This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Short Term
Bond Fund
Annual Report
December 31, 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
17 Financial Statements
20 Financial Highlights
21 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
IN BRIEF
o Scudder Short Term Bond Fund provided a pleasing 10.74% total return for
the 12 months ended December 31, 1995, in an environment of low inflation,
declining interest rates, and moderate economic growth.
o The Fund's 30-day net annualized SEC yield finished the period at 5.84%, a
decline from a year earlier but higher than the average 30-day yield
offered by taxable money market funds and considerably higher than the rate
of inflation, which at year end was 2.54%.
(BAR CHART TITLE)
30-Day Yields
(as of December 31, 1995)
(BAR CHART DATA)
----------------------------------------
Scudder Short Average Taxable Money
Term Bond Fund Market Fund*
----------------------------------------
5.84% 5.23%
----------------------------------------
*Source: IBC Donoghue Corporation.
o The Fund benefited from a longer-than-average duration (2.5 years) and
active bond selection during the period. At year end, the portfolio was
well diversified among high credit quality investments such as
mortgage-backed, asset-backed, U.S. corporate, and U.S. Treasury
securities.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
We are pleased to report a strong 10.74% total return for the Scudder
Short Term Bond Fund in 1995. The Fund began the year amid a challenging
investment environment that quickly turned positive and remained so for the
remainder of the period. As interest rates fell and inflation remained low, the
Fund's opportunistic stance helped provide above-average returns in the latter
part of the year.
In the coming months, we believe the outlook for the domestic
fixed-income market will remain favorable, characterized by a slowing economy
and sluggish consumer demand. With inflation subdued, interest rates may fall
further, providing additional fuel for the bond market. As of this writing, the
Federal Reserve has already lowered short-term interest rates by one quarter of
one percent in 1996. Lower short-term rates should benefit the Fund in
particular, since its bond holdings are chiefly those in the one to three year
maturity range.
Scudder Short Term Bond Fund remains an investment well-suited for
those seeking to improve upon lower-yielding money market funds and similar
investments, but unwilling to take on the investment risk of longer-term bonds.
Since its inception in 1989, the Fund has provided an attractive yield advantage
over the average taxable money fund, according to IBC Donoghue, while also
providing a relatively high degree of principal stability relative to
longer-term bonds.
If you have questions about Scudder Short Term Bond Fund, 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 December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER SHORT TERM BOND FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,074 10.74% 10.74%
5 Year $14,033 40.33% 7.01%
10 Year* $21,592 115.92% 8.00%
SALOMON BROTHERS INC. BROAD INVESTMENT
GRADE BOND INDEX (1 - 3 YEARS)
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,089 10.89% 10.89%
5 Year $14,028 40.28% 7.00%
10 Year $21,209 112.09% 7.80%
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 DECEMBER 31
Scudder Short Term Bond Fund
Year Amount
- ----------------------
85 $10,000
86 $11,466
87 $11,628
88 $12,362
89 $14,003
90 $15,387
91 $17,600
92 $18,556
93 $20,074
94 $19,498
95 $21,592
Salomon Brothers Inc. Broad Investment
Grade Bond Index (1 - 3 years)
Year Amount
- ----------------------
85 $10,000
86 $11,046
87 $11,678
88 $12,425
89 $13,783
90 $15,119
91 $16,910
92 $18,000
93 $19,013
94 $19,127
95 $21,209
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 DECEMBER 31
<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... $11.92 $11.23 $11.19 $11.71 $11.72 $12.25 $11.93 $12.01 $10.91 $11.35
INCOME DIVIDENDS.. $ .81 $ .74 $ .73 $ .83 $ 1.09 $ 1.08 $ .96 $ .80 $ .76 $ .71
CAPITAL GAINS
DISTRIBUTIONS..... $ .21 $ .11 $ -- $ .09 $ -- $ -- $ -- $ .07 $ -- $ --
FUND TOTAL
RETURN (%)........ 14.70 1.40 6.10 13.20 9.88 14.38 5.43 8.18 -2.87 10.74
INDEX TOTAL
RETURN (%)........ 10.46 5.72 6.40 10.93 9.70 11.85 6.44 5.63 .60 10.89
</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 20.
*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 59.09% and 7.76%, respectively.
4
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1995
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
U.S. Gov't Guaranteed
Mortgages 25% The Fund's holdings of
Asset-Backed Securities 17% mortgage-backed securities were
Collateralized Mortgage increased during the period
Obligations 17% with an emphasis on "seasoned"
Corporate Bonds 16% GNMA securities.
U.S. Government &
Agencies 11%
Commercial Paper 8%
Indexed Securities 6%
----
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 51%
AAA* 22% Historically, the Fund has
AA 2% maintained a high-quality
A 9% portfolio.
BBB 16%
----
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 11% The Fund's weighted average
1 - 5 years 75% effective maturity was extended
5 - 8 years 8% to roughly three years, its limit
8 years or greater 6% by prospectus, to take advantage
---- of this year's rally in bond
100% prices.
====
Weighted average effective maturity: 2.98 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 and quarterly Portfolio Holdings
are available upon request.
