Scudder
Zero Coupon
2000 Fund
Annual Report
December 31, 1996
Pure No-Load(TM) Funds
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.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Table of 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
15 Report of Independent Accountants
16 Shareholder Meeting Results
17 Officers and Trustees
18 Investment Products and Services
19 How to Contact Scudder
In Brief
o Despite a period of conflicting economic indicators and Treasury yields that
rose across the board, Scudder Zero Coupon 2000 Fund posted a positive total
return of 0.65% for its most recent fiscal year.
Average Annual Total Returns for Periods Ended December 31, 1996
Scudder Zero Lehman Brothers
Coupon 2000 Government/Corporate
Period Fund Index
1 year 0.65% 2.90%
5 years 6.72% 7.17%
10 years 7.96% 8.37%
o We lowered the Fund's duration during 1996, selling those bonds with the
longest remaining maturities to bring overall portfolio duration to 3.9 years,
in line with the Fund's target year.
2-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We hope you enjoy our newly redesigned shareholder report. The new format,
which is being gradually introduced for all Scudder funds, is designed to
enhance the attractiveness and readability of the reports. Let us know what you
think.
This annual report for Scudder Zero Coupon 2000 Fund covers a year which
witnessed large swings of opinion concerning the direction of the U.S. economy
and interest rates. In an environment of market uncertainty that featured an
increase in Treasury yields, the Fund posted a 0.65% total return for the
12-month period. Please read the portfolio management discussion beginning on
page 5 for more information.
As part of Scudder's ongoing efforts to meet the needs of investors, we
recently launched an innovative new product called Scudder Pathway Series. A
"fund of funds," Pathway Series is a collection of four distinct portfolios --
Conservative, Growth, Balanced, and International -- that offers flexibility,
diversification, and simplicity. Each portfolio invests in a diverse mix of
Scudder funds, and each is geared toward people with different investment goals
and risk tolerances -- a team of Scudder's investment professionals makes
allocation decisions accordingly.
We'd like to remind you that new legislation passed last summer
significantly raised IRA contribution limits for many married couples. Beginning
with the 1997 tax year, married couples with one income may contribute up to
$4,000 jointly per year -- an increase of $1,750 from the previous limit. This
change may enhance your ability to use an IRA to defer taxes and let your
retirement assets grow over time. For more information on Scudder products and
services, please turn to page 18. If you have questions about Scudder Zero
Coupon 2000 Fund, please contact a Scudder Investor Information representative
at 1-800-225-2470, or visit Scudder's Web site at funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Zero Coupon 2000 Fund
3-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
PERFORMANCE UPDATE as of December 31, 1996
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER ZERO COUPON 2000 FUND
- --------------------------------------
1 Year $10,065 .65% .65%
5 Year $13,843 38.43% 6.72%
10 Year $21,500 115.00% 7.96%
- --------------------------------------
LB GOVERNMENT/CORPORATE BOND INDEX
- --------------------------------------
1 Year $10,290 2.90% 2.90%
5 Year $14,143 41.43% 7.17%
10 Year $22,356 123.56% 8.37%
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
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 2000 FUND
Year Amount
- ----------------------
'86 $10,000
'87 $ 9,199
'88 $10,276
'89 $12,371
'90 $12,939
'91 $15,531
'92 $16,794
'93 $19,481
'94 $17,937
'95 $21,360
'96 $21,500
LB GOVERNMENT/CORPORATE BOND INDEX
Year Amount
- ----------------------
'86 $10,000
'87 $10,229
'88 $11,005
'89 $12,571
'90 $13,613
'91 $15,808
'92 $17,006
'93 $18,882
'94 $18,220
'95 $21,726
'96 $22,356
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>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $10.34 $10.92 $12.61 $12.27 $13.76 $12.55 $12.85 $10.95 $12.38 $11.77
INCOME DIVIDENDS.. $ 1.22 $ .63 $ .52 $ .83 $ .94 $ .93 $ .83 $ .31 $ .62 $ .68
CAPITAL GAINS
DISTRIBUTIONS..... $ .11 $ -- $ .03 $ .08 $ -- $ 1.39 $ .89 $ .59 $ -- $ --
FUND TOTAL
RETURN (%)........ -8.01 11.71 20.39 4.59 20.03 8.13 16.00 -7.92 19.08 .65
INDEX TOTAL
RETURN (%)........ 2.29 7.58 14.23 8.28 16.12 7.58 11.03 -3.51 19.24 2.90
</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 returns for the Fund would have been lower.
4-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
During the Fund's most recent fiscal year ended December 31, 1996, the bond
market had difficulty making up its mind about where it thought the U.S. economy
and interest rates were headed. In the face of shifting sentiment, we remained
cautious and kept the Fund in a neutral stance. Yields of five-year Treasury
securities rose more than three quarters of a percentage point and their prices
declined 3.6%, contributing to the Fund's modest total return of 0.65% for 1996.
