Scudder Short Term Bond Fund
Annual Report
December 31, 1996
Pure No-Load(TM) Funds
Seeks to provide a high level of income consistent with a high
degree of principal stability.
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 Summary
6 Portfolio Management Discussion
9 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
24 Report of Independent Accountants
25 Shareholder Meeting Results
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
In Brief
o Scudder Short Term Bond Fund provided a 6.11% 30-day net annualized SEC
yielon December 31, 1996, considerably higher than the 4.85% average yield of
thtaxable money market funds tracked by IBC/Donoghue. (Money market funds seek
to maintain a stable $1.00 net asset value per share.)
o The Fund's 3.86% total return for the 12 months ended December 31, 1996,
reflects an environment of rising interest rates wherein short-maturity funds
generally fared better than their longer-term counterparts.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
Comparative Yields
30-day SEC yields as of December 31, 1996
BAR CHART DATA:
----------------------------------------
Scudder Short Taxable Money Market
Term Bond Fund Fund Average*
----------------------------------------
6.11% 4.85%
----------------------------------------
CALLOUT TO PRECEDING CHART:
*Source: IBC/Donoghue
o After being shortened this summer, the Fund's duration (and therefore its
se nsitivity to changing interest rates) has since been extended to take
advantage of any decline in interest rates.
o Throughout the year, the Fund maintained its focus on high-quality
alternatives to U.S. Treasuries, including mortgage- and asset-backed
securities, and corporate bonds.
2- SCUDDER SHORT TERM BOND FUND
<PAGE>
Letter From the Fund's President
Dear Shareholders,
The year just concluded was a challenging one for fixed-income investors.
As 1996 began, investors cheered low inflation, low interest rates, and sluggish
economic growth. In February, however, the prospect of a stronger economy began
to take its toll on the bond market. Rising interest rates affected all types of
bonds. However, those most sensitive to changes in the level of interest rates
- -- longer-maturity bonds -- were hit the hardest. Your Fund's focus on
short-maturity bonds muted the fall in bond prices and helped lead to a positive
3.86% total return. By contrast, long-term bonds generally posted negative
returns. We believe this underscores the value of a short-term investment
vehicle in a diversified portfolio.
For those of you interested in new products, we're pleased to introduce a
newcomer to Scudder's mutual fund lineup: Scudder Pathway Series. A "fund of
funds," the Series includes four portfolios that invest in Scudder mutual funds
to achieve a variety of objectives -- from conservative growth to international
equity exposure. Each Pathway portfolio provides diversification and
professional asset management with a single investment. For more information on
the Series and other Scudder products and services, please turn to page 30.
With tax season upon us, we wish to remind you of an important change in
the laws that can help married couples save for retirement. Beginning with the
1997 tax year, couples with only one income-earning spouse may contribute up to
$4,000 annually ($2,000 each) to their spousal IRAs. Previously, the
contribution limit had been set at $2,250. An easy way to budget IRA
contributions is by establishing a Scudder Automatic Investment Plan.
Despite short-term uncertainties, we believe that ongoing technological
advances, worldwide deregulation of key industries, and the globalization of
economic activity are combining to create a positive long-term outlook for
investors. We thank you for your continued investment in Scudder Short Term Bond
Fund. As always, please do not hesitate to call Investor Relations at
1-800-225-2470 with any questions, or visit our Web site at
http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Short Term Bond Fund
3- SCUDDER SHORT TERM BOND 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 SHORT TERM BOND FUND
- --------------------------------------
1 Year $10,386 3.86% 3.86%
5 Year $12,742 27.42% 4.97%
10 Year* $19,559 95.59% 6.94%
- --------------------------------------
SALOMON BROTHERS INC. BROAD INVESTMENT
GRADE BOND INDEX (1-3 YEARS)
- --------------------------------------
1 Year $10,516 5.16% 5.16%
5 Year $13,190 31.90% 5.69%
10 Year* $20,192 101.92% 7.27%
- -----------------------------------------------------------------
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 SHORT TERM BOND FUND
Year Amount
- ----------------------
'86 $10,000
'87 $10,142
'88 $10,782
'89 $12,213
'90 $13,420
'91 $15,350
'92 $16,184
'93 $17,708
'94 $17,005
'95 $18,832
'96 $19,559
SALOMON BROTHERS INC. BROAD INVESTMENT
GRADE BOND INDEX (1-3 YEARS)
Year Amount
- ----------------------
'86 $10,000
'87 $10,572
'88 $11,248
'89 $12,478
'90 $13,688
'91 $15,309
'92 $16,296
'93 $17,213
'94 $17,316
'95 $19,201
'96 $20,192
Salomon Brothers Inc. Broad Investment Grade Bond Index (1-3 years) is composed
of Treasury, Government Sponsored Agency, and Corporate securities with
maturities of one to three years. Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED DECEMBER 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $11.23 $11.19 $11.71 $11.72 $12.25 $11.93 $12.01 $10.91 $11.35 $11.05
INCOME DIVIDENDS.. $ .74 $ .73 $ .83 $ 1.09 $ 1.08 $ .96 $ .80 $ .76 $ .71 $ .72
CAPITAL GAINS
DISTRIBUTIONS..... $ .11 $ - $ .09 $ - $ - $ - $ .07 $ - $ - $ -
FUND TOTAL
RETURN (%)........ 1.40 6.10 13.20 9.88 14.38 5.43 8.18 -2.87 10.74 3.86
INDEX TOTAL
RETURN (%)........ 5.72 6.40 10.93 9.70 11.85 6.44 5.63 .60 10.89 5.16
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased. Returns
may be higher due to the Adviser's maintenance of the Fund's expenses. See
Financial Highlights on page 19.
*The Fund, with its current name and objective, commenced operations on July 3,
1989. Performance figures include the performance of its predecessor, the
General 1994 Portfolio of Scudder Target Fund. Since adopting its current
objectives, the cumulative and average annual returns are 68.27% and 7.50%,
respectively.
