Filed With the Securities and Exchange Commission on April 30, 1997
File No. 2-73371
File No. 811-3229
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
------
Post-Effective Amendment No. 23
------
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22
------
Scudder Funds Trust
-------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
---------------
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
Immediately upon filing pursuant to paragraph (b)
-----
X on May 1, 1997 pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(1)
-----
on ___________ pursuant to paragraph (a)(1)
-----
75 days after filing pursuant to paragraph (a)(2)
-----
on pursuant to paragraph (a)(2) of Rule 485
---------------------
-----
If appropriate, check the following:
this post-effective amendment designates a new effective date
----- for a previously filed post-effective amendment
The Registrant has filed a declaration registering an indefinite amount of
securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant filed the notice required by Rule 24f-2 for the fiscal
year ended December 31, 1996 on February 24, 1997.
<PAGE>
SCUDDER FUNDS TRUST
SCUDDER SHORT TERM BOND FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
<TABLE>
<CAPTION>
PART A
- ------
<S> <C> <C>
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information FINANCIAL HIGHLIGHTS
DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description of INVESTMENT OBJECTIVE AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
FUND ORGANIZATION
5. Management of the Fund FINANCIAL HIGHLIGHTS
A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment adviser; Transfer agent
SHAREHOLDER BENEFITS--A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's Discussion of Fund NOT APPLICABLE
Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and
Securities capital gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder
Automated Information Line, Dividend reinvestment plan,
T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered FUND ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing shares, Share price, Processing time,
Minimum balances, Third party transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
<PAGE>
SCUDDER SHORT TERM BOND FUND
(continued)
Items Required by Form N-1A
---------------------------
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History ORGANIZATION OF THE FUNDS
13. Investment Objectives and THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Policies INVESTMENT RESTRICTIONS
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information
17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS--Brokerage Commissions, Portfolio
Practices Turnover
18. Capital Stock and Other ORGANIZATION OF THE FUNDS
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUNDS-- Dividend and
capital gain distribution options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
<PAGE>
SCUDDER FUNDS TRUST
SCUDDER ZERO COUPON 2000 FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial Information FINANCIAL HIGHLIGHTS
DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description of INVESTMENT OBJECTIVE
Registrant INVESTING IN ZERO COUPON SECURITIES
WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
SPECIALIZED INVESTMENT TECHNIQUES
FUND ORGANIZATION
5. Management of the Fund FINANCIAL HIGHLIGHTS
A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION--Investment adviser; Transfer agent
SHAREHOLDER BENEFITS--A team approach to investing
TRUSTEES AND OFFICERS
5A. Management's Discussion of Fund NOT APPLICABLE
Performance
6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION--Dividends and
Securities capital gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION--Tax information
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder Automated Information Line,
Dividend reinvestment plan, T.D.D. service for the hearing impaired
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered FUND ORGANIZATION--Underwriter
TRANSACTION INFORMATION--Purchasing shares, Share price,
Processing time, Minimum balances, Third party transactions
SHAREHOLDER BENEFITS--Dividend reinvestment plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares, Tax identification
number, Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
<PAGE>
SCUDDER ZERO COUPON 2000 FUND
(continued)
Items Required by Form N-1A
---------------------------
PART B
- ------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and History ORGANIZATION OF THE FUNDS
13. Investment Objectives and THE FUNDS' INVESTMENT OBJECTIVES
Policies AND POLICIES
INVESTMENT RESTRICTIONS
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and Principal TRUSTEES AND OFFICERS
Holders of Securities
16. Investment Advisory and Other INVESTMENT ADVISER
Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other Information
17. Brokerage Allocation and Other PORTFOLIO TRANSACTIONS-- Brokerage Commissions, Portfolio
Practices Turnover
18. Capital Stock and Other ORGANIZATION OF THE FUNDS
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE FUNDS-- Dividend and
capital gain distribution options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of Performance Data PERFORMANCE INFORMATION
23. Financial Statements FINANCIAL STATEMENTS
</TABLE>
<PAGE>
SCUDDER FUNDS TRUST
Calculation of Registration Fee under the Securities Act of 1933
<TABLE>
<CAPTION>
Title of Securities Proposed Maximum Proposed Maximum
Being Amount Offering Price Aggregate Offering Amount of
Registered Being Registered Per Share (1) Price (2) Registration Fee (2)
---------- ---------------- ------------- --------------- --------------------
<S> <C> <C> <C> <C>
Shares of
Beneficial Interest,
$.01 Par Value
Scudder Short Term Bond Fund 27,673,537 $1.00 $0.00 $0.00
Scudder Zero Coupon 2000 Fund 198,028 $1.00 $0.00 $0.00
This Post-Effective Amendment No. 23, seeks to register additional shares of Scudder Short Term Bond
Fund and Scudder Zero Coupon 2000 Fund, respectively, under the Securities Act of 1933.
(1) Computed under Rule 457(d) on the basis of the net asset value per share of registrant's
shares of beneficial interest at the close of business on April 15, 1997. The above
calculation shall not be deemed a representation as to the actual offering price.
(2) Calculated pursuant to Rule 24e-2 under the Investment Company Act of 1940.
(a) Total number of shares redeemed during previous fiscal year 67,167,943
(b) Total number of shares included in (a) previously used under - 0 -
Rule 24e-2 this fiscal year
(c) Total number of shares included in (a) previously used under 39,296,378
Rule 24f-2(c) this fiscal year
(d) Total number of shares included in (a) being used to reduce 27,871,565
maximum aggregate offering price in this Post-Effective
Amendment
</TABLE>
<PAGE>
Scudder
Short Term Bond Fund
Fund Profile
April 1, 1996
<PAGE>
Scudder Short Term Bond Fund
1. What Is The Fund's Objective?
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability.
2. What Does The Fund Invest In?
The Fund invests primarily in high quality short-term bonds. The dollar
weighted average effective maturity of the Fund may not exceed three years.
At least 65% of the Fund's assets are invested in U.S. Government
securities, corporate debt securities, mortgage- and other asset-backed
securities. In addition the Fund may invest in money market instruments,
privately placed obligations and foreign securities that meet the same
criteria as the Fund's domestic holdings. The Fund does not invest in
securities rated below investment grade.
3. What Are The Risks Of Investing In The Fund?
Though the Fund seeks to provide a high degree or principal stability, the
Fund's share price may vary from day to day with changes in interest rates
and bond market conditions. This fluctuation should be more moderate than
that of a fund with a longer average maturity. You incur principal risk
when you invest because your shares, when sold, may be worth more or less
than what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking high current income
and:
o plan to hold your investment for several years,
o can tolerate fluctuations in share price, and
o have or plan to have other investments for the benefit of
diversification.
<PAGE>
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly or
indirectly, by investing in a mutual fund. These types of expenses, as they
relate to Scudder Short Term Bond Fund are:
Shareholder transaction expenses --
fees charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses --
fees paid by the Fund before it distributes its net investment income,
expressed as a percentage of the Fund's average daily net assets.
Figures below are for the fiscal year ended December 31, 1994.
Investment management fee 0.46%
12b-1 fees None
Other expenses 0.27%
-----
Total Fund operating expenses 0.73%
=====
Example:
Assuming a 5% annual return and redemption at the end of each period,
the total expenses relating to a $1,000 investment would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$7 $23 $41 $91
This example assumes reinvestment of all dividends and distributions
and that the total Fund operating expenses listed above remain the
same each year. This example should not be considered a representation
of past or future expenses or return. Actual Fund expenses and return
vary from year to year and may be higher or lower than those shown.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.
<PAGE>
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed over the past 10 years,
assuming reinvestment of all distributions. Performance is historical and
may not be indicative of future results. Total return and principal value
will fluctuate. The Fund's 30-day net annualized SEC yield on March 31,
1996 was 5.81%.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE.
BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:
1986 14.66%
1987 1.42
1988 6.31
1989 13.28
1990 9.88
1991 14.38
1992 5.43
1993 8.18
1994 -2.87
1995 10.74
The Fund's Average Annual Total Return
for the period ended March 31, 1996
One Year 8.32%
Five Years 6.24%
Ten Years 7.53%
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a leading
provider of U.S. and international investment management for clients
throughout the world.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail, phone,
fax, or in person. The minimum initial investment is only $1,000.
Thereafter, additional investments may be made for as little as $100. You
may also exchange shares free of charge within the Scudder Family of Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day by
check, telephone, fax, or mail.
10. When Are Distributions Made?
Dividends are declared daily and distributed monthly. Capital gains
distributions, if any, will be made in November or December. You may elect
to receive distributions in cash or have them reinvested in additional
shares of the Fund.
<PAGE>
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information, share
prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Perspectives
o regular, informative reports about the performance of your Fund
Scudder wants you to make informed investment decisions. This Fund Profile
contains key information about Scudder Short Term Bond Fund. More details appear
in the Fund's accompanying prospectus. Please read it carefully before you
invest. If you have any questions, please call 1-800-225-2470.
<PAGE>
[Image] Scudder Short Term Bond Fund Profile [Image]
- ---------------------------------------------------------------------------
The fund profile, a supplement to the full prospectus, is designed as
an easy-to-read summary of fund risks, fees, and objectives. You can
click on any question to link to the Fund's prospectus and get more
information on that topic. Or, if you wish, you can proceed directly
to the Fund's prospectus. Once you have read the prospectus and
considered your investment goals, you can proceed to a Scudder Funds
application.
----------------------------------------------------------------------
Fund Profile
November 15, 1996
----------------------------------------------------------------------
1. What Is The Fund's Objective?
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability.
2. What Does The Fund Invest In?
The Fund invests primarily in high quality short-term bonds. The
dollar weighted average effective maturity of the Fund's portfolio may
not exceed three years. At least 65% of the Fund's assets are invested
in (a) U.S. Government securities, and (b) corporate debt securities,
mortgage- and other asset-backed securities rated, at the time of
purchase, in one of the two highest ratings categories of Standard &
Poor's (AAA or AA) or Moody's Investors Service, Inc. (Aaa or Aa) or,
if not rated, judged to be of comparable quality by Scudder. In
addition, the Fund may invest in money market instruments, privately
placed obligations and foreign securities that meet the same criteria
as the Fund's domestic holdings. For temporary defensive purposes, the
Fund may invest more than 35% of its assets in money market
instruments.
The Fund's investment adviser, Scudder, Stevens & Clark, Inc. makes
investment decisions based on general economic and financial trends,
such as domestic and international economic development, the outlook
for the securities markets, the level of interest rates and inflation,
the supply and demand of debt securities, and other factors.
3. What Are The Risks Of Investing In The Fund?
Though the Fund seeks to provide a high degree of principal stability,
the Fund's share price may vary from day to day with changes in
interest rates and bond market conditions. The Fund's share price
tends to rise as interest rates decline and decline as interest rates
rise. This fluctuation should be more moderate than that of a fund
with a longer average maturity. You incur principal risk when you
invest because your shares, when sold, may be worth more or less than
what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking high current
income and:
o plan to hold your investment for several years,
o can tolerate fluctuations in share price, and
o have or plan to have other investments for the benefit of
diversification.
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly
or indirectly, by investing in a mutual fund. These types of expenses,
as they relate to Scudder Short Term Bond Fund are:
Shareholder transaction expenses --
Expenses charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses --
Expenses paid by the Fund before it distributes its net investment
income, expressed as a percentage of the Fund's average daily net
assets. Figures below are for the fiscal year ended December 31,
1995.
Investment management fee 0.49%
12b-1 fees None
Other expenses 0.26%
------
Total Fund operating expenses 0.75%
====
Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would be:
1 Year 3 Years 5 Years 10 Years
$8 $ 24 $42 $93
This example assumes reinvestment of all dividends and distributions
and that the total Fund operating expenses listed above remain the
same each year. This example should not be considered a representation
of past or future expenses or return. Actual Fund expenses and return
vary from year to year and may be higher or lower than those shown.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed over the past 10 years,
assuming reinvestment of all distributions. Performance is historical
and may not be indicative of future results. Total return and
principal value will fluctuate. The Fund's 30-day net annualized SEC
yield on September 30, 1996 was 6.52%.
A BAR CHART WAS INSERTED HERE. THE CAPTION AND DATA FROM THIS CHART ARE
LISTED BELOW:
Total returns for years ended December 31:
1986 14.66%
1987 1.42
1988 6.31
1989 13.28
1990 9.88
1991 14.38
1992 5.43
1993 8.18
1994 -2.87
1995 10.74
BAR CHART ENDS HERE
The Fund's Average Annual Total Return
for the period ended September 30, 1996
One Year 5.23%
Five Years 5.40
Ten Years 7.08
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a
leading provider of U.S. and international investment management for
clients throughout the world. The Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process.
Since the Fund was introduced in 1989, Lead Portfolio Manager Thomas
M. Poor has had responsibility for its day-to-day operation. Mr. Poor,
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. Mr. Gootkind, who has
worked as a portfolio manager at Scudder since 1986, has
responsibility for the Fund's investments in financial institutions
and asset-backed securities. Scott E. Dolan, Portfolio Manager, joined
the team in 1994 and is responsible for implementing the Fund's
strategy. Mr. Dolan, who joined Scudder in 1989, has four years of
experience in compliance analysis and account administration and has
worked as a portfolio manager since 1993.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail,
phone, fax, or in person. The current minimum initial investment is
$1,000 ($500 for IRA's). Effective January 1, 1997, the minimum
initial investment will be $2,500 ($1,000 for IRA's), except that
shareholders may open a regular account with a minimum of $1,000 if an
investment program of at least $100/month is established. After
January 1, 1997, a shareholder who maintains an account balance of
less than $2,500 without establishing an investment program, may be
assessed an annual fee of $10.00, payable to the Fund. You may also
exchange Fund shares free of charge within the Scudder Family of
Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day
by check, telephone, fax, or mail.
10. When Are Distributions Made?
Dividends are declared daily and distributed monthly. Capital gains
distributions, if any, will be made in November or December. You may
elect to receive distributions in cash or have them reinvested in
additional shares of the Fund.
Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains
distributions, if any, are taxable as long-term capital gains
regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions
are taxable as ordinary income. It is not expected that dividends will
qualify for the dividends-received deduction for corporations.
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information,
share prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Scudder Perspectives
o regular, informative reports about the performance of your Fund
[Image]
----------------------------------------------------------------------
[Image]Scudder wants you to make informed investment decisions. This
Fund Profile contains key information about the Fund. If you would
like more information before you invest, please consult the Fund's
accompanying prospectus. For details about the Fund's holdings or
recent investment strategies, please review the Fund's most recent
annual or semiannual report. The reports are free and may be ordered
by calling 1-800-225-2470.
----------------------------------------------------------------------
Contact Scudder
<PAGE>
[Image] Scudder Short Term Bond Fund Profile
- ---------------------------------------------------------------------------
The fund profile, a supplement to the full prospectus, is designed as
an easy-to-read summary of fund risks, fees, and objectives. You can
click on any question to link to the Fund's prospectus and get more
information on that topic. Or, if you wish, you can proceed directly
to the Fund's prospectus. Once you have read the prospectus and
considered your investment goals, you can proceed to a Scudder Funds
application.
----------------------------------------------------------------------
Fund Profile
January 1, 1997
----------------------------------------------------------------------
1. What Is The Fund's Objective?
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability.
2. What Does The Fund Invest In?
The Fund invests primarily in high quality short-term bonds. The
dollar weighted average effective maturity of the Fund's portfolio may
not exceed three years. At least 65% of the Fund's assets are invested
in (a) U.S. Government securities, and (b) corporate debt securities,
mortgage- and other asset-backed securities rated, at the time of
purchase, in one of the two highest ratings categories of Standard &
Poor's (AAA or AA) or Moody's Investors Service, Inc. (Aaa or Aa) or,
if not rated, judged to be of comparable quality by Scudder. In
addition, the Fund may invest in money market instruments, privately
placed obligations and foreign securities that meet the same criteria
as the Fund's domestic holdings. For temporary defensive purposes, the
Fund may invest more than 35% of its assets in money market
instruments.
The Fund's investment adviser, Scudder, Stevens & Clark, Inc. makes
investment decisions based on general economic and financial trends,
such as domestic and international economic development, the outlook
for the securities markets, the level of interest rates and inflation,
the supply and demand of debt securities, and other factors.
3. What Are The Risks Of Investing In The Fund?
Though the Fund seeks to provide a high degree of principal stability,
the Fund's share price may vary from day to day with changes in
interest rates and bond market conditions. The Fund's share price
tends to rise as interest rates decline and decline as interest rates
rise. This fluctuation should be more moderate than that of a fund
with a longer average maturity. You incur principal risk when you
invest because your shares, when sold, may be worth more or less than
what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking high current
income and:
o plan to hold your investment for several years,
o can tolerate fluctuations in share price, and
o have or plan to have other investments for the benefit of
diversification.
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly
or indirectly, by investing in a mutual fund. These types of expenses,
as they relate to Scudder Short Term Bond Fund are:
Shareholder transaction expenses --
Expenses charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses --
Expenses paid by the Fund before it distributes its net investment
income, expressed as a percentage of the Fund's average daily net
assets. Figures below are for the fiscal year ended December 31,
1995.
Investment management fee 0.49%
12b-1 fees None
Other expenses 0.26%
-----
Total Fund operating expenses 0.75%
=====
Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would be:
1 Year 3 Years 5 Years 10 Years
$8 $24 $42 $93
This example assumes reinvestment of all dividends and distributions
and that the total Fund operating expenses listed above remain the
same each year. This example should not be considered a representation
of past or future expenses or return. Actual Fund expenses and return
vary from year to year and may be higher or lower than those shown.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed over the past 10 years,
assuming reinvestment of all distributions. Performance is historical
and may not be indicative of future results. Total return and
principal value will fluctuate. The Fund's 30-day net annualized SEC
yield on December 31, 1996 was 6.11%.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE.
BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:
1987 1.42%
1988 6.31
1989 13.28
1990 9.88
1991 14.38
1992 5.43
1993 8.18
1994 -2.87
1995 10.74
1996 3.86
The Fund's Average Annual Total Return
for the period ended December 31, 1996
One Year 3.86%
Five Years 4.97%
Ten Years 6.94%
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a
leading provider of U.S. and international investment management for
clients throughout the world. The Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process.
Since the Fund was introduced in 1989, Lead Portfolio Manager Thomas
M. Poor has had responsibility for its day-to-day operation. Mr. Poor,
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. Mr. Gootkind, who has
worked as a portfolio manager at Scudder since 1986, has
responsibility for the Fund's investments in financial institutions
and asset-backed securities. Scott E. Dolan, Portfolio Manager, joined
the team in 1994 and is responsible for implementing the Fund's
strategy. Mr. Dolan, who joined Scudder in 1989, has four years of
experience in compliance analysis and account administration and has
worked as a portfolio manager since 1993.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail,
phone, fax, or in person. The minimum initial investment is $2,500
($1,000 for IRAs), except that shareholders may open a regular account
with a minimum of $1,000 if an investment program of at least
$100/month is established. A shareholder with a non-fiduciary account
who maintains an account balance of less than $2,500 without
establishing an investment program, may be assessed an annual fee of
$10.00, payable to the Fund. You may also exchange Fund shares free of
charge within the Scudder Family of Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day
by check, telephone, fax, or mail.
10. When Are Distributions Made?
Dividends are declared daily and distributed monthly. Capital gains
distributions, if any, will be made in November or December. You may
elect to receive distributions in cash or have them reinvested in
additional shares of the Fund.
Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains
distributions, if any, are taxable as long-term capital gains
regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions
are taxable as ordinary income. It is not expected that dividends will
qualify for the dividends-received deduction for corporations.
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information,
share prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Scudder Perspectives
o regular, informative reports about the performance of your Fund
----------------------------------------------------------------------
[Image]Scudder wants you to make informed investment decisions. This
Fund Profile contains key information about the Fund. If you would
like more information before you invest, please consult the Fund's
accompanying prospectus. For details about the Fund's holdings or
recent investment strategies, please review the Fund's most recent
annual or semiannual report. The reports are free and may be ordered
by calling 1-800-225-2470.
----------------------------------------------------------------------
Contact Scudder
<PAGE>
[Image] Scudder Short Term Bond Fund Profile
- ---------------------------------------------------------------------------
The fund profile, a supplement to the full prospectus, is designed as
an easy-to-read summary of fund risks, fees, and objectives. You can
click on any question to link to the Fund's prospectus and get more
information on that topic. Or, if you wish, you can proceed directly
to the Fund's prospectus. Once you have read the prospectus and
considered your investment goals, you can proceed to a Scudder Funds
application.
----------------------------------------------------------------------
Fund Profile
April 1, 1997
----------------------------------------------------------------------
1. What Is The Fund's Objective?
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability.
2. What Does The Fund Invest In?
The Fund invests primarily in high quality short-term bonds. The
dollar weighted average effective maturity of the Fund's portfolio may
not exceed three years. At least 65% of the Fund's assets are invested
in (a) U.S. Government securities, and (b) corporate debt securities,
mortgage- and other asset-backed securities rated, at the time of
purchase, in one of the two highest ratings categories of Standard &
Poor's (AAA or AA) or Moody's Investors Service, Inc. (Aaa or Aa) or,
if not rated, judged to be of comparable quality by Scudder. In
addition, the Fund may invest in money market instruments, privately
placed obligations and foreign securities that meet the same criteria
as the Fund's domestic holdings. For temporary defensive purposes, the
Fund may invest more than 35% of its assets in money market
instruments.
The Fund's investment adviser, Scudder, Stevens & Clark, Inc. makes
investment decisions based on general economic and financial trends,
such as domestic and international economic development, the outlook
for the securities markets, the level of interest rates and inflation,
the supply and demand of debt securities, and other factors.
3. What Are The Risks Of Investing In The Fund?
Though the Fund seeks to provide a high degree of principal stability,
the Fund's share price may vary from day to day with changes in
interest rates and bond market conditions. The Fund's share price
tends to rise as interest rates decline and decline as interest rates
rise. This fluctuation should be more moderate than that of a fund
with a longer average maturity. You incur principal risk when you
invest because your shares, when sold, may be worth more or less than
what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking high current
income and:
o plan to hold your investment for several years,
o can tolerate fluctuations in share price, and
o have or plan to have other investments for the benefit of
diversification.
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly
or indirectly, by investing in a mutual fund. These types of expenses,
as they relate to Scudder Short Term Bond Fund are:
Shareholder transaction expenses -
Expenses charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses -
Expenses paid by the Fund before it distributes its net investment
income, expressed as a percentage of the Fund's average daily net
assets. Figures below are for the fiscal year ended December 31,
1995.
Investment management fee 0.49%
12b-1 fees None
Other expenses 0.26%
-----
Total Fund operating expenses 0.75%
=====
Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would be:
1 Year 3 Years 5 Years 10 Years
$8 $24 $42 $93
This example assumes reinvestment of all dividends and distributions
and that the total Fund operating expenses listed above remain the
same each year. This example should not be considered a representation
of past or future expenses or return. Actual Fund expenses and return
vary from year to year and may be higher or lower than those shown.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed over the past 10 years,
assuming reinvestment of all distributions. Performance is historical
and may not be indicative of future results. Total return and
principal value will fluctuate. The Fund's 30-day net annualized SEC
yield on March 31, 1997 was 6.14%.
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE.
BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:
1987 1.42%
1988 6.31
1989 13.28
1990 9.88
1991 14.38
1992 5.43
1993 8.18
1994 -2.87
1995 10.74
1996 3.86
The Fund's Average Annual Total Return
for the period ended March 31, 1997
One Year 4.89%
Five Years 5.15%
Ten Years 6.73%
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a
leading provider of U.S. and international investment management for
clients throughout the world. The Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process.
Since the Fund was introduced in 1989, Lead Portfolio Manager Thomas
M. Poor has had responsibility for its day-to-day operation. Mr. Poor,
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. Mr. Gootkind, who has
worked as a portfolio manager at Scudder since 1986, has
responsibility for the Fund's investments in financial institutions
and asset-backed securities. Scott E. Dolan, Portfolio Manager, joined
the team in 1994 and is responsible for implementing the Fund's
strategy. Mr. Dolan, who joined Scudder in 1989, has four years of
experience in compliance analysis and account administration and has
worked as a portfolio manager since 1993.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail,
phone, fax, or in person. The minimum initial investment is $2,500
($1,000 for IRAs), except that shareholders may open a regular account
with a minimum of $1,000 if an investment program of at least
$100/month is established. A shareholder with a non-fiduciary account
who maintains an account balance of less than $2,500 without
establishing an investment program, may be assessed an annual fee of
$10.00, payable to the Fund. You may also exchange Fund shares free of
charge within the Scudder Family of Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day
by check, telephone, fax, or mail.
10. When Are Distributions Made?
Dividends are declared daily and distributed monthly. Capital gains
distributions, if any, will be made in November or December. You may
elect to receive distributions in cash or have them reinvested in
additional shares of the Fund.
Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains
distributions, if any, are taxable as long-term capital gains
regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions
are taxable as ordinary income. It is not expected that dividends will
qualify for the dividends-received deduction for corporations.
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information,
share prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Scudder Perspectives
o regular, informative reports about the performance of your Fund
----------------------------------------------------------------------
[Image]Scudder wants you to make informed investment decisions. This
Fund Profile contains key information about the Fund. If you would
like more information before you invest, please consult the Fund's
accompanying prospectus. For details about the Fund's holdings or
recent investment strategies, please review the Fund's most recent
annual or semiannual report. The reports are free and may be ordered
by calling 1-800-225-2470.
----------------------------------------------------------------------
Contact Scudder
<PAGE>
This prospectus sets forth concisely the information about Scudder Short Term
Bond Fund, a series of Scudder Funds Trust, an open-end management investment
company, that a prospective investor should know before investing. Please retain
it for future reference.
If you require more detailed information, a Statement of Additional Information
dated May 1, 1997, as amended from time to time, may be obtained without charge
by writing Scudder Investor Services, Inc., Two International Place, Boston, MA
02110-4103 or calling 1-800-225-2470. The Statement, which is incorporated by
reference into this prospectus, has been filed with the Securities and Exchange
Commission and is available along with other related materials on the SEC's
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
Scudder
Short Term
Bond Fund
Prospectus
May 1, 1997
A pure no-load(TM) (no sales charges) mutual fund series which seeks to provide
a high level of income consistent with a high degree of principal stability.
<PAGE>
Expense information
How to compare a Scudder pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Short Term Bond Fund (the "Fund"). By reviewing
this table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load(TM) funds, you pay no commissions to purchase or redeem shares, or to
exchange from one fund to another. As a result, all of your investment goes to
work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended December 31,
1996.
Investment management fee 0.51%
12b-1 fees NONE
Other expenses 0.29%
-----
Total Fund operating expenses 0.80%
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$8 $26 $44 $99
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Fund or by "Write-A-Check." If you
wish to receive redemption proceeds via wire, there is a $5 wire service
fee. For additional information, please refer to "Transaction
information--Redeeming shares."
2
<PAGE>
Financial highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements. If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements are
available in the Fund's Annual Report dated December 31, 1996 and may be
obtained without charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1995 1994 1993(c) 1992 1991 1990 1989 1988 1987 1986
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period................................. $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23 $11.92 $11.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income (a).............. .71 .81 .87 .97 1.08 1.09 .83 .73 .74 .81
Net realized and unrealized
gains (losses)....................... .44 (1.15) .08 (.33) .53 .01 .61 (.04) (.58) .78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
transactions......................... 1.15 (.34) .95 .64 1.61 1.10 1.44 .69 .16 1.59
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income........... (.43) (.64) (.80) (.96) (1.08) (1.09) (.83) (.73) (.74) (.81)
From net realized gains.............. -- -- (.03) -- -- -- (.09) -- (.11) (.21)
In excess of gains................... -- -- (.04) -- -- -- -- -- -- --
From tax return of capital........... (.28) (.12) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...................... (.71) (.76) (.87) (.96) (1.08) (1.09) (.92) (.73) (.85) (1.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period........... $11.35 $10.91 $12.01 $11.93 $12.25 $11.72 $11.71 $11.19 $11.23 $11.92
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)......................... 10.74 (2.87) 8.18 5.43 14.38 9.88 13.20 6.10 1.40 14.70
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions)......................... 1,823 2,136 3,190 2,862 2,247 340 72 10 10 8
Ratio of operating expenses net, to
average daily net assets (%)......... .75 .73 .68 .75 .44 .16 .36 1.50 1.45 1.45
Ratio of net investment income net,
to average daily net assets (%)...... 6.37 6.93 7.21 8.01 8.96 9.36 7.97 6.48 6.34 6.89
Portfolio turnover rate (%).............. 101.1 65.3 66.1 83.7(b) 41.0 52.9 40.0 23.5 28.7 15.6
(a) Portion of expenses
reimbursed by
the Adviser........................ $ -- $ -- $ -- $ -- $ -- $ .02 $ .10 $ .04 $ .04 $ --
Management fee not imposed
by the Adviser (Note C).............. $ -- $ -- $ -- $ -- $ .06 $ .07 $ .05 $ -- $ -- $ .01
Ratio of operating expenses, including expenses reimbursed, management fee and other expenses not imposed, to average daily
net assets aggregated .78%, 1% and 1.19% for the years ended December 31, 1992, 1991 and 1990, respectively.
(b) The high turnover rate reflects an increase in principal prepayments on mortgage securities in the Fund.
(c) Per share amounts have been calculated using weighted average shares outstanding.
On July 3, 1989, the Fund adopted its present name and objective. Prior to that date, the Fund was known as the General 1994
Portfolio of Scudder Target Fund and its objectives were current income, capital preservation, and possible capital
appreciation. Financial information prior to July 3, 1989 should not be considered representative of the present Fund.
</TABLE>
3
<PAGE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $115 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Short Term Bond Fund
Investment objective
o a high level of income consistent with a high degree of principal stability
Investment characteristics
o designed to provide a higher and more stable level of income than typically
provided by money market investments, yet more price stability than
investments in intermediate- and long-term bonds
o investments primarily in high quality, short-term bonds
o dollar-weighted average portfolio effective maturity will not exceed three
years
o dividends declared daily and paid monthly
o daily liquidity at current net asset value
Contents
Investment objective and policies 5
Why invest in the Fund? 6
Additional information about policies
and investments 7
Distribution and performance information 11
Purchases 12
Exchanges and redemptions 13
Fund organization 14
Transaction information 15
Shareholder benefits 19
Trustees and Officers 22
Investment products and services 23
How to contact Scudder Back cover
4
<PAGE>
Investment objective and policies
Scudder Short Term Bond Fund (the "Fund"), a diversified series of Scudder Funds
Trust, is a pure no-load(TM) mutual fund designed for investors seeking:
o a higher and more stable level of income than normally provided by money
market investments; and
o more price stability than investments in intermediate- and long-term bonds.
The Fund's objective is to provide a high level of income consistent with a high
degree of principal stability by investing primarily in high quality, short-term
bonds. The dollar-weighted average effective maturity of the Fund's portfolio
may not exceed three years. Within this limitation, the Fund may purchase
individual securities with remaining stated maturities greater than three years.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Investments
The Fund invests at least 65% of its net assets in a managed portfolio of bonds
consisting of:
o U.S. Government securities, including bonds, notes and bills issued by the
U.S. Treasury, and securities issued by agencies and instrumentalities of
the U.S. Government;
o Corporate debt securities, such as bonds, notes and debentures;
o Mortgage-backed securities; and
o Other asset-backed securities.
Other eligible investments for the Fund are as follows:
o Money market instruments which are comprised of commercial paper, bank
obligations (i.e., certificates of deposit and bankers' acceptances) and
repurchase agreements;
o Privately placed obligations (including restricted securities); and
o Foreign securities, including non-U.S. dollar-denominated securities and
U.S. dollar-denominated debt securities issued by foreign issuers and
foreign branches of U.S. banks.
In addition, the Fund may purchase indexed securities, zero coupon securities,
securities on a when-issued or forward delivery basis and may engage in dollar
roll transactions and strategic transactions. See "Additional information about
policies and investments" for more information.
To meet its objective, the Fund's investment adviser, Scudder, Stevens & Clark,
Inc. (the "Adviser"), actively manages the Fund's portfolio. Investment
decisions are based on general economic and financial trends, such as domestic
and international economic developments, the outlook for the securities markets,
the level of interest rates and inflation, the supply and demand of debt
securities, and other factors. The composition of the Fund's portfolio is also
determined by individual security analysis. The Adviser's team of experienced
credit analysts actively monitors the credit quality of the investments of the
Fund.
The net asset value of the Fund is expected to fluctuate with changes in
interest rates and bond market conditions, although this fluctuation should be
more moderate than that of a fund with a longer average maturity. The Adviser,
however, will attempt to reduce principal fluctuation through, among other
things, diversification, credit analysis and security selection, and adjustment
of the Fund's average portfolio maturity. The Fund's share price tends to rise
as interest rates decline and decline as interest rates rise. In periods of
5
<PAGE>
Investment objective and policies (cont'd)
rising interest rates and falling bond prices, the Adviser may shorten the
Fund's average maturity to minimize the effect of declining bond values on the
Fund's net asset value. Conversely, during times of falling rates and rising
prices, a longer average maturity of up to three years may be sought. When the
Adviser believes economic or other conditions warrant, for temporary defensive
purposes the Fund may invest more than 35% of its assets in money market
instruments. It is impossible to predict for how long such alternative
strategies may be utilized.
The Fund's securities generally offer less current yield than securities of
lower quality (rated below BBB/Baa) or longer maturity, but lower-quality
securities generally have less liquidity, and both tend to have greater credit
and market risk, and consequently more price volatility.
It is against the Fund's policy to make changes in the portfolio for short-term
trading purposes. However, the Fund may take advantage of opportunities provided
by temporary dislocations in the market to maintain principal stability or
enhance income.
High quality securities
The Fund emphasizes high quality investments. At least 65% of the Fund's net
assets will be invested in (1) obligations of the U.S. Government, its agencies
or instrumentalities, and (2) debt securities rated, at the time of purchase, in
one of the two highest ratings categories of Standard & Poor's ("S&P") (AAA or
AA) or Moody's Investors Service, Inc. ("Moody's") (Aaa or Aa) or, if not rated,
judged to be of comparable quality by the Adviser. In addition, the Fund will
not invest in any debt security rated at the time of purchase lower than BBB by
S&P or Baa by Moody's, or of equivalent quality as determined by the Adviser.
Should the rating of a portfolio security be downgraded after being purchased by
the Fund, the Adviser will determine whether it is in the best interest of the
Fund to retain or dispose of the security. A large portion of the Fund's bond
holdings may trade at substantial discounts from face value. (See "Risk
factors.")
The U.S. Government securities in which the Fund may invest include (1)
securities issued and backed by the full faith and credit of the U.S.
Government, such as U.S. Treasury bills, notes and bonds; (2) securities,
including mortgage-backed securities, issued by an agency or instrumentality of
the U.S. Government, including those backed by the full faith and credit of the
U.S. Government, such as securities of the Export-Import Bank of the United
States, the General Services Administration and the Government National Mortgage
Association, and those issued by agencies and instrumentalities, such as Federal
Home Loan Banks and the Federal Home Loan Mortgage Corporation which, while
neither direct obligations of nor guaranteed by the U.S. Government, are backed
by the credit of the issuer itself and may be supported as well by the issuer's
right to borrow from the U.S. Treasury; and (3) securities of the U.S.
Government, its agencies or instrumentalities on a when-issued or forward
delivery basis. In addition, the Fund may invest in repurchase agreements with
respect to U.S. Government securities.
Why invest in the Fund?