5
<PAGE>
SCUDDER SHORT TERM BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Scudder Short Term Bond Fund returned a gratifying 10.74% in 1995, based on
a combination of price change and income distributions. The Fund's net asset
value increased $0.44 during the period, from $10.91 to $11.35 on December 31,
1995, and the Fund paid a total of $0.71 per share in distributions, of which
39% consisted of non-taxable distributions from capital. By comparison, the
unmanaged Salomon Brothers Broad Investment Grade Bond Index (1-3 years), the
Fund's benchmark index, returned 10.89%. The Fund's 30-day net annualized SEC
yield finished the year at 5.84%, a decline from a year earlier but still well
above the average money market fund yield. This lower yield reflects both a
widespread drop in interest rates and a change in the investment composition of
the portfolio.
The Makings of A Bond Market Rally
The economic backdrop during 1995 was quite favorable for bond investors.
Domestic economic growth remained slow as businesses worked off excess
inventories, the economies of many U.S. trading partners continued to falter,
and consumers began to rein in spending. Despite fears to the contrary,
inflation was subdued throughout the year as wage growth remained modest. The
Federal Reserve hailed this disinflationary news by lowering the targeted
federal funds rate by 1/4 of one percentage point on two occasions during the
year. Lending strength to the market, the U.S. dollar fell dramatically versus
the Japanese yen during the first half of 1995, which led to significant
currency intervention by central bankers and subsequent demand for
short-maturity U.S. Treasury securities. The dollar staged an impressive rebound
in the second half of the year versus the yen, lending further support to lower
U.S. interest rates. Adding to this positive environment was the potential for a
credible deficit reduction plan. The Republican congressional majority shifted
deficit reduction and a balanced budget to the forefront of the political
agenda.
Bond investors clearly were impressed by the developments of 1995, which
led interest rates in the two to three year maturity range to fall over two and
one half percentage points, and pushed long-term rates down nearly two
percentage points. The Fund benefited greatly from this decline in rates, and
its average effective maturity was kept between 2 1/2 and 3 years (its maximum
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
by prospectus) for much of the year. The Fund's duration -- a mathematical
measure of sensitivity to interest rates -- began the year at a defensive 0.5
year but was extended to 2.0 years in February and to approximately 2.5 years
for much of the third and fourth quarters.
Stressing Diversification, High Quality
During the year, we actively managed the Fund's exposure to the various
sectors of the bond market with an emphasis on high-quality securities. As of
December 31, 1995, the portfolio represented seven segments of the
short-maturity bond market and had an overall credit quality rating of AAA-. In
the corporate sector (16% of portfolio holdings as of December 31), the Fund
benefited from holdings in issuers such as Lyondell Petrochemical, which
received a rating agency upgrade during the year. The Fund also benefited from
the performance of such corporate bonds as Time Warner and improving credits
such as The Money Store and real estate investment trust Taubman Realty.
In the mortgage sector (approximately 42% of portfolio holdings as of
December 31), the Fund's exposure to bonds of various coupons was actively
managed as opportunities arose. In particular, we increased the Fund's holdings
of "seasoned" premium mortgages such as GNMA 10% and GNMA 9% bonds. Seasoned
securities are so called because homeowners with the underlying mortgages have
had several opportunities to refinance at lower rates and for one reason or
another have not. We believe the premium paid is worth the reduced risk of
prepayment should interest rates move lower, and we expect these bonds to
outperform less-seasoned bonds in such an environment.
In the asset-backed arena (17% of portfolio holdings as of December 31), we
continue to place emphasis on issues with short average maturities backed by
manufactured housing loans, home equity loans, and credit card receivables.
These issues currently offer attractive yields relative to such short-maturity
alternatives as U.S. Treasury bills and notes.
7
<PAGE>
SCUDDER SHORT TERM BOND FUND
Scudder Short Term
Bond Fund:
A Team Approach to Investing
Scudder Short Term Bond Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund. They are supported by Scudder's large staff of
economists, research analysts, traders, and other investment specialists who
work in our offices across the United States and abroad. We believe our team
approach benefits Scudder Short Term Bond Fund investors by bringing together
many disciplines and leveraging Scudder's extensive resources.
Since Scudder Short Term Bond Fund was introduced in 1989, Lead Portfolio
Manager Thomas M. Poor has had responsibility for the Fund's day-to-day
operation. Tom, who joined Scudder in 1970, sets the Fund's general investment
strategies. Christopher L. Gootkind, Portfolio Manager, also has been a member
of the Fund's team since its inception. Chris, who has worked in the investment
industry since 1981 and at Scudder since 1986, has responsibility for the Fund's
bank, finance, and asset-backed securities. Scott E. Dolan, Portfolio Manager,
joined Scudder in 1989 and the Fund's portfolio management team in 1993. Scott
has six years of experience in the investment industry and is responsible for
implementing investment strategy.
Looking Ahead
Looking forward to 1996, we believe the outlook for the domestic
fixed-income market is favorable. The U.S. economy is at the end of an aging
expansion, and the outlook for domestic demand is questionable given the average
consumer's growing debt burden. We have already begun to see a rise in consumer
loan delinquency rates, signaling more trouble may lie ahead. We do not expect
our major trading partners in Europe and the Americas to bail out the U.S.
economy given that many of their economies are now experiencing slow to
declining growth. Our economic forecast calls for slower growth in the first
half and the potential for negative growth in the second half of 1996. In this
environment, further declines in inflation are looked for as demand recedes and
secular trends such as increased productivity, aging demographics, and
deregulation continue to contain price pressures.
