This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Zero Coupon
2000 Fund
Semiannual Report
June 30, 1996
o For investors who seek as high an investment return over a select period
as is consistent with investment in
U.S. government securities and the minimization of reinvestment risk.
o A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Management Discussion
8 Investment Portfolio
9 Financial Statements
12 Financial Highlights
13 Notes to Financial Statements
17 Officers and Trustees
18 Investment Products and Services
19 How to Contact Scudder
IN BRIEF
o Reflecting the market's negative reaction to surprisingly strong U.S.
economic growth during the second quarter of 1996, Scudder Zero Coupon 2000
Fund posted a total return of -3.32% for its most recent semiannual period
ended June 30, 1996.
THE PRINTED DOCUMENT HAD A BAR CHART HERE
BAR CHART TITLE: Total Returns
BAR CHART PERIOD: For Periods Ended June 30, 1996
BAR CHART DATA:
Scudder Lehman Brothers
Zero Coupon Government/Corporate
2000 Fund Index
--------- -----
Six months -3.32% -1.88%
1 Year 2.41 4.66
5 Years * 9.43 8.48
10 Years * 8.13 8.41
*Average Annual
o We lowered the Fund's duration during the period in light of the uncertain
interest rate outlook; duration was then set at a neutral 4.6 years at the
close of the period as we awaited the next turn in the economy.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
For two years through the end of June, the U.S. stock market has been a
stellar performer and bonds have been overshadowed by stocks. Many people have
emphasized stocks in their investment portfolios given their effectiveness in
delivering growth over the past several years. As long-term investors, we are
committed to stocks as a primary way to achieve growth. Even so, perhaps it's
now time to take a step back and reemphasize one of the most important
principles for any investor -- diversification.
Since markets move in cycles which tend to recur, it's worth repeating
that though stock and bond markets can move in tandem, over time they have often
diverged. The question is not one of picking the right time to invest in one
market or the other, but how to structure an overall portfolio that can weather
the markets' ups and downs. In the 12 asset allocation charts listed in
Scudder's Investor Series booklet, "Investing -- the Basics," for example, the
model portfolios listed suggest holding between 10% and 55% in bond funds,
depending on an investor's risk profile and time horizon. For long-term peace of
mind, it can be useful to include bond and money market funds in a diversified
investment portfolio.
One of the most exciting new tools from Scudder to help you with your
investment decisions is our new Web site at http://funds.scudder.com. The new
site provides instant access to fund prospectuses and a versatile way to get
up-to-the-minute information from Scudder. The Web site has five basic sections
- -- "About Scudder," "Global Investing," "Fund Information," "Planning
Resources," and "News and Events" -- with hundreds of pages of in-depth
investment, product, and service information. It also gives you the chance to
create your own personal page which can display content such as performance
information for funds you are particularly interested in, any way you like it.
We believe we have one of the most creative and extensive Web sites available
for mutual fund investors. Please visit Scudder's new site soon.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Zero Coupon 2000 Fund
3
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
PERFORMANCE UPDATE as of June 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER ZERO COUPON 2000 FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,241 2.41% 2.41%
5 Year $15,691 56.91% 9.43%
10 Year $21,845 118.45 % 8.13%
LB GOVERNMENT/CORPORATE BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,466 4.66% 4.66%
5 Year $15,022 50.22% 8.48%
10 Year $22,414 124.14% 8.41%
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 Gold Fund
Year Amount
- ----------------------
'86 $10,000
'87 $ 9,990
'88 $10,380
'89 $12,573
'90 $12,840
'91 $13,922
'92 $16,369
'93 $20,005
'94 $19,060
'95 $21,330
'96 $21,845
S&P 500 Index
Year Amount
- ----------------------
'86 $10,000
'87 $10,468
'88 $11,250
'89 $12,639
'90 $13,537
'91 $14,921
'92 $17,035
'93 $19,274
'94 $18,993
'95 $21,417
'96 $22,414
The unmanaged Lehman Brothers (LB) Government/Corporate Bond Index is composed
of U.S. government treasury and agency securities, corporate and Yankee bonds.