4 - SCUDDER SHORT TERM BOND FUND
<PAGE>
PORTFOLIO SUMMARY as of December 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
U.S. Gov't Backed Mortgages 31%
Asset-Backed Securities 22%
Corporate Bonds 21%
Collateralized Mortgage Obligations 18%
Foreign Bonds-Non U.S.$
Denominated 4%
Indexed Securities 4%
- ------------------------------------------
100%
- ------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Portfolio assets are spread primarily across mortgage-backed,
asset-backed, and corporate issues.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
U.S. Gov't & Agencies 41%
AAA* 27%
A 7%
AA 1%
BBB 24%
- ---------------------------------------------
100%
- ---------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Weighted Average Quality: AAA-
*Category includes cash equivalents
The portfolio is composed of high quality alternatives to
U.S. Treasury bonds.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Under 1 year 17%
1-5 years 72%
5-8 years 6%
8 years or greater 5%
- ---------------------------------------------
100%
- ---------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Weighted average effective maturity: 3.00 years
The Fund's average maturity is at the high end of its range,
reflecting our view that inflation should remain benign.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 9. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5 - SCUDDER SHORT TERM BOND FUND
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
In a difficult year for most bond investors, Scudder Short Term Bond Fund
provided a 3.86% total return for the 12 months ended December 31, 1996. The
Fund's positive return was based largely on a total of $0.72 per share in income
distributions, which offset a decline in the Fund's net asset value from $11.35
to $11.05 per share.
THE PRINTED DOCUMENT CONTAINS A LINE GRAPH HERE
LINE GRAPH TITLE:
Yield Comparison: 1994-1996
30-Day SEC Yields
LINE GRAPH DATA:
-----------------------------------------------------------------------
Year Scudder Short Term Bond IBC/Donoghue All Taxable
Fund Yields Money Fund Average
-----------------------------------------------------------------------
12/93 5.65% 3.0%
-----------------------------------------------------------------------
6.13 2.87
-----------------------------------------------------------------------
6/94 7.14 3.62
-----------------------------------------------------------------------
6.89 4.17
-----------------------------------------------------------------------
12/94 7.71 5.04
-----------------------------------------------------------------------
6.71 5.52
-----------------------------------------------------------------------
6/95 6.49 5.48
-----------------------------------------------------------------------
6.29 5.25
-----------------------------------------------------------------------
12/95 5.85 5.19
-----------------------------------------------------------------------
5.83 4.76
-----------------------------------------------------------------------
6/96 6.37 4.77
-----------------------------------------------------------------------
6.52 4.83
-----------------------------------------------------------------------
12/96 6.11 4.85
-----------------------------------------------------------------------
CALLOUT TO THE LINE GRAPH:
Scudder Short Term Bond Fund has historically provided a significant yield
advantage versus money market funds.
Scudder Short Term Bond Fund's 30-day net annualized SEC yield at the end of
December was 6.11%, compared with 4.85% on average for the taxable money market
funds tracked by IBC/Donoghue, an independent research firm. As shown in the
accompanying graph, the Fund historically has maintained a comfortable yield
advantage over taxable money market funds. Of course, money funds seek to
maintain a stable principal value, whereas your Fund's net asset value will
fluctuate with changing market conditions.
The Interest Rate Game
In 1996, interest rate volatility increased as investors responded to a barrage
of conflicting economic data. At the start of the year, low levels of business
investment and consumer spending appeared to signal a recession, and the Federal
Reserve lowered short-term interest rates by a quarter of a percentage point in
January. To take advantage of such an environment, the Fund extended its average
effective maturity (and therefore its sensitivity to changing interest rates) to
three years -- its limit under the Fund's stated investment policies.
Strong employment numbers announced in February abruptly reversed the bond
market's rally and sent many investors looking for evidence of inflation.
Virtually all areas of the bond market were affected. Although the Fund's focus
on short-term debt prevented the severe decline experienced by longer-term
bonds, its net asset value nevertheless suffered at the hands of rapidly rising
interest rates. As evidence pointed increasingly to stronger economic activity,
we reduced the Fund's average maturity to roughly two years. As it turned out,
the U.S. economy grew at a brisk annualized rate of 4.7% in the second quarter
of 1996.
For the balance of the year, the market was influenced greatly by perceptions of
economic growth. At the same time, the bond market has become an economic
regulator of sorts, with rising interest rates reining in growth. Interest rates
on 3-year Treasuries ended the year nearly a full percentage point higher,
6- SCUDDER SHORT TERM BOND FUND
<PAGE>
despite the fact that the Fed held short-term rates steady since January and has
suggested that inflation may indeed be overstated.
Despite investor uncertainty, it is clear that inflation has continued to taper
off. After six years of solid economic growth, declining inflation may seem
paradoxical, but it is actually reminiscent of the late 1800s, when a
combination of improved technology, falling trade barriers, and deregulation
helped bring prices down on a host of goods and services. In the long run, this
trend should have a very positive effect on financial assets of all types (as it
did in the decades following the Civil War). In the short run, after months of
falling bond prices, we believe there is an opportunity for a rebound. We have
extended the Fund's maturity to three years to take advantage of the potential
for such an event.
A Quality Investment Portfolio
To help insulate the Fund from the pendulum of investor sentiment, we have
maintained a high-quality, diversified portfolio, while seeking alternatives to
U.S. Treasuries. Of the investments available to us, Treasuries are among the
most sensitive to changes in interest rates and are therefore less desirable at
a time when rates change often and quickly. At the end of the year, Fund
holdings were spread across mortgage-backed (53%), asset-backed (23%), and
corporate issues (21%) with a weighted average quality of "AAA-."
7- SCUDDER SHORT TERM BOND FUND
<PAGE>
The Fund's corporate issues have done particularly well over the past year,
providing both yield and a measure of price appreciation. Corporate bonds
generally perform well versus other fixed-income instruments during times of
solid economic growth, because the credit quality of issuing corporations
benefits from increased earnings and cash flow. The Fund's weighting in these
bonds grew to 21% of the portfolio in 1996, with specific purchases based not
only on each company's ability to weather a changing investment environment but
on its prospects for credit rating upgrades.
The Big Picture
The current environment of disinflationary growth has been likened to a new
economic era, one where brisk demand for a product will not necessarily result
in a higher price. One need only look at the falling price of computer-related
equipment and services to understand the scope and force of this trend.
Nor does evidence point to an inflationary outbreak in the short run. Economic
growth on an annualized basis was just 2.1% in the third quarter of 1996, and at
5.25% the federal funds rate is considered by many to be restrictive. It is the
perception of inflation that determines bond prices in the marketplace, however,
and the fear of inflation remains alive in the hearts of many investors.
Notwithstanding any curve balls the market may throw us, we believe the Fund's
current strategy of maintaining near full interest rate exposure -- combined
with a diversified, high-quality portfolio -- will lead to continued positive
performance in the months ahead.