Given this economic outlook, we expect that interest rates will fall
further in 1996. Additional Fed easing in particular should result in a steeper
yield curve, with shorter-term interest rates declining more than longer-term
rates, which would be positive for Scudder Short Term Bond Fund as most of its
investments are located in the short end of the yield curve. In this
environment, we believe the Fund will continue to provide shareholders with a
competitive current yield and the potential for attractive total returns.
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>
INVESTMENT PORTFOLIO as of December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
7.9% COMMERCIAL PAPER
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
57,000,000 American Express Credit Corp.,
5.66%, 1/30/9.............................................. 57,000,000
27,500,000 Associates Corp. of North America,
5.954%, 1/2/96............................................. 27,500,000
28,000,000 Household Finance Corp., 5.754%, 1/2/96..................... 28,000,000
40,000,000 Prudential Funding Corp., 5.78%, 1/5/96..................... 40,000,000
-----------
TOTAL COMMERCIAL PAPER (Cost $152,500,000).................. 152,500,000
-----------
----------------------------------------------------------------------------------------------------
10.4% U.S. GOVERNMENT & AGENCIES
----------------------------------------------------------------------------------------------------
18,000,000 U.S. Treasury Note, 5.375%, 11/30/97........................ 18,059,040
20,000,000 U.S. Treasury Note, 6.875%, 3/31/00......................... 21,128,200
18,000,000 U.S. Treasury Note, 5.625%, 11/30/00........................ 18,163,080
82,000,000 U.S. Treasury STRIP, 2/15/04................................ 52,284,020
107,500,000 U.S. Treasury STRIP, 2/15/99................................ 91,355,650
-----------
TOTAL U.S. GOVERNMENT & AGENCIES
(Cost $197,353,683)........................................ 200,989,990
-----------
----------------------------------------------------------------------------------------------------
25.3% U.S. GOV'T GUARANTEED MORTGAGES
----------------------------------------------------------------------------------------------------
17,577,441 Federal Home Loan Mortgage Corp.,
5 year Balloon, 5%, with various
maturities to 7/1/99....................................... 17,275,286
15,634,936 Federal Home Loan Mortgage Corp.,
5 year Balloon, 7%, 9/1/98................................. 15,893,851
201,524 Federal National Mortgage Association,
5.5%, with various maturities to 1/1/01.................... 198,059
1,784,673 Federal National Mortgage Association,
7.338%, 1/1/19............................................. 1,823,150
3,870,206 Federal National Mortgage Association,
7.706%, 11/1/22............................................ 3,936,116
7,368,102 Federal National Mortgage Association,
7.733%, 10/1/23............................................ 7,568,441
2,435,526 Federal National Mortgage Association,
7 year Balloon, 5.5%, with various
maturities to 9/1/02....................................... 2,393,659
376,916 Federal National Mortgage Association,
7 year Balloon, 6%, 6/1/01................................. 376,208
21,965,641 Federal National Mortgage Association,
7 year Balloon, 8.5%, with various
maturities to 5/1/02....................................... 22,576,506
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
SCUDDER SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
19,426,553 Government National Mortgage Association
Pass-through 6.5% with various maturities to
9/20/25.................................................... 19,760,446
61,681,771 Government National Mortgage Association
Pass-through 8% with various maturities to
10/15/25................................................... 64,264,387
55,316,441 Government National Mortgage Association
Midget Pass-through 8% with various
maturities to 12/15/10..................................... 57,701,685
105,500,000 Government National Mortgage Association
Pass-through 9% with various maturities to
12/15/21................................................... 112,142,280
115,960,305 Government National Mortgage Association
Pass-through 10% with various maturities to
2/15/25.................................................... 127,927,027
3,747,302 Government National Mortgage Association
Pass-through 11% with various maturities to
10/20/20................................................... 4,209,160
27,012,509 Government National Mortgage Association
Pass-through 11.5% with various maturities to
4/15/19.................................................... 30,878,287
-----------
TOTAL U.S. GOVERNMENT GUARANTEED
MORTGAGES (Cost $481,670,267)............................. 488,924,548
-----------
----------------------------------------------------------------------------------------------------
17.0% COLLATERALIZED MORTGAGE OBLIGATIONS
----------------------------------------------------------------------------------------------------
904,580 Chase Mortgage Finance Corp.,
Series 1992-L1 1A3, 5.5%, 11/25/09......................... 901,470
4,868,993 Chase Mortgage Finance Corp.,
Series 1993-I2 A2, 7.25%, 7/25/24.......................... 4,853,777
20,589,000 Chase Mortgage Finance Corp.,
