991-2C, 8.5%, 4/15/21...... 1,626,634
9,700,000 U.S. Home Equity Loan, Series 1991-2B, 9.125%, 4/15/21.... 9,997,014
-----------
212,076,642
-----------
MANUFACTURED
HOUSING
RECEIVABLES 8.0%
5,859,941 Chemical Financial Acceptance Corp. Housing Trust, Series
1989 A, Participating Certificate, 9.25%, 5/15/98....... 6,070,488
25,197,527 Green Tree Financial Corp., Securitized NIM Series 1994A,
6.9%, 2/15/04........................................... 24,743,972
1,950,000 Green Tree Financial Corp., Series 1995C B1,
7.2%, 7/15/20........................................... 1,937,813
23,580,671 Green Tree Financial Corp., Securitized NIM Series 1994B,
7.85%, 7/15/04 ......................................... 23,639,622
20,636,400 Green Tree Financial Corp., 8.1%, 7/15/25................. 20,894,355
5,715,000 Green Tree Financial Corp., 9.2%, 6/15/25................. 6,182,887
6,415,403 Merrill Lynch Mortgage Investors Inc., Series 1992-B A4,
7.85%, 4/15/12.......................................... 6,463,518
4,023,572 Merrill Lynch Mortgage Investors Inc., Series 1992-D,
7.95%, 7/15/17.......................................... 4,091,450
13,401,543 Merrill Lynch Mortgage Investors Inc., Series 1992-B, 8.5%,
4/15/12................................................. 13,795,147
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
SCUDDER SHORT TERM BOND FUND
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3,849,036 Merrill Lynch Mortgage Investors Inc., Series 1991-C,
8.9%, 7/15/11......................................... 3,912,776
6,292,381 Merrill Lynch Mortgage Investors Inc., Series 1991-G,
9.15%, 10/15/11....................................... 6,603,036
1,204,788 Merrill Lynch Mortgage Investors Inc., Series 1991-B,
9.2%, 4/15/11......................................... 1,234,908
5,395,213 Merrill Lynch Mortgage Investors Inc., Series 1990-H,
9.25%, 1/15/11........................................ 5,599,206
3,904,931 Merrill Lynch Mortgage Investors Inc., Series 1991-A,
9.25%, 5/15/11........................................ 4,081,864
308,197 Merrill Lynch Mortgage Investors Inc., Series 1988-H,
9.7%, 6/15/08......................................... 314,746
2,738,724 Merrill Lynch Mortgage Investors Inc., Series 1990-C,
9.7%, 6/15/10......................................... 2,851,696
429,929 Merrill Lynch Mortgage Investors Inc., Series 1989-F,
9.75%, 10/15/09....................................... 442,289
675,019 Merrill Lynch Mortgage Investors Inc., Series 1988-Q,
9.8%, 10/15/08........................................ 689,363
4,811,058 Merrill Lynch Mortgage Investors Inc., Series 1990-I,
10%, 1/15/11.......................................... 5,056,085
8,125,000 Security Pacific Acceptance Corp., Series 1991-A2, 7.1%,
6/15/12............................................... 8,175,781
8,159,623 Security Pacific Acceptance Corp., Series 1991-2B,
8.55%, 9/15/11........................................ 8,355,943
-----------
155,136,945
-----------
TOTAL ASSET-BACKED SECURITIES
(Cost $473,048,855)................................... 471,249,077
-----------
-------------------------------------------------------------------------------------
16.5% CORPORATE BONDS
-------------------------------------------------------------------------------------
CONSUMER STAPLES 2.4% 3,500,000 PepsiCo Inc., Medium-Term Note, 7.58%, 8/23/95.......... 3,506,195
44,625,000 RJR Nabisco Inc., Medium-Term Note, 5.25%, 9/15/95...... 44,488,448
-----------
47,994,643
-----------
FINANCIAL 7.6%
5,000,000 American General Finance Corp., 8.875%, 3/15/96......... 5,088,150
4,000,000 Associates Corp. of North America, 5.875%, 8/15/97...... 3,964,600
6,000,000 Associates Corp. of North America, 8.75%, 2/1/96........ 6,082,560
14,000,000 British Aerospace Finance Inc., 7.15%, 6/24/97.......... 14,245,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5,000,000 Discover Credit Corp., Medium Term Note, Series 2, 8.73%,
8/15/96................................................. 5,134,350
18,725,000 First Fidelity Bancorp., 8.5%, 4/1/98..................... 19,648,143
5,000,000 First Union Corp., 8.125%, 12/15/96....................... 5,119,300
6,500,000 Fleet/Norstar Financial Group Inc., 6.09%, 7/10/95........ 6,499,935
11,000,000 Household Finance Corp., 9%, 9/1/95....................... 11,042,570
1,500,000 Household Finance Corp., Medium Term Note, 10.08%, 4/1/96. 1,541,940