Sincerely,
Your Portfolio Management Team
/s/Thomas M. Poor /s/Scott E. Dolan
Thomas M. Poor Scott E. Dolan
/s/Christopher L. Gootkind
Christopher L. Gootkind
Scudder Short Term Bond Fund:
A Team Approach to Investing
Scudder Short Term Bond Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund. They are supported by Scudder's large staff of
economists, research analysts, traders, and other investment specialists who
work in our offices across the United States and abroad. We believe our team
approach benefits Scudder Short Term Bond Fund investors by bringing together
many disciplines and leveraging Scudder's extensive resources.
Since Scudder Short Term Bond Fund was introduced in 1989, Lead Portfolio
Manager Thomas M. Poor has had responsibility for the Fund's day-to-day
operation. Tom, who joined Scudder in 1970, sets the Fund's general investment
strategies. Christopher L. Gootkind, Portfolio Manager, also has been a member
of the Fund's team since its inception. Chris, who has worked in the investment
industry since 1981 and at Scudder since 1986, has responsibility for the Fund's
bank, finance, and other selected industrial securities. Scott E. Dolan,
Portfolio Manager, joined Scudder in 1989 and the Fund's portfolio management
team in 1993. Scott has six years of experience in the investment industry and
is responsible for implementing investment strategy.
8- SCUDDER SHORT TERM BOND FUND
<PAGE>
INVESTMENT PORTFOLIO as of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 0.3%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 12/31/96 at 6.7%,
to be repurchased at $4,656,733 on 1/2/97, collateralized by a $4,420,000 U.S. Treasury
Note, 7.25%, 5/15/04 (Cost $4,655,000) ................................................. 4,655,000 4,655,000
-------------
U.S. GOV'T BACKED MORTGAGES 31.3%
- -------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., ARM, 7.792%, 11/1/21 ................................... 637,694 665,593
Federal National Mortgage Association, ARM, 7.367%, with various maturities to 1/1/19 .... 1,356,708 1,398,264
Federal National Mortgage Association, ARM, 7.837%, with various maturities to 11/1/22 ... 2,488,865 2,563,133
Federal National Mortgage Association, ARM, 7.341%, with various maturities to 10/1/23 .. 5,291,780 5,436,457
Federal National Mortgage Association, 7 year Balloon, 8.5%, with various maturities to
5/1/02 ................................................................................. 14,656,539 15,068,681
Federal National Mortgage Association, 8%, with various maturities to 9/1/11 ............. 50,439,201 51,889,405
Federal National Mortgage Association, 10%, 9/1/17 ....................................... 4,251,187 4,684,256
Federal National Mortgage Association, ARM, 6.08%, 5/1/17 ................................ 978,907 974,316
Federal National Mortgage Association, ARM, 6.09%, 2/1/31 ................................ 11,663,140 11,608,440
Federal National Mortgage Association, ARM, 6.082%, 8/1/31 ............................... 975,413 970,838
Federal National Mortgage Association, ARM, 6.084%, 9/1/31 ............................... 1,977,674 1,968,399
Federal National Mortgage Association, ARM, 6.132%, 11/1/35 .............................. 18,250,004 18,164,411
Federal National Mortgage Association, ARM, 6.089%, with various maturities to 5/1/29 .... 43,165,698 42,963,251
Government National Mortgage Association, ARM, 7.125%, with various maturities to
9/20/25 ................................................................................ 17,066,916 17,392,254
Government National Mortgage Association Midget, 8%, with various maturities to
12/15/10 ............................................................................... 36,896,368 38,144,696
Government National Mortgage Association Pass-through, 11.5% , with various maturities to
7/20/20 ................................................................................ 21,109.541 24,164,497
Government National Mortgage Association Pass-through,11%, with various maturities to
10/20/20 ............................................................................... 2,356,733 2,677,934
Government National Mortgage Association Pass-through, 9%, with various maturities to
12/15/21 ............................................................................... 111,561,629 118,767,143
Government National Mortgage Association Pass-through, 10%, with various maturities to
7/15/22 ................................................................................ 51,421,703 56,544,894
Government National Mortgage Association Pass-through, 10%, with various maturities to
2/15/25 ................................................................................ 37,723,266 41,548,405
- -------------------------------------------------------------------------------------------------------------------------------
Total U.S Gov't Backed Mortgages (Cost $453,139,505) 457,595,267
- -------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS 17.8%
- -------------------------------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp. Series 1993-I2 A3, 7.25%, 7/25/24 ........................... 19,027,329 19,027,329
Chemical Mortgage Securities Inc. Series 1993-1 A4, 7.45%, 2/25/23 ....................... 4,175,000 4,227,188
Countrywide Funding Corp., Series 1994-2 A8, 6.5%, 2/25/09 ............................... 1,900,000 1,893,469
Daiwa Mortgage Acceptance Corp., Series 1991A, 8.625%, 3/15/10 ........................... 1,547,147 1,565,519
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - SCUDDER SHORT TERM BOND FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corp., Series 1381-Z, 6%, 7/15/05 ............................. 4,097,943 4,083,846
Federal Home Loan Mortgage Corp., Series 1719-C PO, 4/15/99 .............................. 35,268,095 32,027,839
Federal Home Loan Mortgage Corp., REMIC, Series 1724-PO, 5/15/01 ......................... 50,355,382 41,779,231
Federal Home Loan Mortgage Corp., Series 1267-O, 7.25%, 12/15/05 ......................... 8,935,226 9,080,423
Federal Home Loan Mortgage Corp., Series 1276-C, 7.5%, 12/15/05 .......................... 3,775,104 3,795,150
Federal Home Loan Mortgage Corp., Series 1406-E, 6%, 12/15/18 ............................ 4,400,000 4,320,250
Federal Home Loan Mortgage Corp., Series 1250-F, 7%, 4/15/19 ............................. 4,378,774 4,412,972
Federal National Mortgage Association REMIC 1989-68G, 8.75%, 8/25/18 ..................... 170,807 170,486
First Bank System Inc. Series 1993-FRN, 7.182%, 11/25/24 ................................. 20,469,000 20,289,896
Fund America Investors Corp. Series 1991-1H, 7.95%, 2/20/20 .............................. 4,495,492 4,553,079
General Electric Capital Mortgage Services, Inc. Series 1992-2F, 7%, 6/25/07 ............. 470,325 474,146