Scudder Short Term Bond Fund is designed for individuals, institutions and
corporations seeking a high level of income compared to money market funds,
consistent with a high degree of principal stability for their investments
compared to that of longer-term fixed-income investments. Investors may choose
this Fund as a complement to money market funds. Money market funds are managed
for total price stability but generally tend to offer somewhat lower yields than
this Fund. Further, the Fund may appeal to investors favoring a more stable
6
<PAGE>
investment and willing to accept somewhat lower yields than they might normally
expect from a longer-term bond fund.
Some investors may view the Fund as an alternative to a bank certificate of
deposit ("CD"). While an investment in the Fund is not federally insured and
there is no guarantee of price stability, an investment in the Fund-- unlike a
CD--is not locked away for any period, may be redeemed at any time without
incurring early withdrawal penalties and may provide a higher yield. The Fund
may also be appropriate for IRAs, 401(k)s and other retirement plans where
income is compounded on a tax-deferred basis.
Investors will also benefit from the convenience, cost-savings and professional
management of a no-load mutual fund. Scudder, Stevens & Clark, Inc. has been
researching and managing fixed-income investments since 1929 and currently
oversees more than $55 billion in U.S. and foreign bonds.
In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(TM)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase agreements,
and may not make loans except through the lending of portfolio securities, the
purchase of debt securities or through repurchase agreements.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
When-issued securities
The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/ dealers. Under
a repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase them at a specified time and price.
The Fund may enter into repurchase commitments with any party deemed
creditworthy by the Adviser, including foreign banks and broker/dealers, if the
transaction is entered into for investment purposes and the counterparty's
creditworthiness is at least equal to that of issuers of securities which the
Fund may purchase.
Mortgage and other asset-backed securities
The Fund may invest in mortgage-backed securities, which are securities
representing interests in pools of mortgage loans. These securities provide
shareholders with payments consisting of both interest and principal as the
mortgages in the underlying mortgage pools are paid off.
The timely payment of principal and interest on mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA") is
backed by GNMA and the full faith and credit of the U.S. Government. These
guarantees, however, do not apply to the market value or yield of mortgage-
7
<PAGE>
Additional information about policies and investments (cont'd)
backed securities or to the value of Fund shares. Also, GNMA and other
mortgage-backed securities may be purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs. In addition, the Fund may invest in mortgage-backed
securities issued by other issuers, such as the Federal National Mortgage
Association (FNMA), which are not guaranteed by the U.S. Government. Moreover,
the Fund may invest in debt securities which are secured with collateral
consisting of mortgage-backed securities and in other types of mortgage-related
securities.
The Fund may also invest in securities representing interests in pools of
certain other consumer loans, such as automobile loans or credit card
receivables. In some cases, principal and interest payments are partially
guaranteed by a letter of credit from a financial institution.
Dollar roll transactions
The Fund may enter into dollar roll transactions with selected banks and
broker/dealers. Dollar roll transactions are treated as reverse repurchase
agreements for purposes of the Fund's borrowing restrictions and consist of the
sale by the Fund of mortgage-backed securities, together with a commitment to
purchase similar, but not identical, securities at a future date at the same
price. In addition, the Fund is paid a fee as consideration for entering into
the commitment to purchase. Dollar rolls may be renewed after cash settlement
and initially involve only a firm commitment agreement by the Fund to buy a
security.
Convertible securities
The Fund may invest in convertible securities which may offer higher income than
the common stocks into which they are convertible. The convertible securities in
which the Fund may invest are either fixed income or zero coupon debt securities
which may be converted or exchanged at a stated or determinable exchange ratio
into underlying shares of common stock. Prior to their conversion, convertible
securities may have characteristics similar to nonconvertible securities.
Foreign securities
While the Fund generally emphasizes investments in U.S. Government securities
and companies domiciled in the U.S., it may invest in foreign securities that
meet the same criteria as the Fund's domestic holdings when the anticipated
performance of foreign securities is believed by the Adviser to offer more
potential than domestic alternatives in keeping with the investment objective of
the Fund. Foreign securities may be denominated either in U.S. dollars or
foreign currencies.
Indexed securities
The Fund may invest in indexed securities, the value of which is linked to
currencies, interest rates, commodities, indices or other financial indicators
("reference instruments"). The interest rate or (unlike most fixed-income
securities) the principal amount payable at maturity of an indexed security may
be increased or decreased, depending on changes in the value of the reference
instrument.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of the Fund's
portfolio or to enhance potential gain. These strategies may be executed through
the use of derivative contracts. Such strategies are generally accepted as a
part of modern portfolio management and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments may change
over time as new instruments and strategies are developed or regulatory changes
8
<PAGE>
occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of the Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination, and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Debt securities. Securities rated BBB by S&P or Baa by Moody's are neither
highly protected nor poorly secured. These securities normally pay higher yields
but involve potentially greater price variability than higher-quality
securities. These securities are regarded as having adequate capacity to repay
principal and pay interest, although adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to do so. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics.
Illiquid or restricted investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid or restricted investments.
Disposing of illiquid or restricted investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
Fund to sell them promptly at an acceptable price.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
9
<PAGE>
Additional information about policies and investments (cont'd)
including a decline in the value of the securities, before being able to sell
the securities.
Some repurchase commitment transactions may not provide the Fund with collateral
marked-to- market during the term of the commitment.
Mortgage-backed securities. Unscheduled or early payments on the underlying
mortgages may shorten the securities' effective maturities and lessen their
growth potential. The Fund may agree to purchase or sell these securities with
payment and delivery taking place at a future date. A decline in interest rates
may lead to a faster rate of repayment of the underlying mortgages, and expose
the Fund to a lower rate of return upon reinvestment. To the extent that such
mortgage-backed securities are held by the Fund, the prepayment right of
mortgagors may limit the increase in net asset value of the Fund because the
value of the mortgage-backed securities held by the Fund may not appreciate as
rapidly as the price of non-callable debt securities.
Other asset-backed securities. In addition to prepayment risk, securities
representing pools of certain consumer loans present certain risks that are not
presented by mortgage-backed securities. These securities may not have the
benefit of any security interest in the underlying assets. Also, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.
Dollar roll transactions. If the broker/dealer to whom the Fund sells the
securities underlying a dollar roll transaction becomes insolvent, the Fund's
right to purchase or repurchase the securities may be restricted; the value of
the securities may change adversely over the term of the dollar roll; the
securities that the Fund is required to repurchase may be worth less than
securities that the Fund originally held, and the return earned by the Fund with
the proceeds of a dollar roll may not exceed transaction costs.
Foreign securities. Investments in foreign securities involve special
considerations due to limited information, higher brokerage costs, different
accounting standards, thinner trading markets as compared to domestic markets
and the likely impact of foreign taxes on the yield from debt securities. They
may also entail other risks, such as the possibility of one or more of the
following: imposition of dividend or interest withholding or confiscatory taxes;
currency blockages or transfer restrictions; expropriation, nationalization or
other adverse political or economic developments; less government supervision
and regulation of securities exchanges, brokers and listed companies; and the
difficulty of enforcing obligations in other countries. Purchases of foreign
securities are usually made in foreign currencies and, as a result, the Fund may
incur currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar.
Further, it may be more difficult for the Fund's agents to keep currently
informed about corporate actions which may affect the prices of portfolio
securities. Communications between the U.S. and foreign countries may be less
reliable than within the U.S., increasing the risk of delayed settlements of
portfolio transactions or loss of certificates for portfolio securities. The
Fund's ability and decisions to purchase and sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets.
Indexed securities. Indexed securities may be positively or negatively indexed,
so that appreciation of the reference instrument may produce an increase or a
decrease in the interest rate or value at maturity of the security. In addition,
the change in the interest rate or value at maturity of the security may be some
multiple of the change in the value of the reference instrument. Thus, in
10
<PAGE>
addition to the credit risk of the security's issuer, the Fund will bear the
market risk of the reference instrument.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets.
As a result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position.
Finally, the daily variation margin requirements for futures contracts would
create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund's dividends from net investment income are declared daily and
distributed monthly. The Fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in November or December
to prevent application of a federal excise tax. An additional distribution may
be made within three months of the Fund's fiscal year end, if necessary. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional shares of the Fund. If an investment is in the form of a retirement
plan, all dividends and capital gains distributions will be reinvested into the
shareholder's account.
(Continued on page 14)
11
<PAGE>
<TABLE>
<CAPTION>
Purchases
<S> <C>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds Scudder Shareholder Service
P.O. Box 2291 Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
o In Person Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.
- -------------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the complete Fund name, to
Scudder Funds." the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Funds Centers to make an additional investment in your
Scudder fund account. Funds Center locations are listed under Shareholder
benefits
o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis through automatic
Investment Plan deductions from your bank checking account. Please call 1-800-225-5163
($50 minimum) for more information and an enrollment form.
12
<PAGE>
Exchanges and redemptions
Exchanging shares
Minimum investments: $2,500 to establish a new account;
$100 to exchange among existing accounts
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder Service 1-800-821-6234
P.O. Box 2291 Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA 02061-1612
- -------------------------------------------------------------------------------------------------------------------------
Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have redemption
proceeds sent to your predesignated bank account, or redemption proceeds of up
to $100,000 sent to your address of record.
o By "Write- You may redeem shares by writing checks against your account balance as often as
A-Check" you like for at least $100, but not more than $5,000,000.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically. Call
Withdrawal Plan 1-800-225-5163 for more information and an enrollment form.
</TABLE>
13
<PAGE>
Distribution and performance information (cont'd)
(Continued from page 11)
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
shares. Short-term capital gains and any other taxable income distributions are
taxable as ordinary income. It is not expected that dividends will qualify for
the dividends-received deduction for corporations.
The Fund sends detailed tax information to its shareholders about the amount and
type of its distributions by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance.
The "SEC yield" of the Fund is an annualized expression of the net income
generated by the Fund over a specified 30-day (one month) period, as a
percentage of the Fund's share price on the last day of that period. This yield
is calculated according to methods required by the Securities and Exchange
Commission (the "SEC"), and therefore may not equate to the level of income paid
to shareholders. "Total return" is the change in value of an investment in the
Fund for a specified period. The "average annual total return" of the Fund is
the average annual compound rate of return of an investment in the Fund assuming
the investment has been held for one year, five years and ten years as of a
stated ending date. "Cumulative total return" represents the cumulative change
in value of an investment in the Fund for various periods. All types of total
return calculations assume that all dividends and capital gains distributions
during the period were reinvested in shares of the Fund. Performance will vary
based upon, among other things, changes in market conditions and the level of
the Fund's expenses.
Fund organization
Scudder Short Term Bond Fund is a diversified series of Scudder Funds Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as a
Massachusetts business trust in July 1981 and changed its name from Scudder
Target Fund to its current name effective July 3, 1989.
The Fund's name and investment objective also were changed to the current ones
effective July 3, 1989.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Fund is not required to and has no current intention of
holding annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental investment
policies or approving an investment advisory contract. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Trustee as if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.
The Adviser receives an investment management fee for these services. The fee is
graduated so that increases in the Fund's net assets may result in a lower
annual fee rate and decreases in the Fund's net assets may result in a higher
14
<PAGE>
annual fee rate.
The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.
For the year ended December 31, 1996 the Adviser received an investment
management fee of 0.51% of the Fund's average daily net assets on an annual
basis.
All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder, Stevens & Clark, Inc. is located at 345 Park Avenue, New York, New
York.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone or by "Write-A-Check" prior to the expiration of the
seven-day period will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
15
<PAGE>
Transaction information (cont'd)
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases must be for at
least $250 but not more than $250,000. Proceeds in the amount of your purchase
will be transferred from your bank checking account in two or three business
days following your call. For requests received by the close of regular trading
on the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. "AutoBuy" requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day.
If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for most retirement plan accounts. However, "AutoBuy" transactions are
available for Scudder IRA accounts.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
By telephone order. Certain financial institutions may call Scudder before the
close of regular trading on the Exchange, normally 4 p.m. eastern time, and
purchase shares at that day's price. Such purchased shares will begin to earn
dividends on the day on which the payment is received by the Fund. If payment by
check or wire is not received from the financial institution within three
business days, the order is subject to cancellation and the financial
institution will be responsible for any loss to the Fund resulting from this
cancellation. Please call 1-800-854-8525 for more information.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
16
<PAGE>
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "Write-A-Check." You may redeem shares by writing checks against your account
balance for at least $100. Your Fund investments will continue to earn dividends
until your check is presented to the Fund for payment.
Checks will be returned by the Fund's transfer agent if there are insufficient
shares to meet the withdrawal amount. You should not attempt to close an account
by check, because the exact balance at the time the check clears will not be
known when the check is written.
By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "AutoSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
17
<PAGE>
Transaction information (cont'd)
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of trading that day. Purchase and redemption requests received after the
close of regular trading on the Exchange will be executed the following business
day. Purchases made by federal funds wire before noon eastern time will begin
earning income that day; all other purchases received before the close of
regular trading on the Exchange will begin earning income the next business day.
Redeemed shares will earn income on the day on which the redemption request is
executed.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase Restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees . Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
18
<PAGE>
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions--Other Information" in the Fund's Statement of
Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
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's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders and other investment specialists who
work in Scudder's offices across the United States and abroad. Scudder believes
its team approach benefits Fund investors by bringing together many disciplines
and leveraging Scudder's extensive resources.
Since the Fund was introduced in 1989, Lead Portfolio Manager Thomas M. Poor has
had responsibility for its day-to-day operation. Mr. Poor, 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. Mr. Gootkind, who has worked as a portfolio manager at Scudder since
1986, has responsibility for the Fund's investments in financial institutions
and asset-backed securities. Scott E. Dolan, Portfolio Manager, joined the team
in 1994 and is responsible for implementing the Fund's strategy. Mr. Dolan, who
joined Scudder in 1989, has four years of experience in compliance analysis and
account administration and has worked as a portfolio manager since 1993.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone
19
<PAGE>
Shareholder benefits (cont'd)
and fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder, Stevens & Clark, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon Scudder's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
20
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples if only one spouse has earned
income). Many people can deduct all or part of their contributions from
their taxable income, and all investment earnings accrue on a tax-deferred
basis. The Scudder No-Fee IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans. The Scudder Keogh
charges you no annual custodial fee.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500
or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
21
<PAGE>
Trustees and Officers
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 M. Poor*
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
*Scudder, Stevens & Clark, Inc.
22
<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
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 Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company 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
Retirement Programs
IRA
SEP 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 in order from
expected least risk 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.
23
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service 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 personalized 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
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
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
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.
<PAGE>
Scudder
Zero Coupon 2000 Fund
Fund Profile
April 1, 1996
<PAGE>
Scudder Zero Coupon 2000 Fund
1. What Is The Fund's Objective?
Scudder Zero Coupon 2000 Fund seeks as high an investment return over a
selected period as is consistent with investment in U.S. Government
securities and the minimization of reinvestment risk.
2. What Does The Fund Invest In?
The Fund invests primarily in zero coupon securities, including U.S.
Government securities and privately stripped coupons on and receipts for
U.S. Government securities. These securities pay no cash income but are
issued at substantial discounts from their value at maturity. The Fund
matures on the third Friday of December 2000.
3. What Are The Risks Of Investing In The Fund?
Though it is possible to calculate an anticipated return on an investment
in the Fund, the anticipated growth rate of the Fund cannot be guaranteed,
as it involves certain assumptions about variable factors, such as
reinvestment of dividends and distributions, the expense ratio and Fund
composition. A shareholder who redeems prior to the maturity date (December
2000) may receive a significantly different investment return than was
anticipated at the time of purchase.
In addition, interest rate fluctuations may affect the Fund's share price.
You incur principal risk when you invest because your shares, when sold,
may be worth more or less than what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking returns available on
U.S. Government securities with a predictability of return over a selected
time period. The Fund may be appropriate for investors planning for future
anticipated expenses, such as the college education of children.
<PAGE>
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly or
indirectly, by investing in a mutual fund. These types of expenses, as they
relate to Scudder Zero Coupon 2000 Fund are:
Shareholder transaction expenses --
fees charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses (after expense maintenance) --
fees paid by the Fund before it distributes its net investment income,
expressed as a percentage of the Fund's average daily net assets.
Figures below are for the fiscal year ended December 31, 1994, during
which Scudder maintained the total annualized expenses of the Fund at
not more than 1.00% of average daily net assets. Had Scudder not done
so, expenses would have amounted to 1.47%, including 0.60% for
management fees. Scudder will continue this expense maintenance until
April 30, 1996.
Investment management fee 0.13%
12b-1 fees None
Other expenses 0.87%
-----
Total Fund operating expenses 1.00%
=====
Example:
Assuming a 5% annual return and redemption at the end of each period,
the total expenses relating to a $1,000 investment would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $32 $55 $122
This example assumes reinvestment of all dividends and distributions and
that the total Fund operating expenses listed above remain the same each
year. This example should not be considered a representation of past or
future expenses or return. Actual Fund expenses and return vary from year
to year and may be higher or lower than those shown. Please note that there
is a $5 service fee if you request redemption proceeds via wire.
<PAGE>
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed since it commenced operations
on February 4, 1986, assuming reinvestment of all distributions.
Performance is historical and may not be indicative of future results.
Total return and principal value will fluctuate.***
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:
1987 -8.01%
1988 11.71
1989 20.39
1990 4.59
1991 20.03
1992 8.13
1993 16.00
1994 -7.93
1995 19.08
The Fund's Average Annual Total Return
for the period ended March 31, 1996
One Year 10.00%
Five Years 9.59%
Ten Years 8.04%
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a leading
provider of U.S. and international investment management for clients
throughout the world.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail, phone,
fax, or in person. The minimum initial investment is only $1,000.
Thereafter, additional investments may be made for as little as $100. You
may also exchange shares free of charge within the Scudder Family of Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day by
telephone, fax, or mail.
10. When Are Distributions Made?
The Fund typically makes dividends and capital gains distributions, if any,
in November or December. You may elect to receive distributions in cash or
have them reinvested in additional shares of the Fund.
<PAGE>
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information, share
prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Perspectives
o regular, informative reports about the performance of your Fund
Scudder wants you to make informed investment decisions. This Fund Profile
contains key information about Scudder Zero Coupon 2000 Fund. More details
appear in the Fund's accompanying prospectus. Please read it carefully before
you invest. If you have any questions, please call 1-800-225-2470.