The unmanaged Lehman Brothers Government/Corporate Bond Index's return during
1996 was 2.90%. The Fund's net asset value declined $0.61 to $11.77, while the
Fund paid $0.68 per share in income distributions to shareholders during the
period.
An Uncertain Bond Market
During the Fund's most recent fiscal year, bond prices moved alternately higher
and lower as opinions concerning the direction of the economy swung from one
extreme to the other. At the start of 1996, weakening economic indicators led
many market participants to believe that the U.S. economy might be falling into
a recession. The economy soon gained some strength, however, and the consensus
of economists' opinions shifted to an expectation of a soft economic landing and
moderate inflation. At mid-year, the bond market struggled as the numbers seemed
to forecast very strong economic growth and an outbreak of inflation -- shoppers
were returning to retail stores, and hiring was increasing significantly. But by
late summer, moderating economic indicators soothed the market somewhat. Bond
yields declined from their peak and the economy retreated as consumers seemed to
feel the weight of their personal debt -- credit card debt service payments as a
percentage of disposable income rose to an all-time high in 1996. Despite the
year-end moderation, Treasury yields ended the year sharply higher across most
of the maturity spectrum as shown in the accompanying chart.
THE ORIGINAL DOCUMENT CONTAINS A LINE CHARE HERE
LINE CHART TITLE: U.S. Treasury Yields--
12/31/95 versus 12/31/96
CHART DATA:
12/31/95 12/31/96
3 mos 5.072 5.186
6 mos 5.147 5.297
1 yr 5.132 5.488
2 yrs 5.150 5.868
3 yrs 5.208 6.010
5 yrs 5.374 6.206
10 yrs 5.570 6.418
30 yrs 5.949 6.641
Portfolio Review
Our goal in managing Scudder Zero Coupon 2000 Fund is to maximize the value of
your investment on the December 2000 maturity date. Since zero coupon bonds such
as those held by the Fund 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.
5-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
At the start of the year, we extended the Fund's duration slightly to take
advantage of the market's favorable reaction to weak first quarter economic
signals and the possibility of falling interest rates. (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 as the bond market grew somewhat volatile in the
second quarter, we lowered the duration to below that of the benchmark Lehman
Brothers Government/Corporate Index. Presently the Fund's duration stands at 3.9
years, a neutral stance in the middle of its permissible range of three years to
five years.
New Possibilities
We are excited by the economic possibilities that we believe are awaiting us all
during the latter part of the 1990s. In our view, rapid technological advances,
falling trade barriers, and worldwide deregulation are forging a new U.S.
economy characterized not only by significant growth but also declining
inflation. Before this new economy can take root, however, we expect a
transitional period of weak economic activity -- consumers are currently weighed
down by debt, and more banks are tightening lending to consumers than at any
time since the 1989-90 recession. Following this transition, growth accompanied
by even lower inflation can assert itself. This scenario would be favorable for
bonds, which have been outshone by stocks between 1994 and 1996 but remain an
6-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
important ingredient of a balanced investment portfolio. Any reductions in
interest rates would particularly benefit the zero coupon bonds held by the
Fund. These bonds generally react more strongly than other Treasury securities
to changes in interest rates.
As we approach the Scudder Zero Coupon 2000 Fund's target year, we will monitor
events influencing the bond market closely and adjust the Fund's duration and
maturity structure accordingly. We will continue to seek to maximize the Fund's
net asset value on its maturity date.
Sincerely,
Your Portfolio Management Team
/s/Renee L. Ross /s/Ruth Heisler
Renee L. Ross Ruth Heisler
/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-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO as of December 31, 1996
Principal Market
Amount ($) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES 100%
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note, 5.125%, 11/30/98.................................................. 290,000 286,149
U.S. Treasury Note, 5%, 1/31/99....................................................... 275,000 270,231
U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/00, (6.07%*)... 87,000 72,173
U.S. Treasury Separate Trading Registered Interest and Principal, 5/15/00, (6.08%*)... 1,716,000 1,401,886
U.S. Treasury Separate Trading Registered Interest and Principal, 11/15/00, (6.12%*).. 10,241,000 8,108,312
U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/01, (6.14%*)... 10,807,000 8,422,111
U.S. Treasury Separate Trading Registered Interest and Principal, 11/15/01, (6.19%*).. 8,400,000 6,241,788
U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/02, (6.21%*)... 974,000 711,994
- ----------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT & AGENCIES (Cost $24,914,154) 25,514,644
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0% (Cost $24,914,154) (a) 25,514,644
- ----------------------------------------------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $24,970,906. At December 31, 1996, unrealized
appreciation based on tax cost consisted entirely of aggregated gross unrealized appreciation
of $543,738.