General Electric Capital Mortgage Services, Inc. Series 1993-14, 6.5%, 1/25/18 ........... 30,075,000 29,717,859
General Electric Capital Mortgage Services, Inc. Series 1994-19 A1, 7.5%, 6/25/24 ........ 10,690,315 10,730,404
General Electric Capital Mortgage Services, Inc. Series 1994-27, 6.5%, 7/25/24 ........... 10,413,599 10,374,548
Norwest Asset Security Corp., Series 1996-5 AB, 7.5%, 11/25/26 ........................... 10,441,079 10,493,285
Paine Webber Mortgage Acceptance Corp., Series 1993-6, 6.9%, 8/25/08 ..................... 1,824,000 1,827,135
Prudential Home Mortgage Securities Co. Series 1992-47 A7, 7.5%, 1/25/23 ................. 1,440,899 1,437,744
Prudential Home Mortgage Securities Co. Series 1993-43-A1, 5.4%, 10/25/23 ................ 1,136,810 1,122,236
Residential Funding Mortgage Securities Series 1996-S15, 7.75%, 1/25/07 .................. 9,008,417 9,091,463
Residential Funding Mortgage Securities Series 1993-A2, 6.85%, 9/25/23 ................... 3,220,000 3,148,556
Residential Funding Mortgage Securities Series 1993-A5, FRN, 7.085%, 10/25/23 ............ 19,500,000 19,268,438
Resolution Trust Corp., Series A, Strip, Zero Coupon, 7/15/97 ............................ 905,000 880,330
Resolution Trust Corp., Series 1992A 2A, 7.5%, 8/25/23 ................................... 1,908,745 1,915,903
Resolution Trust Corp., Series 1992A 2C, 7.5%, 8/25/23 ................................... 988,750 985,655
Ryland Acceptance Corp. Four Series 97-H, 8.95%, 8/20/19 ................................. 7,767,729 7,949,727
- -------------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations (Cost $266,679,968) 260,644,106
- -------------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS - NON U. S.$ DENOMINATED 4.2%
- -------------------------------------------------------------------------------------------------------------------------------
Government of New Zealand Treasury Bill, 4/9/97 (Cost $60,757,205) .................. NZD 88,000,000 60,947,972
-------------
ASSET BACKED SECURITIES 21.9%
- -------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS 0.9%
Bally's Health & Tennis Master Trust, 8.43%, 8/1/02 ...................................... 13,000,000 12,857,000
Green Tree Recreational Equipment Trust Series 1996-A A1, 5.55%, 2/15/18 ................. 716,908 707,275
-------------
13,564,275
-------------
AUTOMOBILE RECEIVABLES 0.2%
NationsBank Automobile Owner Trust Series 1996-A B2, 6.875%, 5/15/03 ..................... 2,287,000 2,303,421
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - SCUDDER SHORT TERM BOND FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CREDIT CARD RECEIVABLES 0.5%
First USA Bank Series 1994-1, 7.450%, 4/15/99 ............................................ 7,547,170 7,524,528
-------------
HOME EQUITY LOANS 10.7%
AFC Home Equity Loan Trust, Series 1990-3A, 9.6%, 9/15/05 ................................ 1,778,292 1,811,080
AFC Home Equity Loan Trust, Series 1992-3A, 7.05%, 8/15/07 ............................... 756,420 748,856
AFC Home Equity Loan Trust, Series 1993-3A, 5.45%, 6/20/13 ............................... 1,165,287 1,103,380
CTS Home Equity Loan Trust, Series 1991-1A, 8.8%, 1/15/06 ................................ 1,141,120 1,154,312
Chevy Chase Home Equity Loan Trust Series 1996-1, 7.15%, 5/15/15 ......................... 11,200,000 11,340,000
Contimortgage Home Equity Loan Trust, Series 1996-3 A1, 6.76%, 2/15/11 ................... 8,451,683 8,472,812
Contimortgage Home Equity Loan Trust, Series 1991-1, 9.52%, 4/15/06 ...................... 738,230 773,066
Contimortgage Home Equity Loan Trust, Series 1995-4 A5, 6.56%, 12/15/10 .................. 3,250,000 3,248,863
Contimortgage Home Equity Loan Trust, Series 1996-4 A6, 6.71%, 6/15/14 ................... 6,200,000 6,120,516
Contimortgage Home Equity Loan Trust, Series 1996-4 A7, 6.99%, 3/15/21 ................... 3,000,000 2,958,750
Contimortgage Home Equity Loan Trust, Series 1995-1 A2, 8.6%, 2/15/10 .................... 15,185,099 15,298,987
Contimortgage Home Equity Loan Trust, Series 1996-3 A2, 6.95%, 7/15/11 ................... 7,500,000 7,563,225
Equity Credit Corp. Home Equity Loan Trust, 5.3%, 9/15/08 ................................ 2,741,675 2,634,150
Equity Credit Corp. Home Equity Loan Trust, Series 1993-4B, 5.65%, 12/15/08 .............. 2,132,093 2,072,128
Fleet Financial Home Equity Trust Series 1991-2A, 6.700%, 10/15/06 ....................... 2,024,635 2,034,442
Green Tree Home Improvement Loan Trust Series 1995-C B1, 7.2%, 7/15/20 ................... 1,950,000 1,924,711
Green Tree Home Improvement Loan Trust Series 1995-F A4, 6.15%, 1/15/21 .................. 2,825,000 2,758,789
Green Tree Home Improvement Loan Trust Series 1995-F B2, 7.1%, 1/15/21 ................... 2,000,000 1,895,000
Green Tree Home Improvement Loan Trust Series 1995-D A3, 6.45%, 9/15/25 .................. 445,000 445,223
Green Tree Home Improvement Loan Trust Series 1995-D B1, 7.05%, 9/15/25 .................. 750,000 750,923
Home Equity Loan Trust, Series 1992A, 6.65%, 11/20/12 .................................... 4,569,077 4,544,221
Home Equity Loan Trust, Series 1992B, 6.85%, 11/20/12 .................................... 997,846 991,479
Household Finance Corp., Home Equity Loan Series 1992-2 A3, 5.25%, 10/20/07 .............. 1,076,545 1,073,175
Mid-State Homes IV Series 1, 8.33%, 4/1/30 ............................................... 1,623,863 1,694,400
Old Stone Credit Corp., Series 1991-2, 8.42%, 9/15/06 .................................... 1,499,265 1,509,572
Old Stone Credit Corp. Home Equity Loan Series 1992-2, 6.95%, 5/15/07 .................... 5,028,659 5,025,516
Old Stone Credit Corp. Home Equity Loan Series 1992-3 A2, 6.3%, 9/25/07 .................. 4,588,266 4,558,580
Old Stone Credit Corp. Home Equity Loan Series 1993-1, 5.85%, 3/15/08 .................... 1,199,753 1,175,196
Security Pacific Home Equity Loan Trust, Series 1991-2A, 8.1%, 6/15/20 ................... 598,916 600,036
Security Pacific Home Equity Loan Trust, Series 1991-2B, 8.15%, 6/15/20 .................. 3,438,806 3,445,254
Security Pacific Home Equity Trust, Series 1991-A B, 10.5%, 3/10/06 ...................... 15,600,000 15,741,375
TMS Home Equity Loan Trust, Series 1996-A A4, 6.53%, 6/15/16 ............................. 2,750,000 2,741,406
TMS Home Equity Loan Trust, Series 1995-C A2, 6.25%, 8/15/16 ............................. 9,262,000 9,201,218
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - SCUDDER SHORT TERM BOND FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TMS Home Equity Loan Trust, Series 1994-A A3, 5.525%, 9/15/18 ............................ 853,456 829,720
TMS Home Equity Loan Trust, Series 1996-B A7, 7.55%, 2/15/20 ............................. 6,935,000 7,060,697
TMS Home Equity Loan Trust, Series 1996-C A4, 7.4%, 6/15/21 .............................. 4,025,000 4,084,117