<PAGE>
Scudder
Zero Coupon 2000 Fund
Fund Profile
December 30, 1996
<PAGE>
Scudder Zero Coupon 2000 Fund
1. What Is The Fund's Objective?
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment return
over a selected period as is consistent with investment in U.S. Government
securities and the minimization of reinvestment risk.
2. What Does The Fund Invest In?
The Fund invests primarily (at least 80% of net assets) in zero coupon
securities, including U.S. Government securities and privately stripped
coupons on, and receipts for, U.S. Government securities. These securities
pay no cash income but are issued at substantial discounts from their value
at maturity. When held to maturity their entire return comes from the
difference between their issue price and their maturity value. In order to
obtain the predicted return, investors should plan to hold shares of the
Fund until maturity and elect automatic reinvestment of dividends and
distributions. At least 50% of net assets will be invested in zero coupon
securities maturing within two years of the Fund's maturity date. The Fund
matures on the third Friday of December 2000. At that time, the Fund will
be converted to cash and distributed to shareholders or reinvested in
another fund of their choice.
The average duration of the Fund will be maintained within 12 months of the
Fund's target date.
The Fund will invest in zero coupon securities which are rated AAA or AA by
Standard & Poor's, or Aaa or Aa by Moody's Investors Service, Inc. or their
equivalents as judged by the adviser.
3. What Are The Risks Of Investing In The Fund?
Though it is possible to calculate an anticipated return on an investment
in the Fund, the anticipated growth rate of the Fund cannot be guaranteed,
as it involves certain assumptions about variable factors, such as
reinvestment of dividends and distributions, the expense ratio and Fund
composition. The rate will vary from day to day due to changes in interest
rates and other market factors affecting the value of the Fund's
investments.The net asset value of the Fund's shares increases or decreases
with changes in the market value of the Fund's investments which vary
inversely with changes in prevailing interest rates. When interest rates
rise, the Fund may decline more in price than a fund investing in interest
paying securities of similar maturity. The Fund's shares are likely to have
substantially more price volatility than shares of funds investing in
traditional fixed-income investments. A shareholder who redeems prior to
the maturity date (December 2000) may receive a significantly different
investment return than was anticipated at the time of purchase.
<PAGE>
You incur principal risk when you invest because your shares, when sold,
may be worth more or less than what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking returns available on
U.S. Government securities with a predictability of return over a selected
time period. The Fund may be appropriate for investors planning for future
anticipated expenses, such as the college education of children. The Fund
may not be appropriate for investors who do not plan to hold their shares
until maturity.
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly or
indirectly, by investing in a mutual fund. These types of expenses, as they
relate to Scudder Zero Coupon 2000 Fund are:
Shareholder transaction expenses --
Expenses charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses (after expense maintenance) --
Expenses paid by the Fund before it distributes its net
investment income, expressed as a percentage of the Fund's
average daily net assets. Figures below are for the fiscal year
ended December 31, 1995, during which Scudder maintained the
total annualized expenses of the Fund at not more than 1.00% of
average daily net assets. Had Scudder not done so, expenses would
have amounted to 1.48%, including 0.60% for management fees.
Scudder will continue this expense maintenance until December 31,
1996.
Investment management fee 0.12%
12b-1 fees None
Other expenses 0.88%
-----
Total Fund operating expenses 1.00%
=====
Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $32 $55 $122
<PAGE>
This example assumes reinvestment of all dividends and
distributions and that the total Fund operating expenses listed
above remain the same each year. This example should not be
considered a representation of past or future expenses or return.
Actual Fund expenses and return vary from year to year and may be
higher or lower than those shown. Please note that there is a $5
service fee if you request redemption proceeds via wire.
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed since it commenced operations
on February 4, 1986, assuming reinvestment of all distributions.
Performance is historical and may not be indicative of future results.
Total return and principal value will fluctuate.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:
1987 -8.01%
1988 11.71
1989 20.39
1990 4.59
1991 20.03
1992 8.13
1993 16.00
1994 -7.93
1995 19.08
The Fund's Average Annual Total Return
for the period ended September 30, 1996
One Year 2.71%
Five Years 7.87%
Ten Years 8.43%
If the adviser had not maintained the Fund's expenses, average annual total
return for the one year, five year and ten year periods would have been
lower.
<PAGE>
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a leading
provider of U.S. and international investment management for clients
throughout the world. The Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process.
Lead Portfolio Manager Ruth Heisler has responsibility for overseeing the
Fund's day-to-day operations and for implementing the Fund's investment
strategies. Ms. Heisler has been in charge of the Fund's security selection
since 1988 and has been involved with bond research and investing at
Scudder since 1953. Renee L. Ross, Portfolio Manager, assists Ms. Heisler
with trading bonds for the Fund's portfolio. Ms. Ross, who has 10 years'
experience as a portfolio manager, joined the team in 1986, and has worked
at Scudder since 1981. Stephen A. Wohler, Portfolio Manager, joined the
team in 1994 and is also responsible for implementing the Fund's strategy.
Mr. Wohler has over 16 years' experience managing fixed-income investments
and has been with Scudder since 1979.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail, phone,
fax, or in person. The current minimum initial investment is $1,000 ($500
for IRAs). Effective January 1, 1997, the minimum initial investment will
be $2,500 ($1,000 for IRAs), except that shareholders may open a regular
account with a minimum of $1,000 if an investment program of at least
$100/month is established. After January 1, 1997, a shareholder with a
non-fiduciary account who maintains an account balance of less than $2,500
without establishing an investment program, may be assessed an annual fee
of $10.00, payable to the Fund. You may also exchange Fund shares free of
charge within the Scudder Family of Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day by
telephone, fax, or mail.
10. When Are Distributions Made?
The Fund typically makes dividends and capital gains distributions, if any,
in November or December. You may elect to receive distributions in cash or
have them reinvested in additional shares of the Fund.
Generally, dividends from net investment income are taxable to shareholders
as ordinary income. Long-term capital gains distributions, if any, are
taxable as long-term capital gains regardless of the length of time
shareholders have owned shares. Short-term capital gains and any other
taxable income distributions are taxable as ordinary income.
<PAGE>
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information, share
prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Scudder Perspectives
o regular, informative reports about the performance of your Fund
Scudder wants you to make informed investment decisions. This Fund Profile
contains key information about the Fund. If you would like more information
before you invest, please consult the Fund's accompanying prospectus. For
details about the Fund's holdings or recent investment strategies, please review
the Fund's most recent annual or semiannual report. The reports are free and may
be ordered by calling 1-800-225-2470.
<PAGE>
[Image] Scudder Zero Coupon 2000 Fund Profile
- ---------------------------------------------------------------------------
The fund profile, a supplement to the full prospectus, is designed as
an easy-to-read summary of fund risks, fees, and objectives. You can
click on any question to link to the Fund's prospectus and get more
information on that topic. Or, if you wish, you can proceed directly
to the Fund's prospectus. Once you have read the prospectus and
considered your investment goals, you can proceed to a Scudder Funds
application.
----------------------------------------------------------------------
Fund Profile
January 16, 1997
----------------------------------------------------------------------
1. What Is The Fund's Objective?
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
2. What Does The Fund Invest In?
The Fund invests primarily (at least 80% of net assets) in zero coupon
securities, including U.S. Government securities and privately
stripped coupons on, and receipts for, U.S. Government securities.
These securities pay no cash income but are issued at substantial
discounts from their value at maturity. When held to maturity their
entire return comes from the difference between their issue price and
their maturity value. In order to obtain the predicted return,
investors should plan to hold shares of the Fund until maturity and
elect automatic reinvestment of dividends and distributions. At least
50% of net assets will be invested in zero coupon securities maturing
within two years of the Fund's maturity date. The Fund matures on the
third Friday of December 2000. At that time, the Fund will be
converted to cash and distributed to shareholders or reinvested in
another fund of their choice.
The average duration of the Fund will be maintained within 12 months
of the Fund's target date.
The Fund will invest in zero coupon securities which are rated AAA or
AA by Standard & Poor's, or Aaa or Aa by Moody's Investors Service,
Inc. or their equivalents as judged by the adviser.
3. What Are The Risks Of Investing In The Fund?
Though it is possible to calculate an anticipated return on an
investment in the Fund, the anticipated growth rate of the Fund cannot
be guaranteed, as it involves certain assumptions about variable
factors, such as reinvestment of dividends and distributions, the
expense ratio and Fund composition. The rate will vary from day to day
due to changes in interest rates and other market factors affecting
the value of the Fund's investments.The net asset value of the Fund's
shares increases or decreases with changes in the market value of the
Fund's investments which vary inversely with changes in prevailing
interest rates. When interest rates rise, the Fund may decline more in
price than a fund investing in interest paying securities of similar
maturity. The Fund's shares are likely to have substantially more
price volatility than shares of funds investing in traditional
fixed-income investments. A shareholder who redeems prior to the
maturity date (December 2000) may receive a significantly different
investment return than was anticipated at the time of purchase.
You incur principal risk when you invest because your shares, when
sold, may be worth more or less than what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking returns
available on U.S. Government securities with a predictability of
return over a selected time period. The Fund may be appropriate for
investors planning for future anticipated expenses, such as the
college education of children. The Fund may not be appropriate for
investors who do not plan to hold their shares until maturity.
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly
or indirectly, by investing in a mutual fund. These types of expenses,
as they relate to Scudder Zero Coupon 2000 Fund are:
Shareholder transaction expenses --
Expenses charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses (after expense maintenance) --
Expenses paid by the Fund before it distributes its net investment
income, expressed as a percentage of the Fund's average daily net
assets. Figures below are for the fiscal year ended December 31,
1995, during which Scudder maintained the total annualized expenses
of the Fund at not more than 1.00% of average daily net assets. Had
Scudder not done so, expenses would have amounted to 1.48%,
including 0.60% for management fees. Scudder will continue this
expense maintenance until December 31, 1997.
Investment management fee (after waiver) 0.12%
12b-1 fees None
Other expenses 0.88%
-----
Total Fund operating expenses 1.00%
=====
Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would be:
1 Year 3 Years 5 Years 10 Years
$10 $32 $55 $122
This example assumes reinvestment of all dividends and distributions
and that the total Fund operating expenses listed above remain the
same each year. This example should not be considered a representation
of past or future expenses or return. Actual Fund expenses and return
vary from year to year and may be higher or lower than those shown.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed since it commenced
operations on February 4, 1986, assuming reinvestment of all
distributions. Performance is historical and may not be indicative of
future results. Total return and principal value will fluctuate.
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE.
BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:
1987 -8.01%
1988 11.71
1989 20.39
1990 4.59
1991 20.03
1992 8.13
1993 16.00
1994 -7.93
1995 19.08
1996 0.65
The Fund's Average Annual Total Return
for the period ended December 31, 1996
One Year 0.65%
Five Years 6.72%
Ten Years 7.96%
If the adviser had not maintained the Fund's expenses, average annual
total return for the one year, five year and ten year periods would
have been lower.
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a
leading provider of U.S. and international investment management for
clients throughout the world. The Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process.
Lead Portfolio Manager Ruth Heisler has responsibility for overseeing
the Fund's day-to-day operations and for implementing the Fund's
investment strategies. Ms. Heisler has been in charge of the Fund's
security selection since 1988 and has been involved with bond research
and investing at Scudder since 1953. Renee L. Ross, Portfolio Manager,
assists Ms. Heisler with trading bonds for the Fund's portfolio. Ms.
Ross, who has 10 years' experience as a portfolio manager, joined the
team in 1986, and has worked at Scudder since 1981. Stephen A. Wohler,
Portfolio Manager, joined the team in 1994 and is also responsible for
implementing the Fund's strategy. Mr. Wohler has over 16 years'
experience managing fixed-income investments and has been with Scudder
since 1979.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail,
phone, fax, or in person. The minimum initial investment is $2,500
($1,000 for IRAs), except that shareholders may open a regular account
with a minimum of $1,000 if an investment program of at least
$100/month is established. A shareholder with a non-fiduciary account
who maintains an account balance of less than $2,500 without
establishing an investment program, may be assessed an annual fee of
$10.00, payable to the Fund. You may also exchange Fund shares free of
charge within the Scudder Family of Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day
by telephone, fax, or mail.
10. When Are Distributions Made?
The Fund typically makes dividends and capital gains distributions, if
any, in November or December. You may elect to receive distributions
in cash or have them reinvested in additional shares of the Fund.
Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains
distributions, if any, are taxable as long-term capital gains
regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions
are taxable as ordinary income.
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information,
share prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Scudder Perspectives
o regular, informative reports about the performance of your Fund
----------------------------------------------------------------------
[Image]Scudder wants you to make informed investment decisions. This
Fund Profile contains key information about the Fund. If you would
like more information before you invest, please consult the Fund's
accompanying prospectus. For details about the Fund's holdings or
recent investment strategies, please review the Fund's most recent
annual or semiannual report. The reports are free and may be ordered
by calling 1-800-225-2470.
----------------------------------------------------------------------
Contact Scudder
<PAGE>
[Image] Scudder Zero Coupon 2000 Fund Profile [Image]
- ---------------------------------------------------------------------------
The fund profile, a supplement to the full prospectus, is designed as
an easy-to-read summary of fund risks, fees, and objectives. You can
click on any question to link to the Fund's prospectus and get more
information on that topic. Or, if you wish, you can proceed directly
to the Fund's prospectus. Once you have read the prospectus and
considered your investment goals, you can proceed to a Scudder Funds
application.
----------------------------------------------------------------------
Fund Profile
April 1, 1997
----------------------------------------------------------------------
1. What Is The Fund's Objective?
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
2. What Does The Fund Invest In?
The Fund invests primarily (at least 80% of net assets) in zero coupon
securities, including U.S. Government securities and privately
stripped coupons on, and receipts for, U.S. Government securities.
These securities pay no cash income but are issued at substantial
discounts from their value at maturity. When held to maturity their
entire return comes from the difference between their issue price and
their maturity value. In order to obtain the predicted return,
investors should plan to hold shares of the Fund until maturity and
elect automatic reinvestment of dividends and distributions. At least
50% of net assets will be invested in zero coupon securities maturing
within two years of the Fund's maturity date. The Fund matures on the
third Friday of December 2000. At that time, the Fund will be
converted to cash and distributed to shareholders or reinvested in
another fund of their choice.
The average duration of the Fund will be maintained within 12 months
of the Fund's target date.
The Fund will invest in zero coupon securities which are rated AAA or
AA by Standard & Poor's, or Aaa or Aa by Moody's Investors Service,
Inc. or their equivalents as judged by the adviser.
3. What Are The Risks Of Investing In The Fund?
Though it is possible to calculate an anticipated return on an
investment in the Fund, the anticipated growth rate of the Fund cannot
be guaranteed, as it involves certain assumptions about variable
factors, such as reinvestment of dividends and distributions, the
expense ratio and Fund composition. The rate will vary from day to day
due to changes in interest rates and other market factors affecting
the value of the Fund's investments.The net asset value of the Fund's
shares increases or decreases with changes in the market value of the
Fund's investments which vary inversely with changes in prevailing
interest rates. When interest rates rise, the Fund may decline more in
price than a fund investing in interest paying securities of similar
maturity. The Fund's shares are likely to have substantially more
price volatility than shares of funds investing in traditional
fixed-income investments. A shareholder who redeems prior to the
maturity date (December 2000) may receive a significantly different
investment return than was anticipated at the time of purchase.
You incur principal risk when you invest because your shares, when
sold, may be worth more or less than what you paid for them.
4. For Whom Is This Fund Appropriate?
You may wish to consider this Fund if you are seeking returns
available on U.S. Government securities with a predictability of
return over a selected time period. The Fund may be appropriate for
investors planning for future anticipated expenses, such as the
college education of children. The Fund may not be appropriate for
investors who do not plan to hold their shares until maturity.
5. What Are The Fund's Expenses And Fees?
There are two kinds of expenses that a shareholder may incur, directly
or indirectly, by investing in a mutual fund. These types of expenses,
as they relate to Scudder Zero Coupon 2000 Fund are:
Shareholder transaction expenses --
Expenses charged directly to your account for various transactions.
Sales Commission None
Commissions to Reinvest Dividends None
Redemption Fee None
Exchange Fee None
Annual Fund operating expenses (after expense maintenance) --
Expenses paid by the Fund before it distributes its net investment
income, expressed as a percentage of the Fund's average daily net
assets. Figures below are for the fiscal year ended December 31,
1995, during which Scudder maintained the total annualized expenses
of the Fund at not more than 1.00% of average daily net assets. Had
Scudder not done so, expenses would have amounted to 1.48%,
including 0.60% for management fees. Scudder will continue this
expense maintenance until December 31, 1997.
Investment management fee (after waiver) 0.12%
12b-1 fees None
Other expenses 0.88%
-----
Total Fund operating expenses 1.00%
=====
Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would be:
1 Year 3 Years 5 Years 10 Years
$10 $32 $55 $122
This example assumes reinvestment of all dividends and distributions
and that the total Fund operating expenses listed above remain the
same each year. This example should not be considered a representation
of past or future expenses or return. Actual Fund expenses and return
vary from year to year and may be higher or lower than those shown.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.
6. How Has The Fund Performed Historically?
This chart shows how the Fund has performed over the past 10 years,
assuming reinvestment of all distributions. Performance is historical
and may not be indicative of future results. Total return and
principal value will fluctuate.
BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:
1987 -8.01%
1988 11.71
1989 20.39
1990 4.59
1991 20.03
1992 8.13
1993 16.00
1994 -7.93
1995 19.08
1996 0.65
The Fund's Average Annual Total Return
for the period ended March 31, 1997
One Year 2.70%
Five Years 7.67%
Ten Years 7.76%
If the adviser had not maintained the Fund's expenses, average annual
total return for the one year, five year and ten year periods would
have been lower.
7. Who Manages The Fund?
The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a
leading provider of U.S. and international investment management for
clients throughout the world. The Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process.
