Scudder
Zero
Coupon
2000 Fund
Annual Report
December 31, 1995
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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<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
16 Report of Independent Accountants
17 Tax Information
17 Officers and Trustees
18 Investment Products
and Services
19 How to Contact
Scudder
IN BRIEF
o Reflecting an environment of slow but steady economic growth and continuing
declines in interest rates, Scudder Zero Coupon 2000 Fund posted a strong
total return of 19.08% for the 12-month period ended December 31, 1995.
BAR CHART TITLE:
Average Annual Total Returns For Periods Ended December 31, 1995
CHART PERIOD:
December 31, 1994 to December 31, 1995
CHART DATA:
1 Year 19.08* 19.24**
3 Years 8.35* 8.51**
5 Years 10.55* 9.80**
* Scudder Zero Coupon 2000 Fund
**Lehman Brothers Government/Corporate Bond Index
CALLOUT TO PRECEDING CHART:
o The Fund's strategy during the period included a focus on four- and
seven-year Treasuries, maturities that strongly benefited from 1995's
interest rate declines.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
Global fixed-income markets were generally strong in 1995, as
slow growth, moderate inflation, and falling interest rates provided a
positive economic environment. The U.S. bond market was no exception
to this trend and in fact was one of the more remarkable stories of
the year, as long-term interest rates declined sharply.
While a repeat in the coming year of 1995's exceptional
performance is unlikely, the outlook for U.S. fixed-income securities
is positive. The prospect of slow growth and low inflation provides a
favorable backdrop with respect to the direction of interest rates. In
fact, a mild and brief recession is a possibility that would be a plus
for the bond market.
We see a number of trends underway that support the long-term
outlook for low inflation in the U.S. and around the world. Technology
is bringing efficiencies to every stage of the product cycle, from
design to distribution. Globalization has widened the competitive
universe, making inflationary price increases less likely.
Deregulation is subjecting major industries to market discipline,
increasing capacity and reducing supply bottlenecks. While investing
will always involve uncertainties and market fluctuation, the net
result of these forces may well be an era of disinflationary growth
that benefits investors and raises living standards worldwide.
As you know, the interests of the Fund's shareholders are
represented by the Fund's Board of Trustees. We would like to take
this opportunity to welcome the Board's newest independent member,
Sheryle J. Bolton.
If you have questions about Scudder Zero Coupon 2000 Fund or
other Scudder investments, please contact an Investor Relations
representative at 1-800-225-2470. Page 19 provides more information on
how to contact Scudder. Thank you for your continued investment in
Scudder Zero Coupon 2000 Fund.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Zero Coupon 2000 Fund
3
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
PERFORMANCE UPDATE as of December 31, 1995
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER ZERO COUPON 2000 FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,908 19.08% 19.08%
5 Year $16,508 65.08% 10.55%
Life of
Fund* $26,957 169.57% 10.53%
LB GOVERNMENT/CORPORATE BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $11,924 19.24% 19.24%
5 Year $15,960 59.60% 9.80%
Life of
Fund* $23,965 139.65% 9.29%
*The Fund commenced operations on
February 4, 1986. Index comparisons
begin February 28, 1986.
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 Zero Coupon Fund
Year Amount
- ----------------------
2/28/86 $10,000
86 $11,022
87 $10,139
88 $11,326
89 $13,635
90 $14,262
91 $17,118
92 $18,510
93 $21,472
94 $19,770
95 $23,543
LB Government/Corporate Bond Index
Year Amount
- ----------------------
2/28/86 $10,000
86 $11,031
87 $11,284
88 $12,139
89 $13,867
90 $15,016
91 $17,437
92 $18,759
93 $20,829
94 $20,098
95 $23,965
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 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... $12.62 $10.34 $10.92 $12.61 $12.27 $13.76 $12.55 $12.85 $10.95 $12.38
INCOME DIVIDENDS.. $ -- $ 1.22 $ .63 $ .52 $ .83 $ .94 $ .93 $ .83 $ .31 $ .62
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .11 $ -- $ .03 $ .08 $ -- $ 1.39 $ .89 $ .59 $ --
FUND TOTAL
RETURN (%)........ 26.20 -8.01 11.71 20.39 4.59 20.03 8.13 16.00 -7.92 19.08
INDEX TOTAL
RETURN (%)........ 10.31 2.29 7.58 14.23 8.28 16.12 7.58 11.03 -3.51 19.24
</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 one year, five year, and life of Fund periods would
have been lower.