Series 1993-I2 A3, 7.25%, 7/25/24.......................... 20,679,077
4,175,000 Chemical Mortgage Securities Inc.,
Series 1993-1 A4, 7.45%, 2/25/23........................... 4,263,719
2,840,680 Daiwa Mortgage Acceptance Corp.,
Series 1991A, 8.625%, 3/15/10.............................. 2,851,333
5,580,463 Federal Home Loan Mortgage Corp.,
Series 1381-Z, 6%, 7/15/05................................. 5,568,242
42,542,479 Federal Home Loan Mortgage Corp.,
Series 1719-C PO, 4/15/99.................................. 37,517,149
55,231,388 Federal Home Loan Mortgage Corp.,
Series 167-A, STRIP, PO, 5/1/99............................ 48,672,661
57,435,656 Federal Home Loan Mortgage Corp.,
REMIC, Series 1724-PO, 5/15/01............................. 48,721,590
9,850,000 Federal Home Loan Mortgage Corp.,
Series 1267 O, 7.25%, 12/15/05............................. 10,050,054
9,622,636 Federal Home Loan Mortgage Corp.,
Series 1276-C, 7.5%, 12/15/05.............................. 9,709,817
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4,400,000 Federal Home Loan Mortgage Corp.,
Series 1406-E, 6%, 12/15/18................................ 4,334,000
5,250,000 Federal Home Loan Mortgage Corp.,
Series 1250-F, 7%, 4/15/19................................. 5,307,383
937,660 Federal National Mortgage Association,
1989-68 G, 8.75%, 8/25/18.................................. 945,865
20,469,000 First Bank System Inc., Series 1993-F,
7.1844%, 11/25/24.......................................... 20,590,535
11,018,882 Fund America Investors Corp., Series 1991-1H,
7.95%, 2/20/20............................................. 11,170,392
500,000 General Electric Capital Mortgage
Services, Inc., Series 1992-2F, 7%, 6/25/07................ 488,125
30,075,000 General Electric Capital Mortgage
Services, Inc., Series 1993-14, 6.5%, 1/25/18.............. 30,037,406
13,059,694 General Electric Capital Mortgage
Services, Inc., Series 1994-27, 6.5%, 7/25/24.............. 13,100,506
151,669 Kidder, Peabody & Co. Mortgage Assets Trust,
2-B, 8.2%, 1/20/18......................................... 151,383
1,824,000 Paine Webber Mortgage Acceptance Corp.,
Series 1993-6, 6.9%, 8/25/08............................... 1,848,510
2,663,804 Prudential Home Mortgage Securities Co.,
Series 1992-47 A7, 7.5%, 1/25/23........................... 2,660,475
3,220,000 Residential Funding Mortgage Securities,
Series 1993-A2, 6.85%, 9/25/23............................. 3,215,472
19,500,000 Residential Funding Mortgage Securities,
Series 1993-A5, 7.0924%, 10/25/23.......................... 19,487,813
905,000 Resolution Trust Corp., Series A, Zero
Coupon, 7/15/97............................................ 836,537
2,808,285 Resolution Trust Corp., Series 1992 A2A,
7.5%, 8/25/23.............................................. 2,833,735
4,352,840 Resolution Trust Corp., Series 1992 A2C,
7.5%, 8/25/23.............................................. 4,359,641
13,294,537 Ryland Acceptance Corp., Series 97-H, 8.95%,
8/20/19.................................................... 13,705,737
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $332,878,542)........................................ 328,862,404
-----------
----------------------------------------------------------------------------------------------------
17.1% ASSET-BACKED SECURITIES
----------------------------------------------------------------------------------------------------
CREDIT CARD
RECEIVABLES 0.7% 13,735,849 First USA Bank, Series 1994-1, 7.45%,
4/15/99.................................................... 13,818,264
-----------
HOME EQUITY LOANS 7.6% 2,498,456 AFC Home Equity Loan Trust,
Series 1990-3A, 9.6%, 9/15/05.............................. 2,543,740
1,087,990 AFC Home Equity Loan Trust,
Series 1992-3A, 7.05%, 8/15/07............................. 1,081,870
1,548,715 AFC Home Equity Loan Trust,
Series 1993-3A, 5.45%, 6/20/13............................. 1,472,247
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
SCUDDER SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,613,313 CTS Home Equity Loan Trust,
Series 1991-1A, 8.8%, 1/15/06.............................. 1,649,613
1,175,547 Contimortgage Home Equity Loan Trust,
Series 1991-1, 9.52%, 4/15/06.............................. 1,248,651
7,522,188 Contimortgage Home Equity Loan Trust,
Series 1994-5 A1, 9.07%, 5/15/06........................... 7,549,221
28,500,000 Contimortgage Home Equity Loan Trust,
Series 1995-1 A2, 8.6%, 2/15/10............................ 29,221,406
3,887,400 Equity Credit Corp. Home Equity Loan
Trust, 5.3%, 9/15/08....................................... 3,761,667
3,023,088 Equity Credit Corp. Home Equity Loan
Trust, Series 1993-4B, 5.65%, 12/15/08..................... 2,956,013
4,250,137 Fleet Financial Home Equity Loan Trust,
Series 1991-2A, 6.7%, 10/15/06............................. 4,289,982
6,678,324 Home Equity Loan Trust, Series 1992 A,
6.65%, 11/20/12............................................ 6,690,812
1,458,486 Home Equity Loan Trust, Series 1992 B,
6.85%, 11/20/12............................................ 1,459,390
2,561,520 Household Finance Home Equity Trust,
Series 1992-2 A3, 5.25%, 10/20/07.......................... 2,542,309
1,735,485 Mid-State Homes IV, Series 1, 8.33%, 4/1/30................. 1,886,255
2,175,004 Old Stone Credit Corp., Series 1991-2,