Lead Portfolio Manager Ruth Heisler has responsibility for overseeing
the Fund's day-to-day operations and for implementing the Fund's
investment strategies. Ms. Heisler has been in charge of the Fund's
security selection since 1988 and has been involved with bond research
and investing at Scudder since 1953. Rene L. Ross, Portfolio Manager,
assists Ms. Heisler with trading bonds for the Fund's portfolio. Ms.
Ross, who has 10 years' experience as a portfolio manager, joined the
team in 1986, and has worked at Scudder since 1981. Stephen A. Wohler,
Portfolio Manager, joined the team in 1994 and is also responsible for
implementing the Fund's strategy. Mr. Wohler has over 16 years'
experience managing fixed-income investments and has been with Scudder
since 1979.
8. How Can I Invest?
To make it easy for you to open an account, you may invest by mail,
phone, fax, or in person. The minimum initial investment is $2,500
($1,000 for IRAs), except that shareholders may open a regular account
with a minimum of $1,000 if an investment program of at least
$100/month is established. A shareholder with a non-fiduciary account
who maintains an account balance of less than $2,500 without
establishing an investment program, may be assessed an annual fee of
$10.00, payable to the Fund. You may also exchange Fund shares free of
charge within the Scudder Family of Funds.
9. How Can I Redeem Shares?
You may redeem shares at the current share price on any business day
by telephone, fax, or mail.
10. When Are Distributions Made?
The Fund typically makes dividends and capital gains distributions, if
any, in November or December. You may elect to receive distributions
in cash or have them reinvested in additional shares of the Fund.
Generally, dividends from net investment income are taxable to
shareholders as ordinary income. Long-term capital gains
distributions, if any, are taxable as long-term capital gains
regardless of the length of time shareholders have owned shares.
Short-term capital gains and any other taxable income distributions
are taxable as ordinary income.
11. What Services Does Scudder Provide?
As a shareholder, you'll enjoy:
o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information,
share prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Scudder Perspectives
o regular, informative reports about the performance of your Fund
[Image]
----------------------------------------------------------------------
[Image]Scudder wants you to make informed investment decisions. This
Fund Profile contains key information about the Fund. If you would
like more information before you invest, please consult the Fund's
accompanying prospectus. For details about the Fund's holdings or
recent investment strategies, please review the Fund's most recent
annual or semiannual report. The reports are free and may be ordered
by calling 1-800-225-2470.
----------------------------------------------------------------------
Contact Scudder
<PAGE>
This prospectus sets forth concisely the information about Scudder Zero Coupon
2000 Fund, a series of Scudder Funds Trust, an open-end management investment
company, that a prospective investor should know before investing. Please retain
it for future reference.
If you require more detailed information, a Statement of Additional Information
dated May 1, 1997, as amended from time to time, may be obtained without charge
by writing Scudder Investor Services, Inc., Two International Place, Boston, MA
02110-4103 or calling 1-800-225-2470. The Statement, which is incorporated by
reference into this prospectus, has been filed with the Securities and Exchange
Commission and is available along with other related materials on the SEC's
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
Scudder
Zero Coupon
2000 Fund
Prospectus
May 1, 1997
A pure no-load(TM) (no sales charges) mutual fund designed for investors who
seek as high an investment return over a selected period as is consistent with
investment in U.S. Government securities and the minimization of reinvestment
risk.
<PAGE>
Expense information
How to compare a Scudder pure no-load(TM) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Zero Coupon 2000 Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(TM) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended December 31,
1996.
Investment management fee 0.15%**
12b-1 fees NONE
Other expenses 0.85%
----
Total Fund operating expenses 1.00%**
====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its
net investment income to shareholders. (As noted above, the Fund has no
redemption fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $32 $55 $122
See "Fund organization -- Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than
those shown.
* You may redeem by writing or calling the Fund. If you wish to receive
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."
** Until December 31, 1997, the Adviser has agreed to waive a portion of its
fee to the extent necessary so that the total annualized expenses of the
Fund do not exceed 1.00% of average daily net assets. If the Adviser had
not agreed to waive a portion of its fee, Fund expenses would have been:
investment management fee 0.60%, other expenses 0.85%, and total Fund
operating expenses 1.45% for the fiscal year ended December 31, 1996.
2
<PAGE>
Financial highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited
financial statements.
If you would like more detailed information concerning the Fund's performance,
a complete portfolio listing and audited financial statements are available in
the Fund's Annual Report dated December 31, 1996 and may be obtained without
charge by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
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>
3
<PAGE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $115 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(TM). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Zero Coupon 2000 Fund
Investment objective
o as high an investment return over a selected period as is consistent with
investment in U.S. Government securities and the minimization of
reinvestment risk
Investment characteristics
o a portfolio maturing in the year 2000
o professionally managed portfolio of high quality U.S. Government zero
coupon securities
o relatively predictable return--if held to the Fund's maturity date and
dividends and distributions are reinvested
o daily liquidity at current net asset value
Contents
Investment objective 5
Investing in zero coupon securities 5
Why invest in the Fund? 6
Additional information about policies and investments 6
Specialized investment techniques 8
Distribution and performance information 9
Fund organization 9
Purchases 10
Exchanges and redemptions 11
Transaction information 12
Shareholder benefits 16
Trustees and Officers 19
Investment products and services 20
How to contact Scudder 21
4
<PAGE>
Investment objective
Scudder Zero Coupon 2000 Fund (the "Fund"), a diversified series of Scudder
Funds Trust, seeks to provide as high an investment return over a selected
period as is consistent with investment in U.S. Government securities and the
minimization of reinvestment risk. The Fund invests primarily in zero coupon
securities and the Fund matures on a specified target date.
By pursuing its objective, the Fund seeks to return to investors a reasonably
assured targeted dollar amount, predictable at the time of investment, on a
specific target date in the future. As with any investment, however, there can
be no assurance that the Fund's objective or the targeted amount will be met.
In order to obtain the predicted return, investors should plan to hold shares of
the Fund until maturity and elect automatic reinvestment of dividends and
distributions. Since the Fund will be primarily invested in zero coupon
securities, investors who hold shares to maturity and reinvest dividends and
distributions will receive a return consisting primarily of the accretion of
discount on the underlying securities in the Fund. Of course, investors may
redeem their shares on any business day at the daily net asset value. However,
the net asset value of the Fund's shares increases or decreases with changes in
the market value of the Fund's investments which tends to vary inversely with
changes in prevailing interest rates. A shareholder who redeems prior to
maturity may receive a significantly different investment return than was
anticipated at the time of purchase.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs.
Investing in zero coupon securities
Fund target date
The Fund matures on the third Friday of December 2000. At that time, the Fund
will be converted to cash and distributed to shareholders or reinvested in
another fund of their choice. The maturity date may coincide with known
financial needs in the future, such as a car purchase, children's college
education, the purchase of a home, or retirement. Additional funds may be added
in the future.
What are zero coupon securities?
Zero coupon securities, including U.S. Government securities and privately
stripped coupons on and receipts for U.S. Government securities, pay no cash
income but are issued at substantial discounts from their value at maturity.
When held to maturity, their entire return, which consists of the accretion of
discount, comes from the difference between their issue price and their maturity
value. This difference is known at the time of purchase, so investors holding
zero coupon securities until maturity know the amount of their investment return
at the time of their investment.
A portion of the total realized return from conventional interest-paying bonds
comes from the reinvestment of periodic interest. Since the rate to be earned on
these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the investment's
total return is uncertain even for investors holding the security to its
maturity. This uncertainty is commonly referred to as reinvestment risk and can
have a significant impact on total realized investment return. With zero coupon
securities, however, there are no cash distributions to reinvest, so investors
bear no reinvestment risk if they hold the zero coupon security to maturity.
5
<PAGE>
Why invest in the Fund?
The Fund is designed for investors seeking returns available on U.S. Government
securities and reasonable assurance that a specific targeted dollar amount,
predictable at the time of their investment, will be paid to them on a specific
target date in the future.
Dividends and distributions will be automatically reinvested in additional
shares (unless investors make a specific written election to take them in cash)
because without such reinvestment investors are not likely to receive their
targeted dollar amount on maturity. Investors should also plan to hold shares in
this Fund until maturity because these shares are likely to have substantially
more price volatility than shares of funds investing in traditional fixed-income
investments.
The Fund is an appropriate investment for IRAs, Keoghs, 403(b) plans, 401(k)
plans and other retirement plans where investors can match their retirement
planning needs with the Fund's target date.
The Fund is also appropriate for investors planning for future anticipated
expenses, such as the college educations of children or grandchildren, or the
purchase of a home. The Fund may also be an appropriate investment in a Uniform
Transfer/Gift to Minors Act account or any other investment account where
predictability of return over a selected time period is important.
In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(TM)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Additional information about policies and investments
At least 80% of the net assets of the Fund will be invested in zero coupon
securities. These include U.S. Treasury notes and bonds which have no coupons
and are not entitled to income, U.S. Treasury bills, individual interest coupons
which trade separately, and evidences of receipt of such securities. At least
50% of the net assets of the Fund will be invested in zero coupon securities
maturing within two years of the Fund's target date. Up to 20% may be invested
in interest-paying U.S. Treasury notes and bonds, and in repurchase agreements
with respect to such securities. These interest-paying securities provide income
for expenses, redemption payments, and cash dividends of the Fund.
The average duration of the Fund will be maintained within 12 months of the
Fund's target date. Duration is a measure of the length of an investment which
takes into account, through present value analysis, the timing and amount of any
interest payments as well as the amount of the principal repayment. Duration is
commonly used by professional investment managers to help identify and control
reinvestment risk. Since the Fund will not be invested entirely in securities
maturing on the target date, there will be some reinvestment risk. By balancing
investments with slightly longer and shorter durations, the Fund's investment
adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"), believes it can
maintain the Fund's average duration within 12 months of the Fund's target date
and thereby reduce its reinvestment risk.
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes, and may not make loans except through the lending of
6
<PAGE>
portfolio securities, the purchase of debt securities or through repurchase
agreements.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.
Predictability of return
Due to the nature of zero coupon securities, which comprise 80% or more of the
investments of the Fund, and specialized investment policies designed to reduce
reinvestment risk, an approximate dollar amount to be received at the target
date can be estimated daily for the Fund. The difference between this amount and
an initial investment is projected total return and is called anticipated
growth. Anticipated growth will consist primarily of the estimated accretion of
discount on the zero coupon securities in a Fund, and to a much lesser degree,
of projected cash flow from income-producing securities in excess of estimated
expenses.
The Fund will calculate on each business day its anticipated growth rate, which
is the annualized rate of growth investors may expect from the time they
purchase the Fund's shares until the Fund's target date. The anticipated growth
rate cannot be guaranteed, as it involves certain assumptions about variable
factors, such as reinvestment of dividends and distributions, the expense ratio,
and Fund composition. The rate will vary from day to day due to changes in
interest rates and other market factors affecting the value of the Fund's
investments.
Furthermore, differences in the price changes of securities with different
maturities can affect investment return, as can management of the Fund. Under
certain circumstances, shareholder redemptions could also affect anticipated
growth rate.
Ownership in a portfolio holding zero coupon and other securities differs from a
direct investment in zero coupon securities in various ways, including the
factors affecting predictability of return described above and the varying
maturity dates of the underlying securities held by the Fund.
However, the Adviser believes that investors purchasing and holding the Fund's
shares to maturity and reinvesting all dividends and distributions should be
able to realize an investment return substantially equal to the anticipated
growth rate calculated on the day the Fund's shares were purchased.
Quality
The Fund will invest in zero coupon securities, including both U.S. Government
securities and privately stripped coupons and receipts for U.S. Government
securities, which are rated AAA or AA by Standard & Poor's, or Aaa or Aa by
Moody's Investors Service, Inc., or judged by the Adviser to be of equivalent
quality. The Fund's Treasury obligations, including those underlying zero coupon
receipts, are backed by the full faith and credit of the U.S. Government. Should
the rating of a portfolio security be downgraded after being purchased by the
Fund, the Adviser will determine whether it is in the best interest of the Fund
to retain or dispose of the security. In addition, the Fund may enter into
repurchase agreements with respect to such securities with selected banks and
broker/dealers.
Price variability
Investors can expect more appreciation from the Fund than from a fund investing
in interest- paying securities of similar maturity during periods of declining
interest rates.
Conversely, when interest rates rise, the Fund may decline more in price than a
fund investing in interest-paying securities of similar maturity.
7
<PAGE>
Additional information about policies and investments (cont'd)
Price fluctuations are expected to be greatest in a longer-maturity fund and are
expected to diminish as the Fund approaches its maturity date.
Interest rates can change suddenly and unpredictably. The Fund may not be
appropriate for investors who do not plan to hold their shares for a long term
or until maturity. Redemptions prior to maturity generally will result in
capital gains or losses.
Income taxes
Under federal income tax laws, a portion of the difference between the issue
price of zero coupon securities and their face value is considered to be income
to the Fund each year, even though the Fund will not in each year receive cash
interest payments from these securities.
The Fund must distribute substantially all of its net investment income each
year, including the imputed income from its zero coupon investments. As with all
funds distributing taxable income, tax-paying investors in the Fund will be
subject to income taxes whether they elect to take cash distributions or have
them reinvested.
Tax-deferred investments such as IRAs, Keogh plans, 403(b) plans or 401(k) plans
currently do not pay federal income taxes.
Specialized investment techniques
When-issued securities
The Fund may purchase securities on a when-issued or forward delivery basis, for
payment and delivery at a later date. The price and yield are generally fixed on
the date of commitment to purchase. During the period between purchase and
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may be more or less than the purchase price.
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase them at a specified time and price.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Price variability. Because they do not pay interest until maturity, zero coupon
securities tend to be subject to greater interim fluctuation of market value in
response to changes in interest rates than interest-paying securities of similar
maturities.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities.
Illiquid or restricted investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid or restricted investments.
Disposing of illiquid or restricted investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
Fund to sell them promptly at an acceptable price.
8
<PAGE>
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute dividends from its net investment income and net
realized capital gains, if any, resulting from Fund investment activity in
November or December to prevent application of a federal excise tax. An
additional distribution may be made within three months of the Fund's fiscal
year end, if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. According
to preference, shareholders may receive distributions in cash or have them
reinvested in additional shares of the Fund. If an investment is in the form of
a retirement plan, all dividends and capital gains distributions must be
reinvested into the shareholder's account.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
shares. Short-term capital gains and any other taxable income distributions are
taxable as ordinary income.
The Fund sends detailed tax information about the amount and type of its
distributions to its shareholders by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. The "SEC yield" of the Fund is an
annualized expression of the net income generated by the Fund over a specified
30-day (one month) period, as a percentage of the Fund's share price on the last
day of that period. This yield is calculated according to methods required by
the Securities and Exchange Commission (the "SEC"), and therefore may not equate
to the level of income paid to shareholders. The "effective yield" of the Fund
is expressed similarly but, when annualized, the income earned by an investment
in the Fund is assumed to be reinvested and will reflect the effects of
compounding. "Total return" is the change in value of an investment in the Fund
for a specified period. The "average annual total return" of the Fund is the
average annual compound rate of return of an investment in the Fund assuming the
investment has been held for one, five and ten years as of a stated ending date.
"Cumulative total return" represents the cumulative change in value of an
investment in the Fund for various periods. All types of total return
calculations assume that all dividends and capital gains distributions during
the period were reinvested in shares of the Fund. Performance will vary based
upon, among other things, changes in market conditions and the level of the
Fund's expenses.
Fund organization
Scudder Zero Coupon 2000 Fund is a diversified series of Scudder Funds Trust
(the "Trust"), an open-end management investment company, registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as a
Massachusetts business trust in July 1981 and changed its name from Scudder
Target Fund to its current name effective July 3, 1989.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Fund is not required to and has no current
intention of holding annual shareholder meetings, although special
meetings may be called for purposes such
(Continued on page 12)
9
<PAGE>
<TABLE>
<CAPTION>
Purchases
<S> <C> <C> <C>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds Scudder Shareholder Service
P.O. Box 2291 Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
Then call 1-800-225-5163 for instructions.
o In Person Visit one of our Funds Centers to complete your application
with the help of a Scudder representative. Funds Center
locations are listed under Shareholder benefits.
-----------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the complete
Scudder Funds." Fund name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing shares--
By wire for details, including the ABA wire transfer number.
o In Person Visit one of our Funds Centers to make an additional
investment in your Scudder fund account. Funds Center
locations are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing shares--
By AutoBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Exchanges and redemptions
<S> <C> <C> <C>
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612
-----------------------------------------------------------------------------------------------------------------------
Redeeming
shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.
o By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
</TABLE>
11
<PAGE>
Fund organization (cont'd)
(Continued from page 9)
as electing or removing Trustees, changing fundamental investment policies or
approving an investment advisory contract. Shareholders will be assisted in
communicating with other shareholders in connection with removing a Trustee as
if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.
The Adviser receives an investment management fee for these services equal to
0.60% of the average daily net assets of the Fund, payable monthly, provided the
Fund will make such interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser has agreed to waive all or a portion of its management fee
until December 31, 1997, and to take other action, to the extent necessary, to
maintain the annualized expenses of the Fund at not more than 1% of average
daily net assets.
For the fiscal year ended December 31, 1996, the Adviser received an investment
management fee of 0.15% of the Fund's average daily net assets on an annual
basis.
All of the Fund's expenses are paid out of gross investment income, if any, or
from the Fund's assets. Shareholders pay no direct charges or fees for
investment or administrative services.
Scudder, Stevens & Clark, Inc. is located at 345 Park Avenue, New York, New
York.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
12
<PAGE>
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. You must
include with your payment the order number given at the time the order is
placed. A confirmation with complete purchase information is sent shortly after
your order is received. If payment by check or wire is not received within three
business days, the order is subject to cancelation and the shareholder will be
responsible for any loss to the Fund resulting from this cancelation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "AutoBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for most retirement plan accounts. However, "AutoBuy" transactions are
available for Scudder IRA accounts.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
13
<PAGE>
Transaction information (cont'd)
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "AutoSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
14
<PAGE>
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per share is
calculated by dividing the value of total Fund assets, less all liabilities, by
the total number of shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).