4
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
During the 12 months ended December 31, 1995, Scudder Zero
Coupon 2000 Fund benefited from a strong rally in the U.S. Treasury
market. The Fund posted a total return of 19.08% for the year ended
December 31 in keeping with the 19.24% return of the unmanaged Lehman
Brothers Government/Corporate Bond Index. The Fund's net asset value
rose to $12.38 per share on December 31, 1995, from $10.95 on December
31, 1994. Also contributing to the Fund's total return were income
distributions to shareholders totalling $0.62 per share.
Scudder Zero Coupon 2000 Fund seeks to provide investors with
as high an investment return over a selected period as is consistent
with direct investments in government securities. With a specified
maturity date in December 2000, a reasonably predictable return to the
investor can be identified at the time of investment. The Fund invests
in high-quality zero-coupon bonds that pay no cash 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.
Slow Growth an Ideal Environment
Throughout 1995, the U.S. economy grew but did so at a
controlled pace. The buildup of consumer spending that had worried
economists and the bond market in 1994 gave way to more cautious
spending and an easing of inflation fears. The U.S. Treasury market
reacted extremely favorably to the new environment and experienced one
of its best years ever. For example, the yield of the 30-year Treasury
bond declined from 7.88% at the close of 1994 to 5.95% at 1995 year
end, a drop of almost two percentage points with a resulting increase
in price of 26.77%.
In addition to slow growth and only modest inflation, several
additional factors propelled the Treasury rally: The Federal Reserve
moved from a tightening to an easing stance, lowering the federal
funds rate in July and again in late December; foreign investors
purchased Treasury securities in large quantities; and in Washington
both political parties expressed their desire to design a plan that
will ultimately balance the federal budget.
5
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
LINE CHART TITLE: Yields of Treasury Securities
CHART DATA:
12/31/94 12/31/95
-------- --------
3 mos 5.682 5.072
6 mos 6.495 5.147
1 yr 7.162 5.132
2 yrs 7.690 5.150
3 yrs 7.778 5.208
5 yrs 7.827 5.374
10 yrs 7.827 5.570
30 yrs 7.876 5.949
Portfolio Review
As managers of Scudder Zero Coupon 2000 Fund, our goal 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 volatility where possible while at the same
time seeking a higher return than other fixed-income investments.
Over the first half of 1995, we pursued a cautious strategy, given the
volatility of the Treasury market during the previous year. We shortened the
Fund's duration to 4.86 years at the end of March from 5.01 years at the close
of 1994. (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.) As our confidence
grew that interest rates would decline, we gradually extended the Fund's
duration over the remainder of the year, to 5.25 years as of December 31, 1995.
In terms of the Fund's portfolio structure, as we observed varying changes
in interest rates at differing maturities we adjusted the portfolio to benefit
as much as possible from the prevailing environment while staying within the
bounds of the Fund's maturity requirements. By the end of 1995 the Fund was
focused primarily on Treasury securities with four- and seven-year maturities,
two areas we feel are likely to strongly benefit from continuing interest rate
declines.
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
Our Outlook
In light of continuing evidence of further economic slowing in 1996 - with
a second half downturn a possibility - we are optimistic about the bond market's
prospects over the next several months. Interest rates should continue to
decline overall but to a lesser degree than in 1995. There may also be pockets
of volatility ahead, as bond market participants react to budgetary and
political news. As always, we will keep a close eye on events influencing the
market and adjust the Fund's maturity structure accordingly. We will continue to
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
Scudder Zero Coupon
2000 Fund:
A Team Approach to Investing
Scudder Zero Coupon 2000 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 Zero Coupon 2000 Fund investors by bringing together
many disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Ruth Heisler has responsibility for overseeing the
Fund's day-to-day operations and setting the Fund's investment strategy. Ruth
has been in charge of security selection since 1988 and has been involved in
bond research and investing at Scudder since 1953. Renee L. Ross, Portfolio
Manager, assists Ruth with trading bonds for the Fund's portfolio. Renee has
worked on the team since 1986 and at Scudder since 1981. Stephen Wohler,
Portfolio Manager, joined the team in 1994 and is also responsible for
implementing the Fund's strategy. Steve has over 15 years' experience managing
fixed income investments and has been with Scudder since 1979.