U.S. Home Equity Loan, Series 1991-2B, 9.125%, 4/15/21 ................................... 9,700,000 9,836,382
U.S. Home Equity Loan, Series 1991-2C, 8.5%, 4/15/21 ..................................... 582,013 587,106
United Companies Financial Corp., Home Equity Loan Series 1994-A A3, 6.1%, 7/10/18 ....... 7,175,000 7,031,500
-------------
156,840,163
-------------
MANUFACTURED HOUSING RECEIVABLES 9.6%
Chemical Financial Acceptance Corp. Housing Trust, Series 1989A, Participating Certificate,
9.25%, 5/15/98 ......................................................................... 3,800,462 3,889,506
Green Tree Financial Corp., Securitized NIM Series 1994-A, 6.9%, 2/15/04 ................. 18,394,920 18,406,416
Green Tree Financial Corp., Securitized NIM Series 1994-B, 7.85%, 7/15/04 ................ 15,230,972 15,369,002
Green Tree Financial Corp., Series 1993-2B, 8%, 7/15/18 .................................. 8,187,000 8,400,630
Green Tree Financial Corp., Series 1995-1 B2, 9.2%, 6/15/25 .............................. 5,715,000 6,231,136
Green Tree Financial Corp., Series 1995-3 B2, 8.1%, 8/15/25 .............................. 20,636,400 21,210,350
Green Tree Financial Corp., Series 1995-6 B2, 8%, 9/15/26 ................................ 11,769,720 11,762,364
Green Tree Financial Corp., Series 1995-5 B2, 7.65%, 10/15/26 ............................ 9,000,000 8,853,750
Merrill Lynch Mortgage Investors Inc., Series 1988-H, 9.7%, 6/15/08 ...................... 54,107 54,276
Merrill Lynch Mortgage Investors Inc., Series 1988-Q, 9.8%, 10/15/08 ..................... 134,489 135,076
Merrill Lynch Mortgage Investors Inc., Series 1989-F, 9.75%, 10/15/09 .................... 138,774 140,162
Merrill Lynch Mortgage Investors Inc., Series 1990-C, 9.7%, 6/15/10 ...................... 1,528,659 1,580,251
Merrill Lynch Mortgage Investors Inc., Series 1990-H, 9.25%, 1/15/11 ..................... 2,883,446 2,956,426
Merrill Lynch Mortgage Investors Inc., Series 1990-I, 10%, 1/15/11 ....................... 3,007,700 3,155,258
Merrill Lynch Mortgage Investors Inc., Series 1991-B, 9.2%, 3/15/11 ...................... 508,321 517,054
Merrill Lynch Mortgage Investors Inc., Series 1991-A, 9.25%, 4/15/11 ..................... 2,184,767 2,248,256
Merrill Lynch Mortgage Investors Inc., Series 1991-C, 8.9%, 7/15/11 ...................... 3,003,215 3,174,939
Merrill Lynch Mortgage Investors Inc., Series 1991-G, 9.15%, 10/15/11 .................... 5,425,517 5,674,060
Merrill Lynch Mortgage Investors Inc., Series 1992-B, 8.5%, 4/15/12 ...................... 10,439,341 10,745,945
Merrill Lynch Mortgage Investors Inc., Series 1992-B A4, 7.85%, 4/15/12 .................. 3,318,466 3,363,033
Merrill Lynch Mortgage Investors Inc., Series 1992-D, 7.95%, 7/15/17 ..................... 2,677,931 2,733,150
Security Pacific Acceptance Corp., Series 1991-2B, 8.55%, 9/15/11 ........................ 6,825,862 6,981,560
Security Pacific Acceptance Corp., Series 1991-A2, 7.1%, 6/15/12 ......................... 3,326,310 3,335,657
-------------
140,918,257
- -------------------------------------------------------------------------------------------------------------------------------
Total Asset Backed Securities (Cost $319,337,892) 321,150,644
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - SCUDDER SHORT TERM BOND FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS 20.8%
- -------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES 0.3%
J. Seagram & Sons Inc., 8.375%, 2/15/07 .................................................. 4,775,000 5,211,147
-------------
FINANCIAL 14.5%
Bank United Corp., 8.05%, 5/15/98 ........................................................ 10,000,000 9,850,000
Capital One Bank, 6.875%, 4/24/00 ........................................................ 565,000 566,429
Capital One Bank, 7%, 4/30/01 ............................................................ 18,450,000 18,509,409
Colonial Realty LP, 7.5%, 7/15/01 ........................................................ 4,500,000 4,582,215
ERP Operating LP, 8.5%, 5/15/99 .......................................................... 4,100,000 4,245,919
Health Care Properties Investors Inc., 6%, 11/8/00 ....................................... 5,225,000 5,107,438
Oasis Residential Inc., 6.75%, 11/15/01 .................................................. 13,400,000 13,249,384
Oasis Residential Inc., 7%, 11/15/03 ..................................................... 15,000,000 14,814,000
Spieker Properties, Inc., 6.65%, 12/15/00 ................................................ 15,000,000 14,893,650
Spieker Properties, Inc., 6.8%, 12/15/01 ................................................. 5,500,000 5,450,005
Spieker Properties, Inc., 6.95%, 12/15/02 ................................................ 3,500,000 3,478,090
Spieker Properties, Inc., 8%, 7/19/05 .................................................... 500,000 518,075
Spieker Properties, Inc., 7.125%, 12/1/06 ................................................ 3,425,000 3,395,031
Sun Communities, Inc., 7.625%, 5/1/03 .................................................... 5,850,000 5,967,644
Susa Partnership LP, 7.125%, 11/1/03 ..................................................... 5,400,000 5,361,390
Taubman Realty Group LP, Medium Term Note, 8%, 6/15/99 ................................... 4,755,000 4,857,518
Taubman Realty Group LP, Medium Term Note, 7.4%, 6/10/02 ................................. 3,300,000 3,312,375
Taubman Realty Group LP, Medium Term Note, 7.5%, 6/15/02 ................................. 19,150,000 19,317,563
Taubman Realty Group LP, Medium Term Note, 7%, 10/1/03 ................................... 3,695,000 3,568,483
The Money Store Inc., 9.16%, 9/9/97 ...................................................... 15,700,000 15,977,105
The Money Store Inc., Series B, 9.16%, 9/9/97 ............................................ 21,520,000 21,899,828
The Money Store Inc., 7.63%, 4/15/98 ..................................................... 8,000,000 8,085,280
United Dominion Realty Trust Inc., Medium Term Note, 7.02%, 11/15/05 ..................... 10,000,000 9,870,000
World Omni Trust, Series 1996-B, 6.85%, 11/15/02 ......................................... 15,050,000 15,092,328
-------------
211,969,159
-------------
MEDIA 2.7%
Time Warner Inc., 7.95%, 2/1/00 .......................................................... 37,695,000 38,927,250
-------------
MANUFACTURING 2.2%
Lyondell Petrochemical Co., 10%, 6/1/99 .................................................. 15,580,000 16,787,762
Lyondell Petrochemical Co. Global Note, 9.125%, 3/15/02 .................................. 9,000,000 9,790,110
Lyondell Petrochemical Co., 9.75%, 9/4/03 ................................................ 4,600,000 5,281,950
-------------
31,859,822