Purchase Restrictions
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.
15
<PAGE>
Transaction information (cont'd)
Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions--Other Information" in the Fund's Statement of
Additional Information for more information.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
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's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders, and other investment specialists who
work in Scudder's offices across the United States and abroad. We believe our
team approach benefits 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 for implementing the Fund's investment strategies. Ms.
Heisler has been in charge of the Fund's security selection since 1988 and has
been involved with bond research and investing at Scudder since 1953. Renee L.
Ross, Portfolio Manager, assists Ms. Heisler with trading bonds for the Fund's
portfolio. Ms. Ross, who has over 10 years' experience as a portfolio manager,
joined the team in 1986, and has worked at Scudder since 1981. Stephen A.
Wohler, Portfolio Manager, joined the team in 1994 and is also responsible for
implementing the Fund's strategy. Mr. Wohler has over 17 years' experience
managing fixed-income investments and has been with Scudder since 1979.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
16
<PAGE>
event you should write to the Fund; please see "How to contact Scudder" for the
address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder, Stevens & Clark, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon Scudder's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
17
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples if only one spouse has earned
income). Many people can deduct all or part of their contributions from
their taxable income, and all investment earnings accrue on a tax-deferred
basis. The Scudder No-Fee IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans. The
Scudder Keogh charges you no annual custodial fee.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start
with $2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
18
<PAGE>
Trustees and Officers
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 M. Poor*
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
* Scudder, Stevens & Clark, Inc.
19
<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
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 Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company 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
Retirement Programs
- -------------------
IRA
SEP 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 in order from
expected least risk 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.
20
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service 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 personalized 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
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
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
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.
21
<PAGE>
SCUDDER SHORT TERM BOND FUND
A Pure No-Load(TM) (No Sales Charge) Diversified Mutual Fund
Series Which Seeks to Provide a High Level of Income
Consistent With a High Degree of Principal
Stability By Investing Primarily in High
Quality, Short-Term Bonds
and
SCUDDER ZERO COUPON 2000 FUND
A Pure No-Load(TM) (No Sales Charge) High-Quality Diversified Mutual Fund
Series Designed For Investors Who Seek as High an Investment Return
Over a Selected Period as is Consistent With Investment in
U.S. Government Securities and the Minimization of Reinvestment Risk
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the prospectuses of Scudder Short Term
Bond Fund and Scudder Zero Coupon 2000 Fund each dated May 1, 1997, as amended
from time to time, copies of which may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
Investment Objective and Policies of Short Term Bond Fund....................................................1
High Quality Securities......................................................................................2
Investment Objective and Policies of Zero Coupon 2000 Fund...................................................2
Management of Reinvestment Risk and Anticipated Growth of Zero Coupon 2000 Fund..............................3
Liquidation and Distribution of Assets in Target Year of Zero Coupon 2000 Fund...............................4
Management Strategies and Portfolio Turnover of Zero Coupon 2000 Fund........................................5
Specialized Investment Techniques............................................................................5
Investment Restrictions.....................................................................................19
PURCHASES............................................................................................................21
Additional Information About Opening An Account.............................................................21
Additional Information About Making Subsequent Investments..................................................22
Additional Information About Making Subsequent Investments by AutoBuy.......................................22
Checks......................................................................................................23
Wire Transfer of Federal Funds..............................................................................23
Share Price.................................................................................................23
Share Certificates..........................................................................................23
Other Information...........................................................................................24
EXCHANGES AND REDEMPTIONS............................................................................................24
Exchanges...................................................................................................24
Redemption by Telephone.....................................................................................25
Redemption by AutoSell......................................................................................25
Redemption by Mail or Fax...................................................................................26
Redemption by "Write-A-Check"...............................................................................26
Other Information...........................................................................................26
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................27
The Pure No-Load(TM) Concept...................................................................................27
Dividend and Capital Gain Distribution Options..............................................................29
Diversification.............................................................................................29
Scudder Funds Centers.......................................................................................29
Reports to Shareholders.....................................................................................29
Transaction Summaries.......................................................................................29
THE SCUDDER FAMILY OF FUNDS..........................................................................................30
SPECIAL PLAN ACCOUNTS................................................................................................33
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................34
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........34
Scudder IRA: Individual Retirement Account.................................................................34
Scudder 403(b) Plan.........................................................................................35
Automatic Withdrawal Plan...................................................................................35
Group or Salary Deduction Plan..............................................................................35
Automatic Investment Plan...................................................................................36
Uniform Transfers/Gifts to Minors Act.......................................................................36
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................36
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
<S> <C>
PERFORMANCE INFORMATION..............................................................................................37
Average Annual Total Return.................................................................................37
Cumulative Total Return.....................................................................................37
Total Return................................................................................................38
SEC Yields..................................................................................................38
Comparison of Fund Performance..............................................................................39
ORGANIZATION OF THE FUNDS............................................................................................42
INVESTMENT ADVISER...................................................................................................43
Personal Investments by Employees of the Adviser............................................................45
TRUSTEES AND OFFICERS................................................................................................46
REMUNERATION.........................................................................................................47
Responsibilities of the Board--Board and Committee Meetings..................................................47
Compensation of Officers and Trustees.......................................................................48
DISTRIBUTOR..........................................................................................................49
TAXES................................................................................................................49
PORTFOLIO TRANSACTIONS...............................................................................................53
Brokerage Commissions.......................................................................................53
Portfolio Turnover..........................................................................................54
NET ASSET VALUE......................................................................................................54
ADDITIONAL INFORMATION...............................................................................................55
Experts.....................................................................................................55
Shareholder Indemnification.................................................................................55
Other Information...........................................................................................55
FINANCIAL STATEMENTS.................................................................................................56
RATINGS OF CORPORATE BONDS...........................................................................................57
GLOSSARY.............................................................................................................58
</TABLE>
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objective and policies" and
"Additional information about policies and
investments" in a Fund's prospectus.)
Scudder Funds Trust, a Massachusetts business trust of which Scudder
Short Term Bond Fund ("Short Term Bond Fund") and Scudder Zero Coupon 2000 Fund
("Zero Coupon 2000 Fund") are series, is referred to herein as the "Trust." Each
Fund is a pure no-load(TM), open-end management investment company which
continuously offers and redeems its shares at net asset value. Each Fund is a
company of the type commonly known as a mutual fund. Short Term Bond Fund and
Zero Coupon 2000 Fund are both diversified series of the Trust. These series are
sometimes referred to individually as a "Fund" and jointly as the "Funds."
Because of each Fund's investment considerations discussed herein and
their investment policies, investment in shares of a Fund is not intended to
provide a complete investment program for an investor. The value of each Fund's
shares when sold may be higher or lower than when purchased.
The following objectives and policies, except as otherwise stated, are
not fundamental and may be changed without a shareholder vote. There can be no
assurance that either Fund will achieve its investment objective.
Investment Objective and Policies of Short Term Bond Fund
Short Term Bond Fund seeks to provide a high level of income consistent
with a high degree of principal stability by investing primarily in high
quality, short-term bonds. The dollar-weighted average effective maturity of the
Fund's portfolio may not exceed three years. Within this limitation, the Fund
may purchase individual securities with remaining stated maturities greater than
three years.
The Fund invests at least 65% of its net assets in a managed portfolio
of bonds consisting of:
o U.S. Government securities, including bonds, notes and bills
issued by the U.S. Treasury, and securities issued by agencies
and instrumentalities of the U.S. Government;
o Corporate debt securities, such as bonds, notes and debentures;
o Mortgage-backed securities; and
o Other asset-backed securities.
Other eligible investments for the Fund are as follows:
o Money market instruments which are comprised of commercial paper,
bank obligations (i.e., certificates of deposit and bankers'
acceptances) and repurchase agreements;
o Privately placed obligations (including restricted securities);
and
o Foreign securities, including non-U.S. dollar-denominated
securities and U.S. dollar-denominated debt securities issued by
foreign issuers and foreign branches of U.S. banks.
In addition, the Fund may purchase indexed securities, zero coupon
securities, securities on a when-issued or forward delivery basis and may engage
in dollar roll transactions and strategic transactions. See "Specialized
Investment Techniques" and "Investment Restrictions" for more information.
To meet its objective, the Fund's investment adviser, Scudder, Stevens
& Clark, Inc. (the "Adviser"), actively manages the Fund's portfolio. Investment
decisions are based on general economic and financial trends, such as domestic
and international economic developments, the outlook for the securities markets,
the level of interest rates and inflation, the supply and demand of debt
securities, and other factors. The composition of the Fund's portfolio is also
<PAGE>
determined by individual security analysis. The Adviser's team of experienced
credit analysts actively monitors the credit quality of the investments of the
Fund.
The net asset value of the Fund is expected to fluctuate with changes
in interest rates and bond market conditions, although this fluctuation should
be more moderate than that of a fund with a longer average maturity. The
Adviser, however, will attempt to reduce principal fluctuation through, among
other things, diversification, credit analysis and security selection, and
adjustment of the Fund's average portfolio maturity. The Fund's share price
tends to rise as interest rates decline and decline as interest rates rise. In
periods of rising interest rates and falling bond prices, the Adviser may
shorten the Fund's average maturity to minimize the effect of declining bond
values on the Fund's net asset value. Conversely, during times of falling rates
and rising prices, a longer average maturity of up to three years may be sought.
When the Adviser believes economic or other conditions warrant, for temporary
defensive purposes the Fund may invest more than 35% of its assets in money
market instruments. It is impossible to predict for how long such alternative
strategies will be utilized.
The Fund's securities generally offer less current yield than
securities of lower quality (rated below BBB/Baa) or longer maturity, but
lower-quality securities generally have less liquidity, and both tend to have
greater credit and market risk, and consequently more price volatility.
It is against the Fund's policy to make changes in the portfolio for
short-term trading purposes. However, the Fund may take advantage of
opportunities provided by temporary dislocations in the market to maintain
principal stability or enhance income.
High Quality Securities
The Fund emphasizes high quality investments. At least 65% of the
Fund's net assets will be invested in (1) obligations of the U.S. Government,
its agencies or instrumentalities, and (2) debt securities rated, at the time of
purchase, in one of the two highest ratings categories of Standard & Poor's
("S&P") (AAA or AA) or Moody's Investors Service, Inc. ("Moody's") (Aaa or Aa)
or, if not rated, judged to be of comparable quality by the Adviser. In
addition, the Fund will not invest in any debt security rated at the time of
purchase lower than BBB by S&P or Baa by Moody's, or of equivalent quality as
determined by the Adviser. Should the rating of a portfolio security be
downgraded after being purchased by the Fund, the Adviser will determine whether
it is in the best interest of the Fund to retain or dispose of the security.
The U.S. Government securities in which the Fund may invest include (1)
securities issued and backed by the full faith and credit of the U.S.
Government, such as U.S. Treasury bills, notes and bonds; (2) securities,
including mortgage-backed securities, issued by an agency or instrumentality of
the U.S. Government, including those backed by the full faith and credit of the
U.S. Government, such as securities of the Export-Import Bank of the United
States, the General Services Administration and the Government National Mortgage
Association, and those issued by agencies and instrumentalities, such as Federal
Home Loan Banks and the Federal Home Loan Mortgage Corporation which, while
neither direct obligations of nor guaranteed by the U.S. Government, are backed
by the credit of the issuer itself and may be supported as well by the issuer's
right to borrow from the U.S. Treasury; and (3) securities of the U.S.
Government, its agencies or instrumentalities on a when-issued or forward
delivery basis. In addition, the Fund may invest in repurchase agreements with
respect to U.S. Government securities.
Investment Objective and Policies of Zero Coupon 2000 Fund
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk. The Fund
invests primarily in zero coupon securities and the Fund matures on a specified
target date.
By pursuing its objective, the Fund seeks to return to investors a
reasonably assured targeted dollar amount, predictable at the time of
investment, on a specific target date in the future. As with any investment,
however, there can be no assurance that the Fund's objective or the targeted
amount will be met.
In order to obtain the predicted return, investors should plan to hold
shares of the Fund until maturity and elect automatic reinvestment of dividends
and distributions. Since the Fund will be primarily invested in zero coupon
2
<PAGE>
securities, investors who hold shares to maturity and reinvest dividends and
distributions will receive a return consisting primarily of the accretion of
discount on the underlying securities in the Fund. Of course, investors may
redeem their shares on any business day at the daily net asset value. However,
the net asset value of the Fund's shares increases or decreases with changes in
the market value of the Fund's investments which tends to vary inversely with
changes in prevailing interest rates. A shareholder who redeems prior to
maturity may receive a significantly different investment return than was
anticipated at the time of purchase.
The Fund matures on the third Friday of December 2000. At that time,
the Fund will be converted to cash and distributed to shareholders or reinvested
in another fund of their choice. The maturity date may coincide with known
financial needs in the future, such as a car purchase, children's college
education, the purchase of a home, or retirement.
Zero coupon securities, including U.S. Government securities and
privately stripped coupons on and receipts for U.S. Government securities, pay
no cash income but are issued at substantial discounts from their value at
maturity. When held to maturity, their entire return, which consists of the
accretion of discount, comes from the difference between their issue price and
their maturity value. This difference is known at the time of purchase, so
investors holding zero coupon securities until maturity know the amount of their
investment return at the time of their investment.
A portion of the total realized return from conventional
interest-paying bonds comes from the reinvestment of periodic interest. Since
the rate to be earned on these reinvestments may be higher or lower than the
rate quoted on the interest-paying bonds at the time of the original purchase,
the investment's total return is uncertain even for investors holding the
security to its maturity. This uncertainty is commonly referred to as
reinvestment risk and can have a significant impact on total realized investment
return. With zero coupon securities, however, there are no cash distributions to
reinvest, so investors bear no reinvestment risk if they hold the zero coupon
security to maturity.
The Fund is designed for investors seeking returns available on U.S.
Government securities and reasonable assurance that a specific targeted dollar
amount, predictable at the time of their investment, will be paid to them on a
specific target date in the future.
Dividends and distributions will be automatically reinvested in
additional shares (unless investors make a specific written election to take
them in cash) because without such reinvestment investors are not likely to
receive their targeted dollar amount on maturity. Investors should also plan to
hold shares in this Fund until maturity because these shares are likely to have
substantially more price volatility than shares of funds investing in
traditional fixed-income investments.
At least 80% of the net assets of the Fund will be invested in zero
coupon securities. These include U.S. Treasury notes and bonds which have no
coupons and are not entitled to income, U.S. Treasury bills, individual interest
coupons which trade separately, and evidences of receipt of such securities. At
least 50% of the net assets of the Fund will be invested in zero coupon
securities maturing within two years of the Fund's target date. Up to 20% may be
invested in interest-paying U.S. Treasury notes and bonds, and in repurchase
agreements with respect to such securities. These interest-paying securities
provide income for expenses, redemption payments, and cash dividends of the
Fund.
The average duration of the Fund will be maintained within 12 months of
the Fund's target date. Duration is a measure of the length of an investment
which takes into account, through present value analysis, the timing and amount
of any interest payments as well as the amount of the principal repayment.
Duration is commonly used by professional investment managers to help identify
and control reinvestment risk. Since the Fund will not be invested entirely in
securities maturing on the target date, there will be some reinvestment risk. By
balancing investments with slightly longer and shorter durations, the Adviser
believes it can maintain the Fund's average duration within 12 months of the
Fund's target date and thereby reduce its reinvestment risk.
Management of Reinvestment Risk and Anticipated Growth of Zero Coupon 2000 Fund
Reinvestment risk arises from the uncertainty as to the total return
which will be realized from conventional interest-paying bonds due to the fact
that periodic interest (cash) will be reinvested in the future at interest rates
3
<PAGE>
unknown at the time of the original purchase. With zero coupon securities,
however, there are no cash distributions to reinvest, so investors bear no
reinvestment risk if they hold a zero coupon security to maturity.
For an investor who makes a direct investment in a zero coupon security
(not in a zero coupon fund) and holds it to its maturity, the return or yield to
maturity is certain--regardless of whether interim reinvestment rates rise or
fall. (See table below.)
<TABLE>
<CAPTION>
Total Ending Value(1) on a $1,000
Investment (Realized Yield)
Initial If reinvestment rates are(2):
Coupon Yield to
(Interest) Maturity Maturity 6% 8% 10% 12% 14%
- ---------- -------- -------- ----- ----- ------ ------ -----
<C> <C> <C> <C> <C> <C> <C> <C>
10% 10 years 10% $2345 $2490 $2655 $2841 $3052
(8.7%) (9.3%) (10%) (10.7%) (11.5%)
0% 10 years 10% $2655 $2655 $2655 $2655 $2655
(10%) (10%) (10%) (10%) (10%)
</TABLE>
- --------------------
(1) See "Glossary."
(2) These results assume semiannual compounding. For illustration purposes
only, the table above assumed these reinvestment rates would remain
constant over the life of the bond. The actual reinvestment rates, and
total returns of coupon-paying bonds, will vary with changing market
conditions.
Due to the nature of zero coupon securities, which comprise 80% or more
of the investments of the Fund, the reinvestment risk accompanying this Fund is
less than would be the case if this Fund were entirely invested in interest
(cash)-paying securities. Furthermore, the Fund's Adviser believes it can reduce
reinvestment risk by maintaining the Fund's average duration within twelve
months of the Fund's Target Date.
When held to maturity, an investor's investment return in the Fund will
consist primarily of the accretion of discount on the underlying securities in
the Fund (the difference between their issue price and their maturity value) and
will be realized on the specified Target Date. The anticipated growth rate for
the Fund is the annualized rate of growth investors may expect from the time
they purchase the Fund's shares until the Fund's Target Date. The Fund will
calculate its anticipated growth rate on each business day. Such a rate will
vary from day to day because of changes in interest rates and other factors
affecting the value of the Fund's investments, and is based on certain
assumptions such as reinvestment of dividends and distributions, a constant
expense ratio and portfolio composition. Furthermore, changes in the price among
securities with different maturities and shareholder redemptions can affect
investment return, as can the skill of the Adviser in managing the Fund.