8.42%, 9/15/06............................................. 2,250,450
7,163,875 Old Stone Credit Corp. Home Equity Loan,
Series 1992-2 A2, 6.95%, 5/15/07........................... 7,222,045
6,295,313 Old Stone Credit Corp. Home Equity Loan,
Series 1992-3 A2, 6.3%, 9/25/07............................ 6,267,740
1,758,874 Old Stone Credit Corp. Home Equity Loan,
Series 1993-1 A1, 5.85%, 3/15/08........................... 1,736,613
2,126,646 Security Pacific Home Equity Loan Trust,
Series 1991-2A, 8.1%, 6/15/20.............................. 2,149,890
3,980,722 Security Pacific Home Equity Loan Trust,
Series 1991-2B, 8.15%, 6/15/20............................. 4,064,038
15,600,000 Security Pacific Home Equity Trust,
Series 1991-A B, 10.5%, 3/10/06............................ 16,265,438
27,317,425 TMS Home Equity Loan Trust,
Series 1993-D2 A2, 5.075%, 2/15/18......................... 26,754,003
9,700,000 U.S. Home Equity Loan, Series 1991-2B,
9.125%, 4/15/21............................................ 9,954,625
1,222,340 U.S. Home Equity Loan, Series 1991-2A,
8.5%, 4/15/21.............................................. 1,240,675
-----------
146,258,693
-----------
MANUFACTURED
HOUSING RECEIVABLES 8.8% 5,061,984 Chemical Financial Acceptance Corp.,
Housing Trust, Series 1989 A, Participating
Certificate, 9.25%, 5/15/98................................ 5,247,050
22,846,378 Green Tree Financial Corp., Securitized
NIM, Series 1994A, 6.9%, 2/15/04........................... 23,021,296
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
20,497,050 Green Tree Financial Corp., Securitized
NIM, Series 1994B, 7.85%, 7/15/04.......................... 20,910,194
1,950,000 Green Tree Home Improvement Financial
Corp., Series 1995-C B1, 7.2%, 7/15/20..................... 1,987,781
2,825,000 Green Tree Financial Corp., Series 1995-F A4,
6.15%, 1/15/21............................................. 2,836,918
2,000,000 Green Tree Financial Corp., Series 1995-F B2,
7.1%, 1/15/21.............................................. 2,005,000
5,715,000 Green Tree Financial Corp., Series 1995-1 B2,
9.2%, 6/15/25.............................................. 6,415,088
20,636,400 Green Tree Financial Corp., Series 1995-3 B2,
8.1%, 8/15/25.............................................. 21,858,462
11,769,720 Green Tree Financial Corp., Series 1995-6,
8%, 9/15/25................................................ 12,529,235
445,000 Green Tree Financial Corp., Series 1995-D A3,
6.45%, 9/15/25............................................. 455,082
750,000 Green Tree Financial Corp., Series 1995-D B1,
7.05%, 9/15/25............................................. 761,484
9,000,000 Green Tree Financial Corp., Series 1995-5,
7.65%, 9/15/26............................................. 9,174,330
219,236 Merrill Lynch Mortgage Investors Inc.,
Series 1988-H, 9.7%, 6/15/08............................... 223,483
485,162 Merrill Lynch Mortgage Investors Inc.,
Series 1988-Q, 9.8%, 10/15/08.............................. 493,346
323,044 Merrill Lynch Mortgage Investors Inc.,
Series 1989-F, 9.75%, 10/15/09............................. 329,605
2,306,120 Merrill Lynch Mortgage Investors Inc.,
Series 1990-C, 9.7%, 6/15/10............................... 2,412,040
4,502,145 Merrill Lynch Mortgage Investors Inc.,
Series 1990-H, 9.25%, 1/15/11.............................. 4,651,256
4,220,886 Merrill Lynch Mortgage Investors Inc.,
Series 1990-I, 10%, 1/15/11................................ 4,463,587
936,427 Merrill Lynch Mortgage Investors Inc.,
Series 1991-B, 9.2%, 3/15/11............................... 961,008
3,302,442 Merrill Lynch Mortgage Investors Inc.,
Series 1991-A, 9.25%, 4/15/11.............................. 3,416,971
3,557,363 Merrill Lynch Mortgage Investors Inc.,
Series 1991-C, 8.9%, 7/15/11............................... 3,734,093
5,891,992 Merrill Lynch Mortgage Investors Inc.,
Series 1991-G, 9.15%, 10/15/11............................. 6,227,069
12,274,127 Merrill Lynch Mortgage Investors Inc.,
Series 1992-B, 8.5%, 4/15/12............................... 12,761,164
5,288,521 Merrill Lynch Mortgage Investors Inc.,
Series 1992-B A4, 7.85%, 4/15/12........................... 5,410,791
3,552,642 Merrill Lynch Mortgage Investors Inc.,
Series 1992-D, 7.95%, 7/15/17.............................. 3,651,441
7,737,365 Security Pacific Acceptance Corp.,
Series 1991-2B, 8.55%, 9/15/11............................. 8,034,712
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
SCUDDER SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7,083,739 Security Pacific Acceptance Corp.,
Series 1991-A2, 7.1%, 6/15/12.............................. 7,156,772
-----------
171,129,258
-----------
TOTAL ASSET-BACKED SECURITIES
(Cost $324,958,792)........................................ 331,206,215
-----------
----------------------------------------------------------------------------------------------------
15.8% CORPORATE BONDS
----------------------------------------------------------------------------------------------------
FINANCIAL 8.8% 5,000,000 American General Finance Corp., 8.875%,
3/15/96.................................................... 5,030,000
6,000,000 Associates Corp. of North America, 8.75%,
2/1/96..................................................... 6,012,360
4,000,000 Associates Corp. of North America, 5.875%,