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - SCUDDER SHORT TERM BOND FUND
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
METALS & MINERALS 1.1%
Alcan Aluminium Ltd., 9.625%, 7/15/19 .................................................... 14,000,000 15,847,160
- -------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $303,258,304) 303,814,538
- -------------------------------------------------------------------------------------------------------------------------------
COUPON INDEXED SECURITIES 3.7%
- -------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Medium Term Note, inversely indexed to 30 day
-------------
Commercial Paper Bond Equivalent Yield, 9.62%, 12/29/97 (Cost $53,648,406) ............. 52,400,000 54,103,000
-------------
PURCHASED OPTIONS 0.0%
- -------------------------------------------------------------------------------------------------------------------------------
Put on New Zealand Dollars, strike price NZD 1.459854, expire 4/7/97 ................ NZD 88,000,000 268,048
SHARES
------
Call on Eurodollars, strike price $94.5, expire 3/14/97 .................................. 2,859 214,425
- -------------------------------------------------------------------------------------------------------------------------------
Total Purchased Options (Cost $1,392,286) 482,473
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio ~ 100.0% (Cost $1,462,868,566) (a) 1,463,393,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $1,462,868,566. At December
31, 1996, net unrealized appreciation for all securities based on tax cost
was $524,434. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $11,553,894 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$11,029,460.
Included in the portfolio are investments in mortgage or asset-backed
securities which are interests in separate pools of mortgages or assets.
Effective maturities of these investments will be shorter than stated
maturities due to prepayments. All separate investments in each of the
Federal Home Loan Mortgage Corporation, Federal National Mortgage
Association and the Government National Mortgage Association issues which
have similar coupon rates have been aggregated for presentation purposes in
the investment portfolio.
Currency abbreviations and other acronyms used in this portfolio:
ARM Adjustable Rate Mortgage
FRN Floating Rate Note
NIM Net Interest Margin
NZD New Zealand Dollars
REMIC Real Estate Mortgage Investment Conduit
STRIP Separate Trading Registered Interest and Principal
PO Principal Only
At December 31, 1996, outstanding written call options were as follows
(Note A):
<TABLE>
<CAPTION>
PRINCIPAL EXPIRATION STRIKE MARKET
AMOUNT DATE PRICE VALUE ($)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
New Zealand Dollars
(Premiums received $431,200) ... NZD 88,000,000 4/7/97 NZD 1.398797 376,816
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - SCUDDER SHORT TERM BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
Transactions in written call options for the year ended December 31, 1996 are
summarized as follows:
EXCHANGE TRADED OPTIONS OVER-THE-COUNTER OPTIONS
-------------------------- --------------------------
NUMBER OF
CONTRACTS PREMIUMS NZD PREMIUMS
-------------------------- ------------ ------------
Beginning of Period -- $ -- -- $ --
Written ........... 2,188 1,728,120 185,308,962 1,204,806
Closed ............ (2,188) (1,728,120) --
Exercised ......... -- -- (97,308,962) (773,606)
Expired ........... -- -- -- --
----------- ----------- ----------- -----------
End of Period ..... -- $ -- 88,000,000 $ 431,200
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
15 - SCUDDER SHORT TERM BOND FUND
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
as of December 31, 1996
<TABLE>
<CAPTION>
ASSETS
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $1,462,868,566) (Note A) ........ $1,463,393,000
Cash .................................................................... 1,001,026
Receivable for investments sold ......................................... 4,770
Interest receivable ..................................................... 11,160,699
Receivable for fund shares sold ......................................... 1,257,299
Other assets ............................................................ 374
--------------
Total assets ............................................................ 1,476,817,168
LIABILITIES
- -----------------------------------------------------------------------------------------------------------
Dividends payable ....................................................... 1,775,375
Payable for fund shares redeemed ........................................ 4,966,472
Written options, at value (premiums received $431,200) (Note A) ......... 376,816
Accrued management fee (Note C) ......................................... 644,162
Other accrued expenses (Note C) ......................................... 632,714
Other payables .......................................................... 250,744
--------------
Total liabilities ....................................................... 8,646,283
------------------------------------------------------------------------------------------
Net assets, at market value $1,468,170,885
------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investment securities ................................................ 524,434
Written options ...................................................... 54,384
Accumulated net realized loss ........................................... (122,820,012)
Paid-in capital ......................................................... 1,590,412,079
------------------------------------------------------------------------------------------
Net assets, at market value $1,468,170,885
------------------------------------------------------------------------------------------
NET ASSET VALUE
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($1,468,170,885 /
132,860,852 outstanding shares of beneficial interest, $.01 par value, --------------
unlimited number of shares authorized) ............................... $11.05
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - SCUDDER SHORT TERM BOND FUND
<PAGE>
Statement of Operations
year ended December 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest ................................................................ $ 120,750,294
-------------
Expenses:
Management fee (Note C) ................................................. 8,232,708
Services to shareholders (Note C) ....................................... 3,661,618
Custodian and accounting fees (Note C) .................................. 421,719
Trustees' fees and expenses (Note C) .................................... 18,170
Reports to shareholders ................................................. 351,101
Auditing ................................................................ 65,269