18,000,000 Manufacturers Hanover Corp., 5.25%, 4/30/97............... 17,883,000
4,000,000 Marine Midland Bank, 5.25%, 12/16/00...................... 3,938,800
3,300,000 Taubman Realty Group LP, Medium Term Note, 7.4%, 6/10/02.. 3,228,324
21,520,000 The Money Store Inc., Series B, 9.16%, 9/9/97............. 22,281,378
20,000,000 World Savings & Loan Association of Oakland, CA,
Medium-Term Note, 5.83%, 12/18/95....................... 19,999,200
2,500,000 World Savings & Loan Association of Oakland, CA, 10.25%,
10/1/97................................................. 2,693,050
-----------
148,390,300
-----------
MEDIA 1.5%
29,100,000 Time Warner Inc., senior note, 7.45%, 2/1/98.............. 29,334,837
-----------
DURABLES 1.6%
5,398,488 Ford Motor Co., 8.42%, 12/30/96........................... 5,425,481
24,970,000 McDonnell Douglas Corp., Medium-Term Note, 6.54%,
7/29/96................................................. 25,046,908
-----------
30,472,389
-----------
MANUFACTURING 3.0%
13,775,000 Lyondell Petrochemical Co., 8.25%, 3/15/97................ 14,079,152
9,000,000 Lyondell Petrochemical Co., 9.125%, 3/15/02............... 9,915,930
4,600,000 Lyondell Petrochemical Co., 9.75%, 9/4/03................. 5,244,000
12,940,000 Lyondell Petrochemical Co., 9.95%, 6/1/96................. 13,294,427
14,400,000 Lyondell Petrochemical Co., 10%, 6/1/99................... 15,798,528
-----------
58,332,037
-----------
ENERGY 0.4%
14,850,000 Halliburton Co., Zero Coupon, 3/13/06..................... 7,870,500
-----------
TOTAL CORPORATE BONDS (Cost $321,066,617)................. 322,394,706
-----------
-------------------------------------------------------------------------------------
0.3% MEDIUM-TERM MUNICIPAL INVESTMENTS
-------------------------------------------------------------------------------------
1,000,000 Massachusetts Industrial Finance Agency, 6%, 7/1/96....... 999,020
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
SCUDDER SHORT TERM BOND FUND
---------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,035,000 Virgin Islands Public Finance Authority, 7.5%, 10/1/95.. 4,039,035
-------------
TOTAL MEDIUM-TERM MUNICIPAL INVESTMENTS
(Cost $5,035,000)..................................... 5,038,055
-------------
-------------------------------------------------------------------------------------
6.9% COUPON INDEXED SECURITIES
-------------------------------------------------------------------------------------
39,500,000 Bayerische Landesbank Medium Term Note, inversely
indexed to 30 day Commercial Paper Bond Equivalent
Yield, 5.42%, 12/29/97................................ 39,500,000
24,850,000 Credit Suisse Medium Term Note, inversely indexed to
2 year Spanish Peseta Swap Rate, 2.335%, 7/8/96....... 23,803,815
52,400,000 Federal National Mortgage Association Medium Term Note,
inversely indexed to 30 day Commercial Paper Bond
Equivalent Yield, 9.3992%, 12/29/97................... 56,592,000
13,825,000 Student Loan Marketing Association, inversely indexed to
6 month LIBOR Bond Equivalent Yield,
10.660%, 8/22/95...................................... 13,842,281
-------------
TOTAL COUPON INDEXED SECURITIES
(Cost $132,389,587)................................... 133,738,096
-------------
-------------------------------------------------------------------------------------
0.3% CONVERTIBLE BONDS
-------------------------------------------------------------------------------------
FINANCIAL
Real Estate 5,225,000 Health Care Property Investors Inc., 6%, 11/8/00
(Cost $4,542,600)..................................... 4,937,625
-------------
-------------------------------------------------------------------------------------
0.0% PURCHASED OPTIONS
-------------------------------------------------------------------------------------
2,250,000 Put on Eurodollar Futures, strike price 91.75, expires
9/16/95 (Cost $1,131,750)............................. 22,500
-------------
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $1,960,303,668)(a).............................. 1,949,313,092
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $1,960,303,668. At June 30,
1995, net unrealized depreciation for all securities based on tax cost was
$10,990,576. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $19,926,413 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$30,916,989.