Liquidation and Distribution of Assets in Target Year of Zero Coupon 2000 Fund
As securities in the Fund mature or are sold throughout the Target
Year, the proceeds will be invested in eligible money market instruments. By
December of that year, substantially all of the assets of the Fund will consist
of such eligible money-market instruments and other then-maturing securities.
These instruments will be sold or allowed to mature, the liabilities of the Fund
will be discharged or provision made therefor, and the net assets will be
distributed pro rata to shareholders or reinvested at their direction. The
estimated expenses of terminating and liquidating the Fund will be accrued
ratably over its Target Year. These expenses, which are charged to income as are
all expenses, are not expected to exceed significantly the ordinary annual
expenses incurred by the Fund, and, therefore, should have no effect on the
maturity value of the Fund.
If a shareholder does not complete an election form directing what
should be done with the liquidation proceeds, a check for the proceeds will be
mailed to the shareholder's address of record in complete discharge of the
Fund's obligation to the shareholder. In no event, however, will liquidation
proceeds be distributed unless all share certificates, if any, have been
returned to, or other arrangements have been made which are satisfactory to, the
Trust or its transfer agent, Scudder Service Corporation (the "Transfer Agent").
Retirement plan participants who do not choose an option will receive their
4
<PAGE>
distribution as a reinvestment into Scudder U.S. Treasury Money Fund. All
distributions in liquidation will be made subject to compliance with any
applicable regulatory positions.
The practice of declaring and paying dividends annually (see "DIVIDENDS
AND CAPITAL GAINS DISTRIBUTIONS") may be changed, and dividend declarations and
payments may be withheld during the Maturity Year immediately preceding the
final distribution of the assets of the Fund, and the amounts so withheld
distributed in liquidation if the Trustees determine that it would be in the
best interest of the Fund's shareholders to do so.
Management Strategies and Portfolio Turnover of Zero Coupon 2000 Fund
In pursuit of its investment objectives, the Fund purchases obligations
that it believes are attractive and competitive values in terms of quality,
yield and relationship of current price to maturity value. However, recognizing
the dynamics of bond prices in response to changes in general economic
conditions, fiscal and monetary policies, interest levels and market forces such
as supply and demand for various bond issues, the Adviser, subject to the
Trustees' review, manages the Fund, attempting to achieve as high an investment
return over selected periods as is consistent with investment in U.S. Government
securities and with the minimization of reinvestment risk. The primary
strategies employed in the management of the Fund are:
Emphasis on Quality. The Fund is a high quality portfolio of zero
coupon securities, which include U.S. Treasury notes and bonds which have no
coupons and are not entitled to income, U.S. Treasury bills, individual interest
coupons which trade separately and evidences of receipt of such securities. The
ratings assigned by Moody's and S&P represent their opinions as to the quality
of the securities which they undertake to rate, many of which may be purchased
by the Fund. The Fund will invest in zero coupon securities, including both U.S.
Government and privately stripped coupons and receipts for U.S. Government
securities, which are rated AAA or AA by S&P, or Aaa or Aa by Moody's. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality. Furthermore, even within the high-quality segment of the bond
market, relative credit standing and market perceptions thereof may shift.
Therefore, the Adviser believes that it should review continuously the quality
of debt obligations. The Fund's Adviser has over many years developed an
experienced staff to assign its own quality ratings which are considered in
making value judgments and in arriving at purchase or sale decisions. Through
the discipline of this procedure the Adviser attempts to discern variations in
credit rankings of the published services, and to anticipate changes in credit
ranking. Should the rating of a portfolio security be downgraded after being
purchased by the Fund, the Adviser will determine whether it is in the best
interest of the Fund to retain or dispose of the security. (See "RATINGS OF
CORPORATE BONDS.")
Emphasis on Relative Valuation. The interest rate (and hence price)
relationships between different categories of bonds of the same or generally
similar maturity tend to change constantly in reaction to broad swings in
interest rates and factors affecting relative supply and demand. These temporary
disparities in normal yield relationships may afford opportunities to implement
a flexible policy of trading the Fund's holdings in order to invest in more
attractive market sectors or specific issues.
Market Trading Opportunities. In addition to the above, the Fund,
consistent with its investment policies, may engage in short-term trading
(selling securities held for brief periods of time, usually less than three
months) if the Adviser believes that such transactions, net of costs, would
further the attainment of the Fund's objective. The needs of different classes
of lenders and borrowers and their changing preferences and circumstances have
in the past caused market dislocations unrelated to fundamental creditworthiness
and trends in interest rates which have presented market trading opportunities.
There can be no assurance that such dislocations will occur in the future or
that the Fund will be able to take advantage of them. The Fund will limit its
voluntary short-term trading to the extent necessary to qualify as a "regulated
investment company" under the Internal Revenue Code. (See "TAXES.")
Specialized Investment Techniques
Mortgage-Backed Securities and Mortgage Pass-Through Securities. Short Term Bond
Fund may also invest in mortgage-backed securities, which are interests in pools
of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations as further described below. The
Fund may also invest in debt securities which are secured with collateral
5
<PAGE>
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations"), and in other types of mortgage-related securities.
A decline in interest rates may lead to a faster rate of repayment of
the underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by repayments of principal resulting
from the sale of the underlying property, refinancing or foreclosure, net of
fees or costs which may be incurred. Some mortgage-related securities (such as
securities issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages. These guarantees, however, do not apply to the market
value or yield of mortgage-backed securities or to the value of Fund shares.
Also, GNMA securities often are purchased at a premium over the maturity value
of the underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. Its stock is owned by the twelve
Federal Home Loan Banks. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the U.S.
Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
6
<PAGE>
the originators/servicers and poolers, the Adviser determines that the
securities meet the Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.
Collateralized Mortgage Obligations ("CMO"s). Short Term Bond Fund may invest in
CMOs which are hybrids between mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal are paid, in most
cases, semiannually. CMOs may be collateralized by whole mortgage loans but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
FHLMC Collateralized Mortgage Obligations. Short Term Bond Fund may invest in
FHLMC CMOs which are debt obligations of FHLMC issued in multiple classes having
different maturity dates and are secured by the pledge of a pool of conventional
mortgage loans purchased by FHLMC. Unlike FHLMC PCs, payments of principal and
interest on the CMOs are made semiannually, as opposed to monthly. The amount of
principal payable on each semiannual payment date is determined in accordance
with FHLMC's mandatory sinking fund schedule, which, in turn, is equal to
approximately 100% of FHA prepayment experience applied to the mortgage
collateral pool. All sinking fund payments in the CMOs are allocated to the
retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Backed Securities. The Adviser expects that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. Short Term Bond Fund will limit its purchases of mortgage-backed
securities or any other assets which, in the opinion of the Adviser, are
illiquid, in accordance with the nonfundamental investment restriction on
securities which are not readily marketable discussed below. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
7
<PAGE>
will, consistent with the Fund's investment objective, policies and quality
standards, consider making investments in such new types of mortgage-related
securities.
Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-backed securities are now being applied to a broad range of assets.
Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables,
are being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a structure similar to the CMO
structure. Consistent with Short Term Bond Fund's investment objectives and
policies, the Fund may invest in these and other types of asset-backed
securities that may be developed in the future. In general, the collateral
supporting these securities is of shorter maturity than mortgage loans and is
less likely to experience substantial prepayments with interest rate
fluctuations.
Several types of asset-backed securities have already been offered to
investors, including Certificates of Automobile ReceivablesSM ("CARSSM"). CARSSM
represent undivided fractional interests in a trust ("Trust") whose assets
consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is exhausted, the Trust may be prevented from realizing the full
amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
results from payment of the insurance obligations on at least a portion of the
assets in the pool. This protection may be provided through guarantees, policies
or letters of credit obtained by the issuer or sponsor from third parties,
through various means of structuring the transaction or through a combination of
such approaches. The Fund will not pay any additional or separate fees for
credit support. The degree of credit support provided for each issue is
generally based on historical information respecting the level of credit risk
associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
The Fund may also invest in residual interests in asset-backed
securities. In the case of asset-backed securities issued in a pass-through
structure, the cash flow generated by the underlying assets is applied to make
required payments on the securities and to pay related administrative expenses.
The residual in an asset-backed security pass-through structure represents the
interest in any excess cash flow remaining after making the foregoing payments.
The amount of residual cash flow resulting from a particular issue of
asset-backed securities will depend on, among other things, the characteristics
of the underlying assets, the coupon rates on the securities, prevailing
interest rates, the amount of administrative expenses and the actual prepayment
experience on the underlying assets. Asset-backed security residuals not
registered under the Securities Act of 1933 (the "1933 Act") may be subject to
certain restrictions on transferability. In addition, there may be no liquid
market for such securities.
The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
may require the Fund to dispose of any then existing holdings of such
securities.
8
<PAGE>
Convertible Securities. Short Term Bond Fund may invest in convertible
securities, that is, bonds, notes, debentures, preferred stocks and other
securities which are convertible into common stock. Investments in convertible
securities can provide an opportunity for capital appreciation and/or income
through interest and dividend payments by virtue of their conversion or exchange
features.
The convertible securities in which Short Term Bond Fund may invest are
either fixed income or zero coupon debt securities which may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Zero Coupon Securities. Each Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon securities which are convertible into common stock offer the opportunity
for capital appreciation as increases (or decreases) in market value of such
securities closely follows the movements in the market value of the underlying
common stock. Zero coupon convertible securities generally are expected to be
less volatile than the underlying common stocks, as they usually are issued with
maturities of 15 years or less and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the Division of Investment
Management of the SEC no longer considers such privately stripped obligations to
be U.S. Government securities, as defined in the 1940 Act.
9
<PAGE>
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Fund will be able to have its beneficial ownership of zero coupon securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself (see "TAXES").
Indexed Securities. Short Term Bond Fund may invest in indexed securities, the
value of which is linked to currencies, interest rates, commodities, indices or
other financial indicators ("reference instruments"). Most indexed securities
have maturities of three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
Dollar Roll Transactions. Short Term Bond Fund may enter into "dollar roll"
transactions, which consist of the sale by the Fund to a bank or broker/dealer
(the "counterparty") of GNMA certificates or other mortgage-backed securities
together with a commitment to purchase from the counterparty similar, but not
identical, securities at a future date, at the same price. The counterparty
receives all principal and interest payments, including prepayments, made on the
security while it is the holder. The Fund receives a fee from the counterparty
as consideration for entering into the commitment to purchase. Dollar rolls may
be renewed over a period of several months with a different purchase and
repurchase price fixed and a cash settlement made at each renewal without
physical delivery of securities. Moreover, the transaction may be preceded by a
firm commitment agreement pursuant to which the Fund agrees to buy a security on
a future date.
The Fund will not use such transactions for leveraging purposes and,
accordingly, will segregate cash, U.S. Government securities or other high grade
debt obligations in an amount sufficient to meet its purchase obligations under
the transactions. The Fund will also maintain asset coverage of at least 300%
for all outstanding firm commitments, dollar rolls and other borrowings.
Dollar rolls are treated for purposes of the Investment Company Act of
1940 (the "1940 Act") as borrowings of the Fund because they involve the sale of
a security coupled with an agreement to repurchase. Like all borrowings, a
dollar roll involves costs to the Fund. For example, while the Fund receives a
fee as consideration for agreeing to repurchase the security, the Fund forgoes
the right to receive all principal and interest payments while the counterparty
10
<PAGE>
holds the security. These payments to the counterparty may exceed the fee
received by the Fund, thereby effectively charging the Fund interest on its
borrowing. Further, although the Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the actual
amount of prepayment could increase or decrease the cost of the Fund's
borrowing.
The entry into dollar rolls involves potential risks of loss which are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security which the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
The Trustees of the Fund have adopted guidelines to ensure that those
securities received are substantially identical to those sold. To reduce the
risk of default, the Fund will engage in such transactions only with banks and
broker/dealers selected pursuant to such guidelines.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
member banks of the Federal Reserve System or any domestic broker/dealer which
is recognized as a reporting government securities dealer if the
creditworthiness of the bank or broker/dealer has been determined by the Adviser
to be at least as high as that of other obligations a Fund may purchase or at
least equal to that of issuers of commercial paper rated within the two highest
grades assigned by Moody's or S&P.
A repurchase agreement provides a means for a Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which a Fund
acquires a security ("Obligation") and the seller agrees, at the time of sale,
to repurchase the Obligation at a specified time and price. Obligations subject
to a repurchase agreement are held in a segregated account and the value of such
obligations is kept at least equal to the repurchase price on a daily basis. The
repurchase price may be higher than the purchase price, the difference being
income to a Fund, or the purchase and repurchase prices may be the same, with
interest at a stated rate due to a Fund together with the repurchase price on
repurchase. In either case, the income to a Fund is unrelated to the interest
rate on the Obligation. Obligations will be held by the Funds' custodian or in
the Federal Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to a Fund's investment restriction applicable
to loans. It is not clear whether a court would consider the Obligation
purchased by a Fund subject to a repurchase agreement as being owned by a Fund
or as being collateral for a loan by a Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the Obligation before repurchase of the Obligation under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Delays may involve loss of interest or decline in the price of the
Obligation. If the court characterizes the transaction as a loan and a Fund has
not perfected a security interest in the Obligation, a Fund may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and income involved in the transaction. As
with any unsecured debt obligation purchased for a Fund, the Adviser seeks to
minimize the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the Obligation, in which case a Fund
may incur a loss if the proceeds to that Fund of its sale of the securities
underlying the repurchase agreement to a third party are less than the
repurchase price. However, if the market value (including interest) of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), a Fund will direct the seller of the Obligation to
deliver additional securities so that the market value (including interest) of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
impose on the seller a contractual obligation to deliver additional securities.
Short Term Bond Fund may enter into repurchase commitments with any
party deemed creditworthy by the Adviser, including foreign banks and
broker/dealers, if the transaction is entered into for investment purposes and
the counterparty's creditworthiness is at least equal to that of issuers of
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securities which the Fund may purchase. Such transactions may not provide the
Fund with collateral marked-to-market during the term of the commitment.
When-Issued Securities. Each Fund may purchase securities offered on a
"when-issued" or "forward delivery" basis. The price of such securities, which
is generally expressed in yield terms, is generally fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities take place at a later date. During the period
between purchase and settlement, no payment is made by a Fund to the issuer and
no interest on the when-issued or forward delivery security accrues to a Fund.
To the extent that assets of a Fund are not invested prior to the settlement of
a purchase of securities, a Fund will earn no income; however, it is intended
that a Fund will be fully invested to the extent practicable and subject to the
policies stated above. While when-issued or forward delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them unless a sale appears
desirable for investment reasons. At the time a Fund makes the commitment to
purchase a security on a when-issued or forward delivery basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. The market value of when-issued or forward delivery securities may
be more or less than the purchase price. Each Fund does not believe that its net
asset value or income will be adversely affected by their purchase of securities
on a when-issued or forward delivery basis. Each Fund will establish a
segregated account for commitments for when-issued or forward delivery
securities as described above. For Zero Coupon 2000 Fund, such segregated
securities either will mature or, if necessary, be sold on or before the
settlement date.
Foreign Securities. Short Term Bond Fund may invest in securities of foreign
issuers. Investing in foreign issuers involves certain special considerations,
including those set forth below, which are not typically associated with
investing in United States issuers. As foreign companies are not generally
subject to uniform accounting and auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic companies,
there may be less publicly available information about a foreign company than
about a domestic company. Volume and liquidity in most foreign bond markets is
less than in the United States and, at times, volatility of price can be greater
than in the United States. There is generally less government supervision and
regulation of brokers and listed companies than in the United States. Mail
service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. Securities issued or guaranteed by foreign national governments,
their agencies, instrumentalities, or political subdivisions, may or may not be
supported by the full faith and credit and taxing power of the foreign
government. The Fund's ability and decisions to purchase and sell portfolio
securities may be affected by laws or regulations relating to the convertibility
and repatriation of assets. Further, it may be more difficult for the Fund's
agents to keep currently informed about corporate actions which may affect the
prices of portfolio securities. In addition, with respect to certain foreign
countries, there is the possibility of expropriation or confiscatory taxation,
political or social instability, or diplomatic developments which could affect
United States investments in those countries. In addition, it may be more
difficult to obtain and enforce a judgment against a foreign issuer. Foreign
securities may be subject to foreign government taxes which will reduce the
yield on such securities. A shareholder of the Fund will not be entitled to
claim a credit or deduction for U.S. federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund.
Lending of Portfolio Securities. Short Term Bond Fund may seek to increase its
income by lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and high grade debt obligations maintained on a
current basis at an amount at least equal to the market value and accrued
interest of the securities loaned. The Fund has the right to call a loan and
obtain the securities loaned on no more than five days' notice. During the
existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be of good standing.
The value of the securities loaned will not exceed 30% of the value of the
Fund's total assets at the time any loan is made. The Fund has no current
intention of making loans of portfolio securities that would amount to greater
than 5% of the Fund's total assets.
Strategic Transactions and Derivatives. Short Term Bond Fund may, but is not
required to, utilize various other investment strategies as described below to
hedge various market risks (such as interest rates, currency exchange rates, and
broad or specific equity or fixed-income market movements), to manage the
effective maturity or duration of the Fund's portfolio, or to enhance potential
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gain. These strategies may be executed through the use of derivative contracts.
Such strategies are generally accepted as a part of modern portfolio management
and are regularly utilized by many mutual funds and other institutional
investors. Techniques and instruments may change over time as new instruments
and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Some Strategic Transactions may
also be used to enhance potential gain although no more than 5% of the Fund's
assets will be committed to Strategic Transactions entered into for non-hedging
purposes. Any or all of these investment techniques may be used at any time and
in any combination, and there is no particular strategy that dictates the use of
one technique rather than another, as use of any Strategic Transaction is a
function of numerous variables including market conditions. The ability of the
Fund to utilize these Strategic Transactions successfully will depend on the
Adviser's ability to predict pertinent market movements, which cannot be
assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Short Term Bond Fund assets in special accounts,
as described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
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price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
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The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 10% of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, foreign sovereign
debt, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio), and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. The Fund will not sell put options if, as a result, more than 50% of
the Fund's assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon. In selling put options, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price above the
market price.