8/15/97.................................................... 4,025,840
14,000,000 British Aerospace Finance Inc., 7.15%, 6/24/97.............. 14,266,000
5,000,000 Discover Credit Corp., Medium Term Note,
Series 2, 8.73%, 8/15/96................................... 5,090,200
5,000,000 First Union Corp., 8.125%, 12/15/96......................... 5,116,300
5,225,000 Health Care Properties Investors Inc.,
6%, 11/8/00................................................ 5,166,219
1,500,000 Household Finance Corp. Medium Term Note,
10.08%, 4/1/96............................................. 1,514,685
18,000,000 Manufacturers Hanover Corp., 5.75%, 4/30/97................. 17,955,000
4,000,000 Marine Midland Bank, 6%, 12/20/00........................... 3,950,000
11,000,000 Spieker Properties, 6.65%, 12/15/00......................... 11,008,800
5,500,000 Spieker Properties, 6.8%, 12/15/01.......................... 5,508,800
3,500,000 Spieker Properties, 6.95%, 12/15/02......................... 3,507,700
3,300,000 Taubman Realty Group LP Medium Term Note,
7.4%, 6/10/02.............................................. 3,298,185
19,150,000 Taubman Realty Group LP Medium Term Note,
7.5%, 6/15/02.............................................. 19,236,175
15,700,000 The Money Store Inc., 9.16%, 9/9/97......................... 16,320,150
21,520,000 The Money Store Inc., Series B, 9.16%, 9/9/97............... 22,370,040
8,000,000 The Money Store Inc., 7.63%, 4/15/98........................ 8,160,400
10,000,000 United Savings Association of Texas,
9.05%, 5/15/98............................................. 9,825,000
2,500,000 World Savings & Loan Association of
Oakland, CA, 10.25%, 10/1/97............................... 2,682,300
-----------
170,044,154
-----------
MEDIA 1.6% 29,100,000 Time Warner Inc., 7.95%, 2/1/00............................. 30,676,638
-----------
SERVICE INDUSTRIES 0.8% 19,060,000 Hanson America, 2.39%, 3/1/01............................... 15,772,150
-----------
DURABLES 1.6% 5,398,488 Ford Motor Co., 8.42%, 12/30/96............................. 5,490,262
24,970,000 McDonnell Douglas Corp., Medium-Term Note,
6.54%, 7/29/96............................................. 25,066,884
-----------
30,557,146
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANUFACTURING 3.0% 12,940,000 Lyondell Petrochemical Co., 9.95%,
6/1/96..................................................... 13,146,264
13,775,000 Lyondell Petrochemical Co., 8.25%, 3/15/97.................. 14,130,395
14,400,000 Lyondell Petrochemical Co., 10%, 6/1/99..................... 16,120,080
9,000,000 Lyondell Petrochemical Co. Global Note,
9.125%, 3/15/02............................................ 10,288,620
4,600,000 Lyondell Petrochemical Co., 9.75%, 9/4/03................... 5,578,052
-----------
59,263,411
-----------
TOTAL CORPORATE BONDS (Cost $304,719,013)................... 306,313,499
-----------
----------------------------------------------------------------------------------------------------
0.1% MEDIUM-TERM MUNICIPAL INVESTMENTS
----------------------------------------------------------------------------------------------------
1,000,000 Massachusetts Industrial Finance Agency,
6%, 7/1/96 (Cost $ 1,000,000).............................. 1,001,620
-----------
----------------------------------------------------------------------------------------------------
6.3% COUPON INDEXED SECURITIES
----------------------------------------------------------------------------------------------------
39,500,000 Bayerische Landesbank Medium Term Note,
inversely indexed to 30 day Commercial
Paper Bond Equivalent Yield, 5.65%, 12/29/97............... 40,191,250
24,850,000 Credit Suisse Medium Term Note, inversely
indexed to 2 year Spanish Peseta Swap Rate,
2.335%, 7/8/96............................................. 24,623,865
52,400,000 Federal National Mortgage Association
Medium Term Note, inversely indexed to
30 day Commercial Paper Bond Equivalent
Yield, 9.452%, 12/29/97.................................... 56,330,000
-----------
TOTAL COUPON INDEXED SECURITIES
(Cost $118,470,556)........................................ 121,145,115
-----------
----------------------------------------------------------------------------------------------------
0.1% PURCHASED OPTIONS
----------------------------------------------------------------------------------------------------
526 Call on U.S. Treasury Bond, strike price 120,
expires 2/16/96............................................ 1,339,656
787 Call on U.S. Treasury Bond, strike price 122,
expires 2/16/96............................................ 1,143,609
-----------
TOTAL PURCHASED OPTIONS
(Cost $1,967,522).......................................... 2,483,265
-----------
===================================================================================================================================
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $1,915,518,375)(a)................................... 1,933,426,656
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
SCUDDER SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $1,915,518,375. At
December 31, 1995, net unrealized appreciation for all securities based on
tax cost was $17,908,281. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $28,288,886 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $10,380,605.