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 will be shorter than stated
maturities due to prepayments. All separate investments in each of the
Government National Mortgage Association issues which have similar coupon
rates have been aggregated for presentation purposes in the investment
portfolio.
<TABLE>
CURRENCY ABBREVIATIONS AND OTHER ACRONYMS USED IN THIS PORTFOLIO:
<S> <C>
NIM Net Interest Margin
LIBOR London Inter-Bank Offering Rate
REMIC Real Estate Mortgage Investment Conduit
STRIP Separate Trading Registered Interest and Principal
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
SCUDDER SHORT TERM BOND FUND
FINANCIAL STATEMENTS
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
----------------------------------------------------------------------------------------------
<CAPTION>
JUNE 30, 1995 (UNAUDITED)
----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $1,960,303,668)
(Note A)................................................ $1,949,313,092
Cash...................................................... 190,953
Receivables:
Investments sold........................................ 523,092
Interest................................................ 15,777,875
Fund shares sold........................................ 2,372,251
--------------
Total assets....................................... 1,968,177,263
LIABILITIES
Payables:
Fund shares redeemed.................................... $ 2,609,349
Dividends............................................... 2,244,333
Accrued management fee (Note C)......................... 887,271
Other accrued expenses (Note C)......................... 588,036
-----------
Total liabilities.................................. 6,328,989
--------------
Net assets, at market value............................... $1,961,848,274
==============
NET ASSETS
Net assets consist of:
Unrealized depreciation on investments.................. $ (10,990,576)
Accumulated net realized loss........................... (121,802,567)
Shares of beneficial interest........................... 1,753,746
Additional paid-in capital.............................. 2,092,887,671
--------------
Net assets, at market value............................... $1,961,848,274
==============
Net asset value, offering and redemption price per
share ($1,961,848,274 -:- 175,374,610 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized).................. $11.19
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
-------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ................................................ $ 71,170,313
Expenses:
Management fee (Note C).................................. $ 4,969,178
Services to shareholders (Note C)........................ 2,020,673
Trustees' fees (Note C).................................. 7,764
Reports to shareholders.................................. 225,315
Custodian fees........................................... 167,630
Auditing................................................. 56,971
Federal and state registration........................... 25,672
Legal.................................................... 2,312
Other.................................................... 44,852 7,520,367
----------------------------
Net investment income.................................... 63,649,946
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss from:
Investments............................................ (68,762,680)
Futures................................................ (5,591,835)
Options................................................ (3,137,750)
Foreign currency related transactions.................. (853,737) (78,346,002)
------------
Net unrealized appreciation (depreciation)
during the period on:
Investments............................................ 141,143,329
Futures................................................ (13,690,415) 127,452,914
------------ ------------
Net gain on investment transactions...................... 49,106,912
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $112,756,858
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
<TABLE>
SCUDDER SHORT TERM BOND FUND
-------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1995 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1994
-------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income.................................... $ 63,649,946 $ 187,777,310
Net realized loss from investment transactions........... (78,346,002) (79,769,043)
Net unrealized appreciation (depreciation) on investment
transactions during the period........................ 127,452,914 (188,626,897)
-------------- ---------------
Net increase (decrease) in net assets resulting
from operations....................................... 112,756,858 (80,618,630)
-------------- ---------------
Distributions to shareholders from:
Net investment income ($.35 and $.64 per share,
respectively)....................................... (63,649,946) (149,862,207)
-------------- ---------------
Tax return of capital ($.12 per share)................ -- (27,524,389)
-------------- ---------------
Fund share transactions:
Proceeds from shares sold................................ 235,947,081 1,037,772,973
Net asset value of shares issued to shareholders in
reinvestment of distributions......................... 48,015,900 134,347,811
Cost of shares redeemed.................................. (507,158,354) (1,968,606,250)
-------------- ---------------
Net decrease in net assets from Fund share transactions.. (223,195,373) (796,485,466)
-------------- ---------------
DECREASE IN NET ASSETS................................... (174,088,461) (1,054,490,692)
Net assets at beginning of period........................ 2,135,936,735 3,190,427,427
-------------- ---------------
NET ASSETS AT END OF PERIOD.............................. $1,961,848,274 $ 2,135,936,735
============== ===============
OTHER INFORMATION
Increase (decrease) in Fund shares
Shares outstanding at beginning of period................ 195,776,523 265,610,358
-------------- ---------------
Shares sold.............................................. 21,468,281 89,258,004
Shares issued to shareholders in reinvestment of
distributions......................................... 4,358,518 11,736,021
Shares redeemed.......................................... (46,228,712) (170,827,860)
-------------- ---------------
Net decrease in Fund shares.............................. (20,401,913) (69,833,835)
-------------- ---------------
Shares outstanding at end of period...................... 175,374,610 195,776,523
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout each period and other performance information
derived from the financial statements.