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>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $11.20 $11.03 $12.63 $12.29 $12.46 $13.62 $13.99 $11.30 $11.99 $11.64
INCOME DIVIDENDS.. $ .55 $ .67 $ .63 $ .52 $ .85 $ .98 $ .91 $ .80 $ .60 $ .65
CAPITAL GAINS
DISTRIBUTIONS..... $ .11 $ - $ - $ .11 $ - $ .03 $ 1.46 $ 1.38 $ - $ -
FUND TOTAL
RETURN (%)........ -1.00 4.84 21.12 2.13 8.43 17.57 22.21 -4.72 11.91 2.41
INDEX TOTAL
RETURN (%)........ 4.67 7.49 12.34 7.10 10.20 14.15 13.16 -1.46 12.76 4.66
</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. If
the Adviser had not temporarily capped expenses, the average annual
total return for the Fund for the one year, five year, and ten year periods
would have been lower.
4
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
During Scudder Zero Coupon 2000 Fund's most recent semiannual period
ended June 30, 1996, Treasury yields moved higher, and prices lower, as the
Treasury market fretted over stronger-than-expected employment statistics and
whether the Federal Reserve would raise interest rates. The Fund posted a total
return of -3.32% for the six months ended June 30, while the unmanaged Lehman
Brothers Government/Corporate Bond Index's return for the same period was
- -1.88%. The Fund's net asset value declined $0.74 to $11.64 and the Fund paid
$0.33 per share in income distributions to shareholders during the period.
Scudder Zero Coupon 2000 Fund seeks to provide as high a return over a
selected period as is consistent with direct investments in government
securities, but with the additional advantages of professional management,
diversification, and liquidity. The Fund invests in high-quality zero-coupon
bonds that pay no current income but, similar to savings bonds, are issued at
substantial discounts to their value at maturity. When held to maturity, a
zero-coupon bond's entire return comes from the difference between its issue
price and its maturity value.
A Growth Surprise
During the first quarter of 1996, the U.S. bond market reacted
favorably to a domestic economy that seemed to be following a slow growth
pattern, one generally beneficial for bonds. However in May and June, government
economic reports sent mixed signals about the relative strength or weakness of
the U.S. economy. Statistics indicating strong job growth and consumers'
continued willingness to spend to their debt limits and beyond propelled the
bond market to a state of heightened alert for a resurgence of inflation and a
new round of interest rate increases by the Federal Reserve. Throughout the
six-month period, however, inflation has remained restrained -- at a 3% or less
annual rate -- and the Fed has chosen not to raise or lower short-term rates.
Treasury yields and prices reacted predictably to the second quarter
surge in the economy. Yields of 30-year Treasuries rose almost a full percentage
point while prices declined 12.2%. The accompanying chart shows the change in
Treasury yields across the maturity spectrum during the period.
5
<PAGE>
PRINTED DOCUMENT HAD LINE CHART HERE
LINE CHART TITLE: U.S. Treasury Yields
LINE CHART DATA:
12/31/95 6/30/96
-------- -------
3 mos 5.072% 5.152%
6 mos 5.147 5.358
1 yr 5.132 5.674
2 yrs 5.150 6.107
3 yrs 5.208 6.269
5 yrs 5.374 6.462
10 yrs 5.570 6.714
30 yrs 5.949 6.894
Portfolio Review
Our goal as managers of Scudder Zero Coupon 2000 Fund is to maximize
the value of your investment on the December 2000 maturity date. Since the
Fund's zero coupon bonds lack the cushion of regular interest payments, the Fund
can be more volatile than other fixed-income investments of comparable maturity.
Because some shareholders may need to redeem Fund shares before the maturity
date, we try to limit share price fluctuation where possible while at the same
time seeking a higher return than other, less interest-rate-sensitive
fixed-income investments.
At the start of the year, we extended the Fund's duration slightly to
take advantage of the market's favorable reaction to first quarter economic
signals. (Duration gives relative weight to both interest and principal payments
and has replaced maturity as the standard measure of interest rate sensitivity
among professional investors. Generally, the shorter the duration, the less
sensitive a portfolio will be to changes in interest rates.) But in the second
quarter, as a surprisingly strong U.S. economy emerged, we lowered the duration
to below that of the benchmark Lehman Brothers Government/Corporate Index.