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
Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association and the Government National Mortgage Association issues which
have similar coupon rates have been aggregated for presentation purposes
in the investment portfolio.
CURRENCY ABBREVIATIONS AND OTHER ACRONYMS USED IN THIS PORTFOLIO:
NIM Net Interest Margin
REMIC Real Estate Mortgage Investment Conduit
STRIP Separate Trading Registered Interest and Principal
PO Principal Only
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market
(identified cost $1,915,518,375)
(Note A)........................... $1,933,426,656
Cash.................................. 5,719,555
Receivables:
Interest........................... 12,577,935
Fund shares sold................... 1,931,680
--------------
Total assets.................... 1,953,655,826
LIABILITIES
Payables:
Investments purchased.............. $122,654,886
Fund shares redeemed............... 4,557,874
Dividends.......................... 2,147,933
Accrued management fee (Note C).... 758,516
Other accrued expenses (Note C).... 715,567
------------
Total liabilities............... 130,834,776
--------------
Net assets, at market value........... $1,822,821,050
==============
NET ASSETS
Net assets consist of:
Unrealized appreciation on investments $ 17,908,281
Accumulated net realized loss....... (94,805,084)
Shares of beneficial interest....... 1,605,344
Additional paid-in capital.......... 1,898,112,509
--------------
Net assets, at market value............ $1,822,821,050
==============
NET ASSET VALUE, offering and redemption price per
share ($1,822,821,050/160,534,389 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) $11.35
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
SCUDDER SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $138,487,820
Expenses:
Management fee (Note C).................... $ 9,529,973
Services to shareholders (Note C).......... 3,993,269
Custodian and accounting fees (Note C)..... 385,724
Trustees' fees (Note C).................... 12,751
Reports to shareholders.................... 395,774
Auditing................................... 95,974
Federal and state registration............. 35,531
Legal...................................... 9,820
Other ..................................... 85,839 14,544,655
----------------------------
Net investment income...................... 123,943,165
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments............................. (73,353,234)
Futures................................. (5,591,835)
Foreign currency related transactions... (895,801) (79,840,870)
------------
Net unrealized appreciation (depreciation)
during the period on:
Investments............................. 170,042,186
Futures................................. (13,690,415) 156,351,771
----------------------------
Net gain on investment transactions........ 76,510,901
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $200,454,066
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income......................... $ 123,943,165 $ 187,777,310
Net realized loss from investment
transactions.............................. (79,840,870) (79,769,043)
Net unrealized appreciation (depreciation) on
investment transactions during the
period.................................... 156,351,771 (188,626,897)
-------------- ---------------
Net increase (decrease) in net assets resulting
from operations........................... 200,454,066 (80,618,630)
-------------- ---------------
Distributions to shareholders from:
Net investment income ($.43 and $.64 per
share, respectively).................... (75,809,129) (149,862,207)
-------------- ---------------
Tax return of capital ($.28 and $.12 per
share, respectively).................... (48,134,036) (27,524,389)
-------------- ---------------
Fund share transactions:
Proceeds from shares sold..................... 434,415,510 1,037,772,973
Net asset value of shares issued to
shareholders in reinvestment
of distributions.......................... 93,453,411 134,347,811
Cost of shares redeemed....................... (917,495,507) (1,968,606,250)
-------------- ---------------
Net decrease in net assets from
Fund share transactions................... (389,626,586) (796,485,466)
-------------- ---------------
DECREASE IN NET ASSETS........................ (313,115,685) (1,054,490,692)
Net assets at beginning of period............. 2,135,936,735 3,190,427,427
-------------- ---------------
NET ASSETS AT END OF PERIOD................... $1,822,821,050 $ 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................................... 39,170,009 89,258,004
Shares issued to shareholders in
reinvestment of distributions............. 8,406,276 11,736,021
Shares redeemed............................... (82,818,419) (170,827,860)
-------------- ---------------
Net decrease in Fund shares................... (35,242,134) (69,833,835)
-------------- ---------------
Shares outstanding at end of period........... 160,534,389 195,776,523
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
SCUDDER SHORT TERM BOND FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1995 1994 1993(c) 1992 1991 1990 1989 1988 1987 1986
-----------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (a).............. .71 .81 .87 .97 1.08 1.09 .83 .73 .74 .81
Net realized and unrealized
gains (losses)....................... .44 (1.15) .08 (.33) .53 .01 .61 (.04) (.58) .78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
transactions......................... 1.15 (.34) .95 .64 1.61 1.10 1.44 .69 .16 1.59
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income........... (.43) (.64) (.80) (.96) (1.08) (1.09) (.83) (.73) (.74) (.81)
From net realized gains.............. -- -- (.03) -- -- -- (.09) -- (.11) (.21)
In excess of gains................... -- -- (.04) -- -- -- -- -- -- --
From tax return of capital........... (.28) (.12) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...................... (.71) (.76) (.87) (.96) (1.08) (1.09) (.92) (.73) (.85) (1.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period........... $11.35 $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23 $11.92
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)......................... 10.74 (2.87) 8.18 5.43 14.38 9.88 13.20 6.10 1.40 14.70
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions)......................... 1,823 2,136 3,190 2,862 2,247 340 72 10 10 8
Ratio of operating expenses net, to
average daily net assets (%)......... .75 .73 .68 .75 .44 .16 .36 1.50 1.45 1.45
Ratio of net investment income net,
to average daily net assets (%)...... 6.37 6.93 7.21 8.01 8.96 9.36 7.97 6.48 6.34 6.89
Portfolio turnover rate (%).............. 101.1 65.3 66.1 83.7(b) 41.0 52.9 40.0 23.5 28.7 15.6
<FN>
(a) Portion of expenses
reimbursed by
the Adviser........................ $ -- $ -- $ -- $ -- $ -- $ .02 $ .10 $ .04 $ .04 $ --
Management fee not imposed
by the Adviser (Note C).............. $ -- $ -- $ -- $ -- $ .06 $ .07 $ .05 $ -- $ -- $ .01
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.