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
1995 ---------------------------------------------------------------------------------------
(Unaudited) 1994 1993(c) 1992 1991 1990 1989 1988 1987 1986 1985
----------- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23 $11.92 $11.35 $10.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (a)... .35 .81 .87 .97 1.08 1.09 .83 .73 .74 .81 .96
Net realized and unrealized
gains (losses)............ .28 (1.15) .08 (.33) .53 .01 .61 (.04) (.58) .78 1.09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
transactions................ .63 (.34) .95 .64 1.61 1.10 1.44 .69 .16 1.59 2.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income.. (.35) (.64) (.80) (.96) (1.08) (1.09) (.83) (.73) (.74) (.81) (.96)
From net realized gains..... -- -- (.03) -- -- -- (.09) -- (.11) (.21) --
In excess of gains.......... -- -- (.04) -- -- -- -- -- -- -- --
From tax return of capital.. -- (.12) -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions........... (.35) (.76) (.87) (.96) (1.08) (1.09) (.92) (.73) (.85) (1.02) (.96)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $11.19 $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23 $11.92 $11.35
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%).............. 5.78** (2.87) 8.18 5.43 14.38 9.88 13.20 6.10 1.40 14.70 20.30
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions)................ 1,962 2,136 3,190 2,862 2,247 340 72 10 10 8 5
Ratio of operating expenses
net, to average daily net
assets (%).................. .76* .73 .68 .75 .44 .16 .36 1.50 1.45 1.45 1.27
Ratio of net investment income
net, to average daily net
assets (%).................. 6.40* 6.93 7.21 8.01 8.96 9.36 7.97 6.48 6.34 6.89 8.82
Portfolio turnover rate (%)... 83.9* 65.3 66.1 83.7(b) 41.0 52.9 40.0 23.5 28.7 15.6 58.1
(a) Portion of expenses
reimbursed by the
Adviser................ $ -- $ -- $ -- $ -- $ -- $ .02 $ .10 $ .04 $ .04 $ -- $ .02
Management fee not
imposed by the Adviser
(Note C)............... $ -- $ -- $ -- $ -- $ .06 $ .07 $ .05 $ -- $ -- $ .01 $ .07
<FN>
Ratio of operating expenses, including expenses reimbursed, management fee and other expenses not imposed, to average
daily net assets aggregated .78%, 1% and 1.19% for the years ended December 31, 1992, 1991 and 1990, respectively.
(b) The high turnover rate reflects an increase in principal prepayments on mortgage securities in the Fund.
(c) Per share amounts have been calculated using weighted average shares outstanding.
On July 3, 1989, the Fund adopted its present name and objective. Prior to that date, the Fund was known as the General 1994
Portfolio of Scudder Target Fund and its objectives were current income, capital preservation, and possible capital
appreciation. Financial information prior to July 3, 1989 should not be considered representative of the present Fund.