* Bond equivalent yield to maturity; not a coupon rate.
The accompanying notes are an integral part of the financial statements.
</TABLE>
8 - SCUDDER ZERO COUPON 2000 FUND
<PAGE>
<TABLE>
<CAPTION>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1996
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $24,914,154) (Note A)................... $ 25,514,644
Cash............................................................................ 461
Interest receivable............................................................. 7,102
Receivable for Fund shares sold................................................. 61,785
------------
Total assets.................................................................... 25,583,992
Liabilities
- -----------------------------------------------------------------------------------------------------------------
Payable for fund shares redeemed................................................ $ 111,567
Other accrued expenses (Note C)................................................. 32,011
------------
Total liabilities............................................................... 143,578
- -----------------------------------------------------------------------------------------------------------------
Net assets, at market value..................................................... 25,440,414
- -----------------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income............................................. 689,568
Unrealized appreciation on investments.......................................... 600,490
Accumulated net realized loss................................................... (1,492,259)
Paid-in capital................................................................. 25,642,615
- -----------------------------------------------------------------------------------------------------------------
Net assets, at market value..................................................... $ 25,440,414
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($25,440,414 /2,161,757
outstanding shares of beneficial interest, $.01 par value, unlimited ------------
number of shares authorized).................................................. $ 11.77
------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
9 - SCUDDER ZERO COUPON 2000 FUND
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
year ended December 31, 1996
<S> <C>
Investment Income
- -----------------------------------------------------------------------------------------------------------------
Interest....................................................................... $ 1,697,238
------------
Expenses:
Management fee (Note C)........................................................ $ 158,725
Services to shareholders (Note C).............................................. 86,912
Custodian and accounting fees (Note C)......................................... 43,519
Trustees' fees and expenses (Note C)........................................... 18,169
Auditing....................................................................... 27,085
Reports to shareholders........................................................ 19,650
Registration fees.............................................................. 14,329
Legal.......................................................................... 12,031
Other.......................................................................... 4,383
------------
Total expenses before reductions............................................... 384,803
Expense reductions (Note C).................................................... (120,119)
------------
Expenses, net.................................................................. 264,684
- -----------------------------------------------------------------------------------------------------------------
Net investment income.......................................................... 1,432,554
- -----------------------------------------------------------------------------------------------------------------
Realized and unrealized loss on investment transactions
- -----------------------------------------------------------------------------------------------------------------
Net realized loss from investments............................................. (261,794)
Net unrealized depreciation on investments during the period................... (1,086,030)
- -----------------------------------------------------------------------------------------------------------------
Net loss on investment transactions............................................ (1,347,824)
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations........................... $ 84,730
- -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
10 - SCUDDER ZERO COUPON 2000 FUND
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Years Ended December 31,
Increase (Decrease) in Net Assets 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income........................................................... $ 1,432,554 $ 1,502,114
Net realized gain (loss) from investments....................................... (261,794) 233,090
Net unrealized appreciation (depreciation) on investments during the period..... (1,086,030) 2,939,161
------------- -------------
Net increase in net assets resulting from operations............................ 84,730 4,674,365
------------- -------------
Distributions to shareholders from net investment income........................ (1,477,442) (1,407,675)
-------------- -------------
Fund share transactions:
Proceeds from shares sold....................................................... 6,651,479 13,696,852
Net asset value of shares issued to shareholders in reinvestment of
distributions................................................................. 1,435,813 1,372,320
Cost of shares redeemed......................................................... (10,477,503) (13,980,558)
------------- -------------
Net increase (decrease) in net assets from Fund share transactions.............. (2,390,211) 1,088,614
------------- -------------
Increase (decrease) in net assets............................................... (3,782,923) 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 $689,568 and $734,456, respectively)....................................... $ 25,440,414 $ 29,223,337
------------- -------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period....................................... 2,359,785 2,271,921
------------- -------------
Shares sold..................................................................... 560,049 1,155,838
Shares issued to shareholders in reinvestment of distributions.................. 122,172 116,327
Shares redeemed................................................................. (880,249) (1,184,301)
------------- -------------
Net increase (decrease) in Fund shares.......................................... (198,028) 87,864
------------- -------------
Shares outstanding at end of period............................................. 2,161,757 2,359,785
------------- -------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
11 - SCUDDER ZERO COUPON 2000 FUND
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
The following table includes selected data for a share outstanding throughout each period
and other performance information derived from the financial statements.