Presently the Fund's duration stands at 4.6 years, a neutral stance in the
middle of its permissible range of 3.5 years to 5.5 years.
6
<PAGE>
Cooling Down
Despite the "growth surprise" of 1996's second quarter, we believe
brisk economic growth is living on borrowed time, especially because consumer
debt is abnormally high. Though the Fed has declined to raise short-term rates,
recent increases in long-term rates driven by the bond market should eventually
reduce purchases of durable goods and housing -- the biggest impetus behind the
recent surge. Overall, Treasuries should benefit as interest rates decline
following any slowdown. Until the timing of any pullback in economic growth
becomes clear, we will maintain a neutral duration for the Fund. We will
continue to monitor events influencing the market closely and adjust the Fund's
maturity structure as necessary. As always, we will work to maximize Scudder
Zero Coupon 2000 Fund's value on its maturity date.
Sincerely,
Your Portfolio Management Team
/s/Ruth Heisler /s/Renee L. Ross
Ruth Heisler Renee L. Ross
/s/Stephen A. Wohler
Stephen A. Wohler
7
<PAGE>
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------
100.0% U.S. GOVERNMENT & AGENCIES
<S> <C>
275,000 U.S. Treasury Note, 5%, 1/31/99 ...................... 266,879
290,000 U.S. Treasury Note, 5.125%, 11/30/98 ................. 282,976
1,226,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/98 (6.22%*) ........... 1,059,951
1,353,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/00 (6.40%*) ............ 1,076,853
7,408,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/00 (6.45%*) ........... 5,611,338
11,193,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/01 (6.47%*) ............ 8,338,449
5,814,000 United States Separate Registered Trading
Interest and Principal, 11/15/01 (6.52%*) ........... 4,118,870
7,489,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/02 (6.54%*) ............ 5,214,965
261,000 United States Separate Trading Registered
Interest and Principal, 8/15/02 (6.57%*) ............ 175,679
----------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $25,753,353) (a) ............................... 26,145,960
==========
</TABLE>
(a) The cost for federal income tax purposes was $25,904,318. At June 30,
1996, net unrealized appreciation for all securities was $241,642. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $256,041 and
aggregate gross unrealized depreciation for all securities in which there
was an excess tax cost over market value of $14,399.
* Bond equivalent yield to maturity; not a coupon rate.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments, at market (identified cost
$25,753,353)
(Note A) ............................... $26,145,960
Receivables:
Interest ............................... 7,001
Fund shares sold ....................... 35,585
-----------
Total assets ................... 26,188,546
LIABILITIES
Payables:
Due to custodian bank .................. $ 1,778
Accrued management fee (Note C) ........ 3,735
Other accrued expenses (Note C) ........ 37,822
-------
Total liabilities .............. 43,335
-----------
Net assets, at market value .................... $26,145,211
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income .... $ 704,155
Unrealized appreciation on investments . 392,607
Accumulated net realized loss .......... (1,615,448)
Shares of beneficial interest .......... 22,461
Additional paid-in capital ............. 26,641,436
-----------
Net assets, at market value .................... $26,145,211
===========
NET ASSET VALUE, offering and redemption price
per share ($26,145,211 / 2,246,071
outstanding shares of beneficial
interest, $.01 par value, unlimited
number of shares authorized) .......... $ 11.64
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest..................................... $ 859,734
Expenses:
Management fee (Note C)...................... $ 81,759
Services to shareholders (Note C)............ 43,798
Custodian and accounting fees (Note C)....... 22,222
Trustees' fees and expenses (Note C)......... 11,468
Auditing..................................... 14,185
Reports to shareholders...................... 6,457
State registration........................... 11,079
Legal........................................ 2,919
Other........................................ 2,416
---------
Total expenses before reductions............. 196,303
Expense reductions (Note C).................. (60,621)
---------
Expenses, net................................ 135,682
------------
Net investment income........................ $724,052