Legal ................................................................... 31,517
Registration fees ....................................................... 47,464
Interest expense ........................................................ 840
Other ................................................................... 77,075
-------------
Total expenses .......................................................... 12,907,481
----------------------------------------------------------------------------------------
Net investment income 107,842,813
----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------
Net realized loss from:
Investment securities ................................................... (13,898,362)
Futures ................................................................. (10,121,688)
Options ................................................................. (7,656,594)
Foreign currency related transactions ................................... (1,439,284)
-------------
(33,115,928)
-------------
Net unrealized appreciation (depreciation) during the period on:
Investment securities ................................................... (17,383,847)
Written options ......................................................... 54,384
-------------
(17,329,463)
----------------------------------------------------------------------------------------
Net loss on investment transactions (50,445,391)
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 57,397,422
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - SCUDDER SHORT TERM BOND FUND
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................................... $ 107,842,813 $ 123,943,165
Net realized loss from investment transactions .............. (33,115,928) (79,840,870)
Net unrealized appreciation (depreciation) on investment
transactions during the period .............................. (17,329,463) 156,351,771
-------------- --------------
Net increase in net assets resulting from operations ........ 57,397,422 200,454,066
-------------- --------------
Distributions to shareholders from:
Net investment income ....................................... (104,839,251) (75,809,129)
-------------- --------------
Tax return of capital ....................................... - (48,134,036)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................... 349,361,957 434,415,510
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 79,869,940 93,453,411
Cost of shares redeemed ..................................... (736,440,233) (917,495,507)
-------------- --------------
Net decrease in net assets from Fund share transactions ..... (307,208,336) (389,626,586)
-------------- --------------
Decrease in net assets ...................................... (354,650,165) (313,115,685)
Net assets at beginning of period ........................... 1,822,821,050 2,135,936,735
-------------- --------------
Net assets at end of period ................................. $1,468,170,885 $1,822,821,050
-------------- --------------
OTHER INFORMATION
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 160,534,389 195,776,523
-------------- --------------
Shares sold 31,416,978 39,170,009
Shares issued to shareholders in reinvestment of
distributions ............................................ 7,197,179 8,406,276
Shares redeemed ............................................. (66,287,694) (82,818,419)
-------------- --------------
Net decrease in Fund shares ................................. (27,673,537) (35,242,134)
-------------- --------------
Shares outstanding at end of period ......................... 132,860,852 160,534,389
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - SCUDDER SHORT TERM BOND FUND
<PAGE>
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>
YEARS ENDED DECEMBER 31,
1996(a) 1995 1994 1993(a) 1992 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, --------------------------------------------------------------------------------------
beginning of period .......... $11.35 $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23 $11.92
--------------------------------------------------------------------------------------
Income from investment operations: .74 .71 .81 .87 .97 1.08 1.09 .83 .73 .74
Net investment income
Net realized and unrealized .. (.32) .44 (1.15) .08 (.33) .53 .01 .61 (.04) (.58)
gain (loss) on investments
Total from investment --------------------------------------------------------------------------------------
transactions ................. .42 1.15 (.34) .95 .64 1.61 1.10 1.44 .69 .16
--------------------------------------------------------------------------------------
Less distributions: ............. (.72) (.43) (.64) (.80) (.96) (1.08) (1.09) (.83) (.73) (.74)
From net investment income
From net realized gains ...... -- -- -- (.03) -- -- -- (.09) -- (.11)
In excess of gains ........... -- -- -- (.04) -- -- -- -- -- --
From tax return of capital ... -- (.28) (.12) -- -- -- -- -- -- --
--------------------------------------------------------------------------------------
Total distributions ............. (.72) (.71) (.76) (.87) (.96) (1.08) (1.09) (.92) (.73) (.85)
--------------------------------------------------------------------------------------
Net asset value, --------------------------------------------------------------------------------------
end of period ................ $11.05 $11.35 $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) ................ 3.86 10.74 (2.87) 8.18 5.43 14.38 9.88 13.20 6.10 1.40
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) ................. 1,468 1,823 2,136 3,190 2,862 2,247 340 72 10 10
Ratio of operating expenses net,
to average daily net assets (%) .80 .75 .73 .68 .75 .44 .16 .36 1.50 1.45
Ratio of operating expenses
before expense reductions, to
average daily net assets (%).. .80 .75 .73 .68 .78 1.00 1.19 2.06 1.86 1.77
Ratio of net investment income
net, to average daily net
assets (%) ................... 6.66 6.37 6.93 7.21 8.01 8.96 9.36 7.97 6.48 6.34
Portfolio turnover rate (%) ..... 61.8 101.1 65.3 66.1 83.7 41.0 52.9 40.0 23.5 28.7
</TABLE>
(a) Per share amounts have been calculated using weighted average shares
outstanding.
On July 3, 1989, the Fund adopted its present name and objective. Prior to
that date, the Fund was known as the General 1994 Portfolio of Scudder
Target Fund and its objectives were current income, capital preservation,
and possible capital appreciation. Financial information prior to July 3,
1989 should not be considered representative of the present Fund.
19 - SCUDDER SHORT TERM BOND FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. Significant Accounting Policies
Scudder Short Term Bond Fund (the "Fund") is a diversified series of Scudder
Funds Trust (the "Trust"). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open~end, management investment company.