Years Ended December 31,
1996(a) 1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <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
Income from investment ------------------------------------------------------------------------------------------
operations:
Net investment income............ .64 .65 .59 .79 .94 .99 .86 .51 .63 .91
Net realized and unrealized
gain (loss) on investments..... (.57) 1.40 (1.59) 1.23 .17 1.44 (.29) 1.73 .58 (1.86)
------------------------------------------------------------------------------------------
Total from investment operations. .07 2.05 (1.00) 2.02 1.11 2.43 .57 2.24 1.21 (.95)
Less distributions: ------------------------------------------------------------------------------------------
From net investment income....... (.68) (.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.............. (.68) (.62) (.90) (1.72) (2.32) (.94) (.91) (.55) (.63) (1.33)
Net asset value, end of ------------------------------------------------------------------------------------------
period......................... $11.77 $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92 $10.34
- ---------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b)............. .65 19.08 (7.92) 16.00 8.13 20.03 4.59 20.39 11.71 (8.01)
Ratios and Supplemental Data
Net assets, end of period
($ millions)................... 25 29 25 31 29 33 33 32 5 2
Ratio of operating expenses,
net, to average daily net
assets (%)..................... 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%)..................... 1.45 1.48 1.47 1.28 1.28 1.23 1.39 1.62 3.37 4.13
Ratio of net investment income
to average daily net
assets (%)..................... 5.42 5.59 5.23 5.29 6.38 7.12 7.62 7.10 8.10 8.13
Portfolio turnover rate (%)...... 85.2 86.6 89.3 101.6 118.8 90.7 98.5 87.1 149.2 37.3
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
</TABLE>
12 - SCUDDER ZERO COUPON 2000 FUND
<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 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, 1996, the Fund had a net tax basis capital loss
carryforward of approximately $1,436,000 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,) December 31, 2003
($178,000), and December 31, 2004 ($374,000) the respective expiration
dates.
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
13 - SCUDDER ZERO COUPON 2000 FUND
<PAGE>
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, 1996, purchases and sales of
investment securities were $22,709,616 and $26,974,077, 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 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, 1997. For the year ended
December 31, 1996, the management fee aggregated $158,725, of which
$120,119 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, 1996, $56,774 the amount charged
to the Fund by SSC, of which $5,799 was unpaid at December 31, 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 year ended December 31,
1996, the amount charged to the Fund by STC aggregated $10,653, of which
$1,202 is unpaid at December 31, 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 year ended December 31, 1996, the amount charged to
the Fund by SFAC aggregated $37,500, of which $3,125 was unpaid at
December 31, 1996.
The Fund pays each Trustee not affiliated with the Adviser $2,000
annually, plus specified amounts for attended board and committee
meetings. For the year ended December 31, 1996, Trustees' fees and
expenses aggregated $18,169.
14 - SCUDDER ZERO COUPON 2000 FUND
<PAGE>
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, 1996, 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, 1996 by
correspondence with the custodian. 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,
1996, 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 14, 1997
15 - SCUDDER ZERO COUPON 2000 FUND
<PAGE>
Shareholder Meeting Results
A special meeting of shareholders of Scudder Zero Coupon 2000 Fund was held on
Monday, December 2, 1996, at the offices of Scudder, Stevens & Clark, Inc., 345
Park Avenue, New York, New York. The two matters voted upon by the shareholders
and the resulting votes for each matter are presented below.
1. The election of seven Trustees to hold office until their respective
successors shall have been duly elected and qualified.
Number of Votes:
----------------
Trustee: For Withheld Broker Non-Votes*
-------- --- -------- -----------------
Daniel Pierce 1,253,382 21,213 0
Sheryle J. Bolton 1,252,790 21,805 0
Thomas J. Devine 1,249,595 25,000 0
Peter B. Freeman 1,249,567 25,028 0
Dudley H. Ladd 1,253,364 21,232 0
Dr. Wilson Nolen 1,249,634 24,961 0
Kathryn L. Quirk 1,253,188 21,407 0
2. Ratification or rejection of the action taken by the Board of Trustees in
selecting Coopers & Lybrand L.L.P. as independent accountants for the
fiscal year ending December 31, 1997.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
1,221,228 13,054 40,313 0
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter.
16-SCUDDER ZERO COUPON 2000 FUND
<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
Dudley H. Ladd*
Trustee
Dr. Wilson Nolen
Trustee; Consultant
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
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
*Scudder, Stevens & Clark, Inc.
17-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U. S. Income
- ------------
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Zero Coupon 2000 Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Capital Growth Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Emerging Markets Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
SIMPLE IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan *+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
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. +++Funds within categories are listed from expected
least to most risk. +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.
18-SCUDDER ZERO COUPON 2000 FUND
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account services and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges,
and an overview of all the services available to you
Scudder Electronic Account Services --
http://funds.scudder.com
For information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment
questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services
- --------------------------------------------------------------------------------
To receive information about this discount brokerage service and
to obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
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 Chicago San Francisco
Boston New York
For information on Scudder Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.
For information on Scudder Institutional Funds**, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call: 1-800-854-8525.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.
** 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.
19-SCUDDER ZERO COUPON 2000 FUND
<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 over 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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