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investments........... (384,983)
Net unrealized depreciation on investments
during the period.................... (1,293,913)
------------
Net loss on investments...................... (1,678,896)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $ (954,844)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1996 DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS (UNAUDITED) 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................... $ 724,052 $ 1,502,114
Net realized gain (loss) from investments ....... (384,983) 233,090
Net unrealized appreciation (depreciation)
on investments during the period ............ (1,293,913) 2,939,161
----------- ----------
Net increase (decrease) in net assets
resulting from operations ................... (954,844) 4,674,365
----------- ----------
Distributions to shareholders:
From net investment income ($.33 and $.62 per
share, respectively) ........................ (754,353) (1,407,675)
----------- ----------
Fund share transactions:
Proceeds from shares sold ....................... 3,120,161 13,696,852
Net asset value of shares issued to
shareholders in reinvestment of
distributions ............................... 742,500 1,372,320
Cost of shares redeemed ......................... (5,231,590) (13,980,558)
----------- ----------
Net increase (decrease) in net assets from
Fund share transactions ..................... (1,368,929) 1,088,614
----------- ----------
INCREASE (DECREASE) IN NET ASSETS ............... (3,078,126) 4,355,304
Net assets at beginning of period ............... 29,223,337 24,868,033
----------- ----------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$704,155 and $734,456, respectively) ........ $26,145,211 $29,223,337
=========== ==========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ....... 2,359,785 2,271,921
----------- ----------
Shares sold ..................................... 260,005 1,155,838
Shares issued to shareholders in
reinvestment of distributions .............. 63,515 116,327
Shares redeemed ................................. (437,234) (1,184,301)
----------- ----------
Net increase (decrease) in Fund shares .......... (113,714) 87,864
----------- ----------
Shares outstanding at end of period ............. 2,246,071 2,359,785
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1996 --------------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 1987(b) 1986(c)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .......... $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92 $10.34 $12.62 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a) .................. .33 .65 .59 .79 .94 .99 .86 .51 .63 .91 .56
Net realized and
unrealized gain
(loss) on investments ....... (.74) 1.40 (1.59) 1.23 .17 1.44 (.29) 1.73 .58 (1.86) 2.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................... (.41) 2.05 (1.00) 2.02 1.11 2.43 .57 2.24 1.21 (.95) 2.62
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment
income ...................... (.33) (.62) (.31) (.83) (.93) (.94) (.83) (.52) (.63) (1.22) --
From net realized gains
on investments .............. -- -- (.59) (.89) (1.39) -- (.08) (.03) -- (.11) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........... (.33) (.62) (.90) (1.72) (2.32) (.94) (.91) (.55) (.63) (1.33) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period ...................... $11.64 $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92 $10.34 $12.62
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (d) .......... (3.32)** 19.08 (7.92) 16.00 8.13 20.03 4.59 20.39 11.71 (8.01) 26.20**
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of period
($ millions) ............... 26 29 25 31 29 33 33 32 5 2 1
Ratio of operating expenses
net, to average daily
net assets (%) (a) ........ 1.00* 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00*
Ratio of net investment
income to average
daily net assets (%) .......... 5.34* 5.59 5.23 5.29 6.38 7.12 7.62 7.10 8.10 8.13 7.27*
Portfolio turnover rate (%) ..... 121.5* 86.6 89.3 101.6 118.8 90.7 98.5 87.1 149.2 37.3 79.4*
(a) Portion of expenses
reimbursed by the
Adviser (Note C) ......... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .14 $ .29 $ .26
Management fee not
imposed by the
Adviser (Note C) ........ $ .03 $ .06 $ .05 $ .04 $ .04 $ .03 $ .04 $ .04 $ .04 $ .06 $ .04
Operating expense ratio
before expense
reductions (Note C) ....... 1.45* 1.48 1.47 1.28 1.28 1.23 1.39 1.62 3.37 4.13 5.64*
</TABLE>
(b) Per share amounts for the year ended December 31, 1987 have been
calculated using the monthly weighted average shares outstanding during
the year method.