7
<PAGE>
<TABLE>
SCUDDER ZERO COUPON 2000 FUND
INVESTMENT PORTFOLIO as of December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------------------------
100.0% U.S. GOVERNMENT & AGENCIES
---------------------------------------------------------------------------------
290,000 U.S. Treasury Note, 5.125%, 11/30/98 .................... 289,049
275,000 U.S. Treasury Note, 5%, 1/31/99 ......................... 272,938
2,859,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/98 (5.25%*) .............. 2,463,772
97,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/99 (5.28%*) ............... 82,433
1,773,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/00 (5.33%*) ............... 1,427,566
2,113,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 8/15/00 (5.35%*) ............... 1,655,683
690,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/00 (5.36%*) .............. 533,356
12,972,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/01 (5.37%*) ............... 9,887,258
13,662,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/02 (5.45%*) ............... 9,828,306
290,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 11/15/02 (5.50%*) .............. 199,717
2,779,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 2/15/03 (5.53%*) ............... 1,884,607
1,398,000 U.S. Treasury Separate Trading Registered
Interest and Principal, 5/15/03 (5.55%*) ............... 933,626
----------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $27,771,791) (a) ................................. 29,458,311
==========
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The cost for federal income tax purposes was $27,922,756. At December 31, 1995,
net unrealized appreciation for all securities was $1,535,555. This consisted
of aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $1,535,555.
* Bond equivalent yield to maturity; not a coupon rate.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $27,771,791)
(Note A) ...................................................... $29,458,311
Cash ........................................................... 392,614
Receivables:
Interest ...................................................... 7,053
Fund shares sold .............................................. 34,885
-----------
Total assets ................................................. 29,892,863
LIABILITIES
Payables:
Fund shares redeemed .......................................... $607,441
Accrued management fee (Note C) ............................... 10,245
Other accrued expenses (Note C) ............................... 51,840
--------
Total liabilities ............................................
669,526
-----------
Net assets, at market value .................................... $29,223,337
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income ........................... $ 734,456
Unrealized appreciation on investments ........................ 1,686,520
Accumulated net realized loss ................................. (1,230,465)
Shares of beneficial interest ................................. 23,598
Additional paid-in capital .................................... 28,009,228
-----------
Net assets, at market value .................................... $29,223,337
===========
NET ASSET VALUE, offering and redemption price per share
($29,223,337 -:- 2,359,785 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) ......................................... $12.38
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
SCUDDER ZERO COUPON 2000 FUND
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ................................................. $1,770,805
Expenses:
Management fee (Note C) .................................. $161,182
Services to shareholders (Note C) ........................ 88,378
Custodian and accounting fees (Note C) ................... 45,069
Trustees' fees and expenses (Note C) ..................... 12,806
Auditing ................................................. 32,328
Reports to shareholders .................................. 23,623
State registration ....................................... 17,939
Legal .................................................... 10,354
Other .................................................... 6,411
--------
Total expenses before reductions ......................... 398,090
Expense reductions (Note C) .............................. (129,399)
--------
Expenses, net ............................................ 268,691
----------
Net investment income .................................... $1,502,114
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments ....................... 233,090
Net unrealized appreciation on investments
during the period ....................................... 2,939,161
----------
Net gain on investments .................................. 3,172,251
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $4,674,365
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .............................................. $ 1,502,114 $ 1,313,676
Net realized gain (loss) from investments .......................... 233,090 (1,399,239)
Net unrealized appreciation (depreciation)
on investments during the period .................................. 2,939,161 (2,122,299)
----------- -----------
Net increase (decrease) in net assets
resulting from operations ......................................... 4,674,365 (2,207,862)
----------- -----------
Distributions to shareholders:
From net investment income ($.62 and $.31 per
share, respectively) .............................................. (1,407,675) (674,895)
----------- -----------
From net realized gains from investments
($.59 per share) .................................................. -- (1,284,256)
----------- -----------
Fund share transactions:
Proceeds from shares sold .......................................... 13,696,852 10,304,177
Net asset value of shares issued to
shareholders in reinvestment of
distributions ..................................................... 1,372,320 1,933,362
Cost of shares redeemed ............................................ (13,980,558) (13,967,971)
----------- -----------
Net increase (decrease) in net assets from
Fund share transactions ........................................... 1,088,614 (1,730,432)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS .................................. 4,355,304 (5,897,445)
Net assets at beginning of period .................................. 24,868,033 30,765,478
----------- -----------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$734,456 and $640,017, respectively) .............................. $29,223,337 $24,868,033
=========== ===========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period .......................... 2,271,921 2,394,451
----------- -----------
Shares sold ........................................................ 1,155,838 891,083
Shares issued to shareholders in
reinvestment of distributions ..................................... 116,327 169,739
Shares redeemed .................................................... (1,184,301) (1,183,352)
----------- -----------
Net increase (decrease) in Fund shares ............................. 87,864 (122,530)
----------- -----------
Shares outstanding at end of period ................................ 2,359,785 2,271,921
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
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.