The 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 quotations reflect broker/dealer~supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. Short~term investments having a maturity of sixty days or less
are valued at amortized cost. All other securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board of
Trustees.
FUTURES CONTRACTS. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period the Fund
sold interest rate futures to hedge against declines in the value of portfolio
securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge, the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised. During the
period, the Fund purchased put options on currencies and wrote call options on
currencies as a hedge against potential adverse price movements in the value of
portfolio assets. In addition during the period the Fund purchased call options
on other financial instruments.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
20 - SCUDDER SHORT TERM BOND FUND
<PAGE>
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the Fund's cost basis of the acquired
security or currency would be the exercise price adjusted for the amount of the
option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over~the~counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over~the~counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
INDEXED SECURITIES. Indexed securities held by the Fund are investments whose
value is indexed to another financial instrument, index, currency, or commodity
(the "reference instrument"). For principal indexed securities, the principal
amount payable at maturity may be more or less than the amounts shown depending
on fluctuations in the value of the reference instrument. For coupon indexed
securities, the principal amount payable at maturity is fixed. However, the
coupon is indexed to the reference instrument. The price sensitivity of these
securities may be greater than that of non~indexed securities with similar
maturities.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and liabilities at
the daily rates of exchange, and
(ii) purchases and sales of investment securities, interest income and
certain expenses at the rates of exchange prevailing on the respective
dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on interest and
foreign withholding taxes.
21 - SCUDDER SHORT TERM BOND FUND
<PAGE>
FEDERAL INCOME TAXES. It is the Fund's policy to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no provision for federal income taxes
was required.
At December 31, 1996, the Fund had a net tax basis capital loss carryforward of
approximately $115,250,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2002 ($27,264,000), December 31, 2003 ($60,090,000), and December 31, 2004
($27,896,000), the respective expiration dates. In addition, from November 1,
1996 through December 31, 1996, the Fund incurred approximately $3,990,000 of
net realized capital losses. As permitted by tax regulations, the Fund intends
to elect to defer these losses and treat them as having arisen in the year ended
December 31, 1997.
DISTRIBUTION OF INCOME AND GAINS. Substantially all of the net investment income
of the Fund is declared as a dividend to shareholders of record as of the close
of business each day and is paid to shareholders monthly. During any particular
year, net realized gains from investment transactions, in excess of available
capital loss carryforwards, would be taxable to the Fund if not distributed and,
therefore, will be distributed to shareholders. An additional distribution may
be made to the extent necessary to avoid the payment of a four percent federal
excise tax. Distributions of net realized capital gains to shareholders are
recorded on the ex~dividend date.
The timing and characterization of certain income and capital gains
distributions are determined in accordance with federal tax regulations which
may differ from generally accepted accounting principles. These differences
primarily relate to investments in futures, options, mortgage~backed securities,
foreign currency contracts, and foreign currency denominated investments. As a
result, net investment income and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
OTHER. Investment security transactions are accounted for on a trade date basis.
Interest income is recorded on the accrual basis. All original issue discounts
are accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
For the year ended December 31, 1996, purchases and sales of investment
securities (excluding short~term investments and U.S. Government obligations)
aggregated $817,141,441 and $945,320,321 respectively. Purchases and sales of
U.S. Government obligations aggregated $102,056,917 and $299,534,050,
respectively.
The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1996 was $922,336,530.
C. Related Parties
Under the Investment Management Agreement (the "Management Agreement") with
Scudder, Stevens & Clark, Inc. ("the Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objectives, policies,
and restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased,
22 - SCUDDER SHORT TERM BOND FUND
<PAGE>
sold or entered into by the Fund. In addition to portfolio management services,
the Adviser provides certain administrative services in accordance with the
Management Agreement. The management fee payable under the Management Agreement
is equal to an annual rate of 0.60% on the first $500,000,000 of average daily
net assets, 0.50% on the next $500,000,000 of such net assets, 0.45% on the next
$500,000,000 of such net assets, 0.40% on the next $500,000,000 of such net
assets, 0.375% on the next $1,000,000,000 of such net assets and 0.35% on such
net assets in excess of $3,000,000,000, computed and accrued daily and payable
monthly. The Management Agreement also provides that if the Fund's expenses,
exclusive of taxes, interest, and extraordinary expenses, exceed specified
limits, such excess, up to the amount of the management fee, will be paid by the
Adviser. For the year ended December 31, 1996, the fee pursuant to the
Management Agreement amounted to $8,232,708, which was equivalent to an
annualized effective rate of .51% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. Included
in services to shareholders is $2,258,259 charged to the Fund by SSC for the
year ended December 31, 1996, of which $183,567 is 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 invested in the Fund. For the year ended December 31,
1996, the amount charged to the Fund by STC aggregated $564,119, of which
$51,208 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 $199,888 of
which $16,476 is unpaid at December 31, 1996.
The Trust pays each of its Trustees not affiliated with the Adviser $4,000
annually, divided equally among the series of the Trust, plus specified amounts
for attended board and committee meetings. For the year ended December 31, 1996,
Trustees' fees and expenses aggregated $18,170.
23 - SCUDDER SHORT TERM BOND FUND
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF SCUDDER FUNDS TRUST AND TO THE SHAREHOLDERS OF SCUDDER SHORT
TERM BOND FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Short Term Bond Fund as of December 31, 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 Short Term Bond 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
24 - SCUDDER SHORT TERM BOND FUND
<PAGE>
Shareholder Meeting Results
A special meeting of shareholders of Scudder Short Term Bond 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.
Trustee: Number of Votes:
-------- ----------------
For Withheld Broker Non-Votes*
--- -------- -----------------
Daniel Pierce 74,001,723 2,050,742 0
Sheryle J. Bolton 73,705,944 2,346,522 0
Thomas J. Devine 73,624,984 2,427,481 0
Peter B. Freeman 73,979,098 2,073,367 0
Dudley H. Ladd 73,652,273 2,400,192 0
Dr. Wilson Nolen 73,627,831 2,424,634 0
Kathryn L. Quirk 73,750,004 2,302,462 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*
--- ------- ------- -----------------
72,735,874 1,016,404 2,300,187 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.
25- SCUDDER SHORT TERM BOND FUND
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28- SCUDDER SHORT TERM BOND 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
29- SCUDDER SHORT TERM BOND 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 Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value 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 Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
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.
30- SCUDDER SHORT TERM BOND 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.
31- SSCUDDER SHORT TERM BOND 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.
SCUDDER