* Annualized
** Not annualized
</FN>
</TABLE>
21
<PAGE>
SCUDDER SHORT TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Scudder Short Term Bond Fund (the "Fund") is a diversified series of Scudder
Funds Trust (the "Trust"). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as an open-end, management investment company. The policies described below are
followed consistently by the Fund in the preparation of its financial
statements in conformity with generally accepted accounting principles.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the officers of the
Fund, which quotations reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short-term investments having a maturity of sixty days or less
are valued at amortized cost. All other securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.
OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or
sell to (put option), the writer a designated instrument at a specified price
within a specified period of time. Certain options, including options on
indices, will require cash settlement by the Fund if the option is exercised.
During the period, the Fund purchased put options on eurodollar futures as a
hedge against potential adverse price movements in the value of portfolio
assets.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The gain or loss recognized by the Fund upon the exercise of a written call
or purchased put option is adjusted for the amount of option premium. If a
written put or purchased call option is exercised the Fund's cost basis of
the acquired security or currency would be the exercise price adjusted for
the amount of the option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options
are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an
increase in the market value of the underlying security or currency above the
exercise price. When the Fund writes a put option it accepts the risk of a
decline in the market value of the underlying security or currency below the
exercise price. Over-the-counter options have the risk of the potential
inability of counterparties to meet the terms of their contracts. The Fund's
maximum exposure to purchased options is limited to the premium initially paid.
In addition, certain risks may arise upon entering into option contracts
including the risk that an illiquid secondary market will limit the Fund's
ability to close out an option contract prior to the expiration date and, that
a change in the value of the option contract may not correlate exactly with
changes in the value of the securities or currencies hedged.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write (sell) call and
put options on futures contracts which are traded for bona fide hedging
purposes. Options on futures contracts will be valued in accordance with the
security and options valuation policies described above.
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 an item
at a specified price on a specific date (settlement date). During the period
th Fund sold interest rate futures to hedge against declines in the value of
portfolio securities.
23
<PAGE>
SCUDDER SHORT TERM BOND FUND
--------------------------------------------------------------------------------
Upon entering into a futures contract, the Fund 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 Fund each day,
dependent on the daily fluctuations in the value of the underlying security,
and are recorded for financial reporting purposes as unrealized gains or losses
by the Fund. When entering into a closing transaction, the Fund 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 Fund'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 changes in the value
of the securities or currencies hedged. When utilizing futures contracts to
hedge the Fund gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.
INDEXED SECURITIES. Indexed securities held by the Fund are investments whose
value is indexed to another financial instrument, index, currency, or commodity
(the "reference instrument"). For principal indexed securities, the principal
amount payable at maturity may be more or less than the amounts shown depending
on fluctuations in the value of the reference instrument. For coupon indexed
securities, the principal amount payable at maturity is fixed. However, the
coupon is indexed to the reference instrument. The price sensitivity of these
securities may be greater than that of non-indexed securities with similar
maturities.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest
income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes
in market prices of the investments. Such fluctuations are included with the
net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on interest and
foreign withholding taxes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract (forward contract) is a commitment to purchase or sell a
foreign currency at the settlement date at a negotiated rate. During the
period, the Fund utilized forward contracts as a hedge in connection with
portfolio purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized on
settlement date. Realized and unrealized gains and losses which represent the
difference between the value of the forward contract to buy and the forward
contract to sell are included in net realized and unrealized gain (loss) from
foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the potential
inability of counterparties to meet the terms of their contracts. Additionally,
when utilizing forward contracts to hedge the Fund gives up the opportunity to
profit from favorable exchange rate movements during the term of the contract.
FEDERAL INCOME TAXES. It is the Fund's policy to comply with the requirements
of the Internal Revenue Code 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 provision for federal
income taxes was required.
25
<PAGE>
SCUDDER SHORT TERM BOND FUND
--------------------------------------------------------------------------------
At December 31, 1994, the Fund had a net tax basis capital loss carryforward
of approximately $27,264,000 which may be applied against any realized net
taxable capital gains of each succeeding year until fully utilized or until
December 31, 2002, the expiration date.
In addition, from November 1, 1994 through December 31, 1994, the Fund incurred
approximately $19,600,000 of net realized currency losses. As permitted by
tax regulations, the Fund intends to elect to defer these losses and treat
them as arising in the fiscal year ended December 31, 1995.