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987(b) 1986(c)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............... $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) ......... .65 .59 .79 .94 .99 .86 .51 .63 .91 .56
Net realized and
unrealized gain
(loss) on investments ............ 1.40 (1.59) 1.23 .17 1.44 (.29) 1.73 .58 (1.86) 2.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ........................ 2.05 (1.00) 2.02 1.11 2.43 .57 2.24 1.21 (.95) 2.62
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment
income ............................ (.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 ................. (.62) (.90) (1.72) (2.32) (.94) (.91) (.55) (.63) (1.33) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period ............................. $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92 $10.34 $12.62
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (d) ................ 19.08 (7.92) 16.00 8.13 20.03 4.59 20.39 11.71 (8.01) 26.20**
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of period
($ millions) ....................... 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*
Ratio of net investment
income to average
daily net assets (%) ............... 5.59 5.23 5.29 6.38 7.12 7.62 7.10 8.10 8.13 7.27*
Portfolio turnover rate (%) ......... 86.6 89.3 101.6 118.8 90.7 98.5 87.1 149.2 37.3 79.4*
<FN>
(a) Portion of expenses
reimbursed by the
Adviser (Note C) ............... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .14 $ .29 $ .26
Management fee not
imposed by the
Adviser (Note C) ............... $ .06 $ .05 $ .04 $ .04 $ .03 $ .04 $ .04 $ .04 $ .06 $ .04
Ratio of operating
expenses including
management and other
expenses not imposed
and reimbursement
absorbed (%) ................... 1.48 1.47 1.28 1.28 1.23 1.39 1.62 3.37 4.13 5.64*
(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
</FN>
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 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 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 year ended December 31, 1995, purchases and sales of investment
securities were $23,424,178 and $23,754,932, 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% of average daily net assets until April 30, 1996. For the year
ended December 31, 1995, the management fee aggregated $161,182, of which
$129,399 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 year ended December 31, 1995, $70,706 was charged to the Fund by SSC, of
which $8,650 was unpaid at December 31, 1995.
Effective January 10, 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 $36,756, of which $3,125 is unpaid at December
31, 1995.
The Trust pays each Trustee not affiliated with the Adviser $4,000 annually,
plus specified amounts for attended board and committee meetings. For the year
ended December 31, 1995, Trustees' fees and expenses amounted to $12,806.
15
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER FUNDS TRUST AND THE SHAREHOLDERS OF SCUDDER ZERO
COUPON 2000 FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Zero Coupon 2000 Fund including the investment portfolio, 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 nine years in the
period then ended and for the period February 4, 1986 (commencement of
operations) to December 31, 1986. 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 Zero Coupon 2000 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 nine years in the period then ended and for the period February 4, 1986
(commencement of operations) to December 31, 1986, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 9, 1996
16
<PAGE>
TAX INFORMATION
By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from
the Fund. 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 received from direct obligations of
the U.S. Government is exempt from your state income taxes. Of the Zero
Coupon 2000 Fund's dividend from ordinary income, which includes net
short-term capital gains, 100% was derived from direct obligations of the
U.S. Government.
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 1-800-225-5163.
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>
<S> <C> <C>
The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
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>
18
<PAGE>
HOW TO CONTACT SCUDDER
<TABLE>
<CAPTION>
<S> <C>
Account Service and Information
- -------------------------------------------------------------------------------------------------------------
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 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 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.