</FN>
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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 the
Fund sold interest rate futures to hedge against declines in the value of
portfolio securities.
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
21
<PAGE>
SCUDDER SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
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.
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.
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.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1995, the Fund had a net tax basis capital loss carryforward of
approximately $79,822,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December
31, 2002 ($27,264,000) and December 31, 2003 ($52,558,000), the respective
expiration dates. In addition, from November 1, 1995 through December 31, 1995,
the Fund incurred approximately $1,093,000 of net realized capital losses. As
permitted by tax regulations, the Fund intends to elect to defer these losses
and treat them as having arisen in the year ended December 31, 1996.
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 futures, options, 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.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
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.
23
<PAGE>
SCUDDER SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the year ended December 31, 1995, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $1,227,108,064 and $1,747,697,124 respectively. Purchases and sales
of U.S. Government obligations aggregated $657,559,369 and $371,441,027,
respectively.
The face value of futures contracts closed during the year ended December 31,
1995 amounted to $2,259,185,415.
<TABLE>
Transactions in written options for the year ended December 31, 1995 are
summarized as follows:
<CAPTION>
OPTIONS CONTRACTS OPTIONS ON CURRENCIES
---------------------------- ----------------------------
NUMBER OF PREMIUMS CANADIAN PREMIUMS
CONTRACTS RECEIVED ($) DOLLARS RECEIVED ($)
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Beginning of Period............... -- -- -- --
Written........................... 2,400 3,114,750 160,150,977 1,137,072
Closed............................ (2,400) (3,114,750) (160,150,977) (1,137,072)
------ ---------- ------------ ----------
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, 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
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
year ended December 31, 1995, the fee pursuant to the Management Agreement
amounted to $9,529,973, which was equivalent to an annualized effective rate of
0.49% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. Included
in services to shareholders is $3,187,870 charged to the Fund by SSC for the
year ended December 31, 1995, of which $337,085 is unpaid at December 31, 1995.
Effective July 19, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
subsidiary of the Adviser, assumed responsibility for determining the daily net
asset value per share and maintaining the portfolio and general accounting
records of the Fund. For the year ended December 31, 1995, the amount charged
to the Fund by SFAC aggregated $100,885 of which $17,155 is unpaid at December
31, 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 year ended December 31,
1995, Trustees' fees aggregated $12,751.
25
<PAGE>
SCUDDER SHORT TERM BOND FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER FUNDS TRUST AND TO THE SHAREHOLDERS OF SCUDDER SHORT
TERM BOND FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Short Term Bond Fund as of December 31, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the ten years in the period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Short Term Bond Fund as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the ten years in the period then ended in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 9, 1996
26
<PAGE>
TAX INFORMATION
- --------------------------------------------------------------------------------
By now shareholders to whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund. For corporate shareholders no amount of the income dividends paid by the
Fund qualified for the dividends received deduction.
In many states the amount of income you receive from obligations of the U.S.
Government is exempt from your state income taxes. Of the Fund's dividends from
net investment income, 4.44% was derived from direct obligations of the U.S.
Government, 0.77% from the Student Loan Marketing Association and 2.68% from
the Federal Home Loan Bank.
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 Scudder Fund account, please call a Scudder Investor
Relations Representative at (800) 225-5163.
27
<PAGE>
(This page intentionally left blank.)
28
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
Lynn S. Birdsong*
Trustee
Sheryle J. Bolton
Trustee; Consultant
Thomas J. Devine
Trustee; Consultant
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dr. 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
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
-----------------------------------------------------------------------------------------------------------------
<C> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder Income Fund
Scudder California Tax Free Money Fund* Scudder International Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Bond 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 Small Company Value Fund
Scudder Growth and Income Fund Scudder Value 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 Treasurers Trust(TM)++
Scudder Fund, Inc.
-----------------------------------------------------------------------------------------------------------------
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +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>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
<C> <C>
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your
Scudder accounts; exchanges and
redemptions; or information on any
Scudder fund
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 meetthe broad
corporations, non-profit organiza- investment management and
tions and trusts that uses and service needs of banks
certain portfolios of Scudder and other institutions, call
Fund, Inc.* 1-800-854-8525.
($100,000 minimum), call
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 37 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.