(c) For the period February 4, 1986 (commencement of operations) to
December 31, 1986.
(d) Total returns are higher due to maintenance of the Fund's expenses.
* Annualized ** Not annualized
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Scudder Zero Coupon 2000 Fund (the "Fund") is organized as a diversified series
of Scudder Funds Trust (the "Trust"), a Massachusetts business trust registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund primarily invests in U.S. Government zero coupon
securities. At least 50% of the Fund's net assets will be invested in zero
coupon securities maturing within two years of the Fund's target maturity date.
It is expected that the Fund will be liquidated in December of the year 2000.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which prices 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 Trustees.
FEDERAL INCOME TAXES. The Fund's policy is 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.
At December 31, 1995, the Fund had a net tax basis capital loss carryforward of
approximately $1,062,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2002 ($884,000) and December 31, 2003 ($178,000), the respective expiration
dates. In addition, from November 1, 1995 through December 31, 1995, the Fund
incurred approximately $18,000 of net realized capital 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, 1996.
13
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. 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.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. These
differences primarily relate to investments in certain securities sold at a
loss. As a result, net investment income (loss) and net realized gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the specific identification 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 generally recorded on the accrual basis under the amortized
cost method whereby the Fund adjusts the cost of each investment assuming a
constant accretion to maturity of any discount. All original issue discounts are
accreted for both tax and financial reporting purposes. Distributions to
shareholders are recorded on the ex-dividend date.
B. PURCHASES AND SALES OF SECURITIES
- -------------------------------------------------------------------------------
During the six months ended June 30, 1996, purchases and sales of investment
securities were $16,661,067 and $19,140,003, respectively.
C. RELATED PARTIES
- ------------------------------------------------------------------------------
Under the Investment Management Agreement (the "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
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
services in accordance with the Agreement. The management fee payable under the
Agreement is equal to an annual rate of approximately 0.60% of the average daily
net assets of the Fund computed and accrued daily and payable monthly. The
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. In addition, the
Adviser has agreed to maintain the annualized expenses of the Fund at not more
than 1.00% of average daily net assets until December 31, 1996. For the six
months ended June 30, 1996, the management fee aggregated $81,759, of which
$60,621 was not imposed.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend disbursing and shareholder service agent for the Fund. For
the six months ended June 30, 1996, $26,414 was charged to the Fund by SSC, of
which $4,258 was unpaid at June 30, 1996.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans for the Fund. For the six months ended June 30, 1996, the
amount charged to the Fund by STC aggregated $5,936, of which $1,517 is unpaid
at June 30, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended June 30, 1996, the amount charged to the Fund by SFAC aggregated $18,750,
of which $6,250 was unpaid at June 30, 1996.
The Trust pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the six
months ended June 30, 1996, Trustees' fees and expenses aggregated $11,468.
15
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16
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and 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
Lynn S. Birdsong*
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.
17
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<S> <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 High Yield Bond Fund
Scudder California Tax Free Money Fund* Scudder Income Fund
Scudder New York Tax Free Money Fund* Scudder International Bond Fund
Tax Free+ Scudder Short Term Bond Fund
Scudder California Tax Free Fund* Scudder Zero Coupon 2000 Fund
Scudder High Yield Tax Free Fund Growth
Scudder Limited Term Tax Free Fund Scudder Capital Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Emerging Markets Growth Fund
Scudder Massachusetts Tax Free Fund* Scudder Global Fund
Scudder Medium Term Tax Free Fund Scudder Global Discovery Fund
Scudder New York Tax Free Fund* Scudder Gold Fund
Scudder Ohio Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Pennsylvania Tax Free Fund* Scudder International Fund
Growth and Income Scudder Latin America Fund
Scudder Balanced Fund Scudder Micro Cap Fund
Scudder Growth and Income Fund Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value 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>
18
<PAGE>
HOW TO CONTACT SCUDDER
<TABLE>
<CAPTION>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
<S> <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
Visit the Scudder World Wide Web Site at:
- -------------------------------------------------------------------------------------------------------------
http://funds.scudder.com
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>
19
<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 40 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.