DISTRIBUTION OF INCOME AND GAINS. Substantially all of the net investment
income of the Fund is declared as a dividend to shareholders of record as of the
close of business each day and is paid to shareholders monthly. During any
particular year, 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. An additional
distribution may be made to the extent necessary to avoid the payment of a four
percent federal excise tax. Distributions of net realized capital gains to
shareholders are recorded on the ex-dividend date.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
primarily relate to investments in foreign denominated investments,
mortgage-backed securities, and certain securities sold at a loss. As a result,
net investment income and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund. It appears likely that a portion of the Fund's income distributions for
fiscal year ended December 1995 will be treated as a non#taxable return of
capital.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
OTHER. Investment security transactions are accounted for on a trade date
basis. Interest income is recorded on the accrual basis. All original issue
discounts are accreted for both tax and financial reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
--------------------------------------------------------------------------------
For the six months ended June 30, 1995, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $592,105,920 and $655,623,491, respectively. Purchases and sales of
U.S. Government obligations aggregated $246,569,450 and $143,209,820,
respectively.
The face value of futures contracts closed during the six months ended June 30,
1995 amounted to $2,259,185,415.
<TABLE>
Transactions in written options for the six months ended June 30, 1995 are
summarized as follows:
<CAPTION>
OPTIONS CONTRACTS
--------------------------------------------
Number of Premiums
Contracts Received ($)
--------------- ---------------
<S> <C> <C>
Beginning of Period............. - -
Written......................... 2,400 3,114,750
Closed.......................... (2,400) (3,114,750)
------ ----------
End of Period................... - -
====== ==========
</TABLE>
C. RELATED PARTIES
--------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Management Agreement") with
Scudder, Stevens & Clark, Inc. ("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 Management Agreement.
The management fee payable under the Management Agreement is equal to an annual
rate of 0.60% on the first $500,000,000 of average daily net assets, 0.50% on
the next $500,000,000 of such net assets, 0.45% on the next $500,000,000 of
such net assets, 0.40% on the next $500,000,000 of such net assets,
27
<PAGE>
SCUDDER SHORT TERM BOND FUND
--------------------------------------------------------------------------------
0.375% on the next $1,000,000,000 of such net assets and 0.35% on such net
assets in excess of $3,000,000,000, computed and accrued daily and payable
monthly. The Management Agreement also provides that if the Fund's expenses,
exclusive of taxes, interest, and extraordinary expenses, exceed specified
limits, such excess, up to the amount of the management fee, will be paid by
the Adviser. For the six months ended June 30, 1995, the fee pursuant to the
Management Agreement amounted to $4,969,178, which was equivalent to an
annualized effective rate of .50% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
Included in services to shareholders is $1,651,251 charged to the Fund by SSC
for the six months ended June 30, 1995, of which $267,705 is unpaid at June
30, 1995.
The Trust pays each of its Trustees not affiliated with the Adviser $4,000
annually, divided equally among the series of the Trust, plus specified amounts
for attended board and committee meetings. For the six months ended June 30,
1995, Trustees' fees aggregated $7,764.
28
<PAGE>
OFFICERS AND TRUSTEES
--------------------------------------------------------------------------------
Daniel Pierce*
President and Trustee
Lynn S. Birdsong*
Trustee
Thomas J. Devine
Trustee; Consultant
Peter B. Freeman
Trustee; Corporate Director and Trustee
Wilson Nolen
Trustee; Consultant
Juris Padegs*
Trustee
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Thomas F. McDonough*
Vice President, Secretary and
Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Thomas M. Poor*
Vice President
Robert E. Pruyne*
Vice President
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
29
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax Free Money Market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income Fund The Japan Fund
Retirement Plans and Tax-Advantaged Investments
-----------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
-----------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
-----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++
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. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *Not available in all states. +++A no-load
variable annuity contract provided by Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc. are traded
on various stock exchanges. ++For information on Scudder Treasurers Trust,(TM) an institutional cash management
service that utilizes certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.
</TABLE>
30
<PAGE>
HOW TO CONTACT SCUDDER
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For account updates, prices, yields,
exchanges, and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
-------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
-------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
-------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they
can be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
-------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided through Scudder Investor
Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus with more complete
information, including management fees and expenses. Please read it carefully before you invest or send
money.
</TABLE>
31
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 36 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