General Characteristics of Futures. Short Term Bond Fund may enter into
financial futures contracts or purchase or sell put and call options on such
futures as a hedge against anticipated interest rate, currency or equity market
changes, for duration management and for risk management purposes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
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purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. Short Term Bond Fund
also may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the excess of the closing price of the index over the exercise price
of the option, which also may be multiplied by a formula value. The seller of
the option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. Short Term Bond Fund may engage in currency transactions
with Counterparties in order to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value.
Currency transactions include forward currency contracts, exchange listed
currency futures, exchange listed and OTC options on currencies, and currency
swaps. A forward currency contract involves a privately negotiated obligation to
purchase or sell (with delivery generally required) a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. A
currency swap is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations of which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or are
determined to be of equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
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that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions in which Short Term Bond
Fund may engage are subject to risks different from those of other portfolio
transactions. Because currency control is of great importance to the issuing
governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be negatively affected by government
exchange controls, blockages, and manipulations or exchange restrictions imposed
by governments. These can result in losses to the Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.
Combined Transactions. Short Term Bond Fund may enter into multiple
transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts) and multiple interest rate transactions and any combination of
futures, options, currency and interest rate transactions ("component"
transactions), instead of a single Strategic Transaction, as part of a single or
combined strategy when, in the opinion of the Adviser, it is in the best
interests of the Fund to do so. A combined transaction will usually contain
elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
Short Term Bond Fund may enter are interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. The Fund expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
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standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. Short Term Bond Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Fund might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and
fixed-income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that Short Term Bond Fund segregate
liquid high grade assets with its custodian to the extent Fund obligations are
not otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid high grade securities
at least equal to the current amount of the obligation must be segregated with
the custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them. For example, a call option written by the Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or to segregate liquid
high-grade securities sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid high grade assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by the Fund requires the
Fund to segregate liquid, high grade assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
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index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net obligation,
if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
The Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") for qualification as a regulated investment company. (See
"TAXES.")
Investment Restrictions
The following restrictions are fundamental policies and may not be
changed with respect to each of the Funds without the approval of a majority of
the outstanding voting securities of such Fund which, under the 1940 Act and the
rules thereunder and as used in this combined Statement of Additional
Information, means the lesser of (1) 67% or more of the voting securities of
such Fund present at such meeting, if the holders of more than 50% of the
outstanding voting securities of such Fund are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of such Fund.
As a matter of fundamental policy, each Fund may not:
1. with respect to 75% of its total assets taken at market value,
purchase more than 10% of the voting securities of any one
issuer or invest more than 5% of the value of its total assets
in the securities of any one issuer, except obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities and except securities of other investment
companies;
2. borrow money, except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset
coverage of 300% for all borrowings;
3. purchase or sell real estate (except that the Fund may invest
in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and that the Fund reserves freedom of
action to hold and sell real estate acquired as a result of
the Fund's ownership of securities) or purchase or sell
physical commodities or contracts relating to physical
commodities;
4. act as underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund;
5. make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent that the entry into
repurchase agreements and the purchase of debt securities in
accordance with the Fund's investment objective and investment
policies may be deemed to be loans;
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6. issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for
shares of the separate classes or series of the Trust,
provided that collateral arrangements with respect to
currency-related contracts, futures contracts, options or
other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of
senior securities for purposes of this restriction; or
7. purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase
to be invested in the securities of one or more issuers having
their principal business activities in the same industry,
provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. (For the
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities
of the parents.)
As a matter of nonfundamental policy each Fund may not:
(a) purchase or retain securities of any open-end investment
company, or securities of any closed-end investment company
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or
except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its assets
in another investment company, and may not invest more than
10% of its assets in other investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Trust or a member, officer, director
or trustee of the investment adviser of the Fund if one or
more of such individuals owns beneficially more than one-half
of one percent (1/2%) of the outstanding shares or securities
or both (taken at market value) of such issuer and such
individuals owning more than one-half of one percent (1/2%) of
such shares or securities together own beneficially more than
5% of such shares or securities or both;
(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except in connection with
arbitrage transactions, and except that the Fund may obtain
such short-term credits as may be necessary for the clearance
of purchases and sales of securities;
(e) invest more than 10% of its total assets in securities which
are not readily marketable, the disposition of which is
restricted under Federal securities laws, or in repurchase
agreements not terminable within 7 days, and the Fund will not
invest more than 10% of its total assets in restricted
securities;
(f) purchase securities of any issuers with a record of less than
three years continuous operations, including predecessors,
except U.S. Government securities, securities of such issuers
which are rated by at least one nationally recognized
statistical rating organization, municipal obligations and
obligations issued or guaranteed by any foreign government or
its agencies or instrumentalities, if such purchase would
cause the investments of the Fund in all such issuers to
exceed 5% of the total assets of the Fund taken at market
value;
(g) (Short Term Bond Fund only) buy options on securities or
financial instruments, unless the aggregate premiums paid on
all such options held by the Fund at any time do not exceed
20% of its net assets; or sell put options on securities if,
as a result, the aggregate value of the obligations underlying
such put options would exceed 50% of the Fund's net assets;
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(h) (Short Term Bond Fund only) enter into futures contracts or
purchase options thereon unless immediately after the
purchase, the value of the aggregate initial margin with
respect to all futures contracts entered into on behalf of the
Fund and the premiums paid for options on futures contracts
does not exceed 5% of the Fund's total assets; provided that
in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing
the 5% limit;
(i) (Zero Coupon 2000 Fund only) purchase or sell any put or call
options or any combination thereof;
(j) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);
(k) (Short Term Bond Fund only) borrow money in excess of 5% of
its total assets (taken at market value) except for temporary
or emergency purposes or borrow other than from banks;
however, in the case of reverse repurchase agreements, the
Fund may invest in such agreements with other than banks
subject to total asset coverage of 300% for such agreements
and all borrowing;
(l) (Zero Coupon 2000 Fund only) borrow money, including reverse
repurchase agreements, in excess of 5% of its total assets
(taken at market value) except for temporary or emergency
purposes or borrow other than from banks;
(m) purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of the Fund's total net assets or more than 2% of its
net assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);
(n) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time any loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily. The Fund
has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Fund's
total assets; or
(o) purchase or sell real estate limited partnership interests.
For Short Term Bond Fund, restrictions with respect to repurchase
agreements shall be construed to be for repurchase agreements entered into for
the investment of available cash consistent with the Fund's repurchase agreement
procedures, not repurchase commitments entered into for general investment
purposes. In addition, for Short Term Bond Fund's policy regarding its
investments in the securities of issuers having their principal business
activities in the same industry, collateralized mortgage obligations and
asset-backed securities are considered to be separate industries.
PURCHASES
(See "Purchases" and "Transaction information" in a
Fund's prospectus.)
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified taxpayer identification number, clients having
a regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD
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and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, Boston, MA 02101, ABA Number 011000028, DDA
Account Number 9903-5552. The investor must give the Scudder fund name, account
name and new account number. Finally, the investor must send the completed and
signed application to a Fund promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Additional Information About Making Subsequent Investments
For Zero Coupon 2000 Fund, subsequent purchase orders for shares in the
amount of $10,000 or more and for an amount not greater than four times the
value of the shareholder's account may be placed by telephone, fax, etc., by
members of the NASD, by banks, and by established shareholders (except by
Scudder Individual Retirement Account (IRA), Scudder Horizon Plan, Scudder
Profit Sharing and Money Purchase Pension Plans, Scudder 401(k) and Scudder
403(b) Plan holders). Orders placed in this manner may be directed to any office
of the Distributor listed in the Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse the Fund or
the principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to
that Fund.
For Short Term Bond Fund, certain financial institutions may call
Scudder before the close of regular trading on the Exchange, normally 4 p.m.
eastern time, and purchase shares at that day's price. Such purchased shares
will begin to earn dividends on the day on which the payment is received by the
Fund. If payment by check or wire is not received from the financial institution
within three business days, the order is subject to cancellation and the
financial institution will be responsible for any loss to the Fund resulting
from this cancellation. Please call 1-800-854-8525 for more information.
Additional Information About Making Subsequent Investments by AutoBuy
Shareholders, whose predesignated bank account of record is a
Member of the Automated Clearing House Network (ACH) and have elected to
participate in the AutoBuy program, may purchase shares of the Fund by
telephone. Through this service shareholders may purchase up to $250,000 but not
less than $250. To purchase shares at the net asset value per share calculated
on the day of your call by AutoBuy, shareholders should call before the close of
trading on the New York Stock Exchange (the "Exchange") (normally 4 p.m. eastern
time). Proceeds in the amount of your purchase will be transferred from your
bank checking account in two or three business days following your call. For
requests received by the close of regular trading on the Exchange, shares will
be purchased at the net asset value per share calculated at the close of trading
on the day of your call. For Short Term Bond Fund, shares will begin to earn
dividends on the day the purchase payment from your bank is received by the
Fund. AutoBuy requests received after the close of regular trading on the
Exchange will begin their processing the following business day and will be
purchased at the net asset value per share calculated at the close of trading on
the business day following your call. If you purchase shares by AutoBuy and
redeem them within seven days of the purchase, the Fund may hold the redemption
proceeds for a period of up to seven business days. If you purchase shares and
there are insufficient funds in your bank account the purchase will be canceled
and you will be subject to any losses or fees incurred in the transaction.
AutoBuy transactions are not available for most retirement plan accounts.
However, AutoBuy transactions are available for Scudder IRA accounts.
In order to request purchases by AutoBuy, shareholders must have
completed and returned to the Funds' transfer agent, Scudder Service Corporation
(the "Transfer Agent"), the application, including the designation of a bank
account from which the purchase payment will be debited. New investors wishing
to establish AutoBuy may so indicate on the application. Existing shareholders
who wish to add AutoBuy to their account may do so by completing an AutoBuy
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Enrollment Form. After sending in an enrollment form shareholders should allow
for 15 days for this service to be available.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares are purchased by a check which proves to be uncollectible,
the Trust reserves the right to cancel the purchase immediately and the
purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust shall have the authority, as agent of the shareholder, to
redeem shares in the shareholder's account to reimburse a Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted, in placing future orders in any of the
Scudder funds.
Wire Transfer of Federal Funds
To purchase shares of Short Term Bond Fund and obtain the same day
dividend you must have your bank forward federal funds by wire transfer and
provide the required account information so as to be available to the Fund prior
to twelve o'clock noon eastern time on that day. If you wish to make a purchase
of $500,000 or more you should notify the Transfer Agent of such a purchase by
calling 1-800-225-5163. If either the federal funds or the account information
is received after twelve o'clock noon eastern time, but both the funds and the
information are made available before the close of regular trading on the
Exchange (normally 4 p.m. eastern time) on any business day, shares will be
purchased at net asset value determined on that day but will not receive the
dividend; in such cases, dividends commence on the next business day.
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day for a Fund, your bank must forward
federal funds by wire transfer and provide the required account information so
as to be available to a Fund prior to the close of regular trading on the
Exchange (normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays are Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the Custodian is not open to receive such federal funds on
behalf of a Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
per share normally will be computed as of the close of regular trading on each
day during which the Exchange is open for trading. Orders received after the
close of regular trading on the Exchange will receive the next business day's
net asset value. If the order has been placed by a member of the NASD, other
than the Distributor, it is the responsibility of that member broker, rather
than a Fund, to forward the purchase order to the Fund's Transfer Agent by the
close of trading on the Exchange.
Share Certificates
Due to the desire of the Trust to afford ease of redemption,
certificates will not be issued to indicate ownership in a Fund.
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Other Information
If purchases or redemptions of a Fund's shares are arranged and
settlement is made, at an investor's election through a member of the NASD other
than the Distributor, that member may, at its discretion, charge a fee for that
service.
The Board of Trustees and the Distributor each has the right to limit
the amount of purchases by, and to refuse to sell to any person and each may
suspend or terminate the offering of shares of a Fund at any time.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g., from exempt organizations, certification of exempt status) will be
returned to the investor.
The Trust may issue shares of each Fund at net asset value in
connection with any merger or consolidation with, or acquisition of the assets
of, any investment company (or series thereof) or personal holding company,
subject to the requirements of the 1940 Act.
EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and
"Transaction information"in a Fund's prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in the other fund. When an exchange involves a new account, the
new account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information--Redeeming
shares--Signature guarantees" in a Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day will ordinarily be executed at respective net asset
values determined on that day. Exchange orders received after the close of
trading will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund through Scudder's Automatic Exchange
Program. Exchanges must be for a minimum of $50. Shareholders may add this free
feature over the telephone or in writing. Automatic Exchanges will continue
until the shareholder requests by telephone or in writing to have the feature
removed, or until the originating account is depleted. The Trust and the
Transfer Agent each reserves the right to suspend or terminate the privilege of
the Automatic Exchange Program at any time.
No commission is charged to the shareholder for any exchange described
above. An exchange into another Scudder fund is a redemption of shares, and
therefore may result in tax consequences (gain or loss) to the shareholder, and
the proceeds of such exchange may be subject to backup withholding. (See
"TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
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instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Funds and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.
The Scudder Funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder Fund
into which the exchange is being contemplated.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders must have completed and returned to the
Transfer Agent the application, including the designation of a bank account to
which the redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
designated bank account must complete the appropriate section
on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) planholders) who wish to establish telephone redemption
to a designated bank account or who want to change the bank
account previously designated to receive redemption payments
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
Telephone redemption is not available with respect to shares
represented by share certificates or shares held in IRA accounts.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating that a savings bank receive their
telephone redemption proceeds are advised that if the savings
bank is not a participant in the Federal Reserve System,
redemption proceeds must be wired through a commercial bank
which is a correspondent of the savings bank. As this may
delay receipt by the shareholder's account, it is suggested
that investors wishing to use a savings bank discuss wire
procedures with their banks and submit any special wire
transfer information with the telephone redemption
authorization. If appropriate wire information is not
supplied, redemption proceeds will be mailed to the designated
bank.
Redemption requests by telephone (technically a repurchase by agreement
between a Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared.
Redemption by AutoSell
Shareholders, whose predesignated bank account of record is a
member of the Automated Clearing House Network (ACH) and who have elected to
participate in the AutoSell program, may redeem shares of the Fund by AutoSell.
To redeem shares by AutoSell, shareholders should call before the close of
regular trading on the Exchange. Redemptions must be for at least $250.
Redemption proceeds will be transferred to your bank checking account in two or
three business days following your call. Shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. AutoSell requests after the close of regular trading on the Exchange will
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begin their processing and be redeemed at the net asset value calculated as of
the close of regular trading on the Exchange the following business day.
AutoSell transactions are not available for Scudder IRA accounts and most other
retirement plan accounts.
In order to request redemptions by AutoSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoSell may so indicate on the application.
Existing shareholders who wish to add AutoSell to their account may do so by
completing an AutoSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor/executrix, certificates of corporate authority and waivers of tax
(required in some states when settling estates).
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to redemptions to ensure
that all necessary documents accompany the request. When shares are held in the
name of a corporation, trust, fiduciary agent, attorney or partnership, the
Transfer Agent requires, in addition to the stock power, certified evidence of
authority to sign. These procedures are for the protection of shareholders and
should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days of payment for shares tendered for redemption
may result but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information please call 1-800-225-5163.
Redemption by "Write-A-Check"
All new investors and existing shareholders of Short Term Bond Fund who
apply to the Custodian for checks may use them to pay any person, provided that
each check is for at least $100 and not more than $5 million. By using the
checks, the shareholder will receive daily dividend credit on his or her shares
until the check has cleared the banking system. Investors who purchased shares
by check may write checks against those shares only after they have been on
Short Term Bond Fund's books for seven business days. Shareholders who use this
service may also use other redemption procedures. No shareholder may write
checks against certificated shares. Short Term Bond Fund pays the bank charges
for this service. However, the Fund will review the cost of operation
periodically and reserves the right to determine if direct charges to the
persons who avail themselves of this service would be appropriate. The Trust, on
behalf of Short Term Bond Fund, the Transfer Agent and the Custodian each
reserves the right at any time to suspend or terminate the "Write-A-Check"
procedure. Checks will be returned by the Custodian if there are insufficient
shares to meet the withdrawal amount. Potential fluctuations in the per share
value of Short Term Bond Fund should be considered in determining the amount of
the check. An investor should not attempt to close an account by check, because
the exact balance at the time the check clears will not be known when the check
is written.
Other Information
If the shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed may be more or less than a shareholder's cost depending upon the net
asset value at the time the redemption is made. The Trust does not impose a
redemption charge, although a wire charge may be applicable for redemption
proceeds wired to an investor's bank account. Redemption of shares, including an
exchange into another Scudder fund, may result in tax consequences (gain or
loss) to the shareholder, and the proceeds of such redemptions may be subject to
backup withholding. (See "TAXES.")
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Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value, and a shareholder's right to
redeem shares and to receive payment therefore may be suspended at times during
which (a) the Exchange is closed, other than customary weekend and holiday
closings, (b) trading on said Exchange is restricted, (c) an emergency exists as
a result of which disposal by a Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund fairly to determine
the value of its net assets, or (d) a governmental body having jurisdiction over
the Trust may by order permit such a suspension for the protection of the
Trust's shareholders; provided that applicable rules and regulations of the
Securities and Exchange Commission ("SEC") (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
If transactions at any time reduce a shareholder's account balance to
below $2,500 in value, the Trust may notify the shareholder that, unless the
account balance is brought up to at least $2,500, the Trust may redeem all
shares in a Fund, close the account, and send redemption proceeds to the
shareholder. The shareholder has sixty days to bring the account balance up to
$2,500 before any action will be taken. No transfer from an existing to a new
Scudder fund account should be for less than $2,500; otherwise the new account
will be redeemed as described above. (This policy applies to accounts of new
shareholders, but does not apply to certain Special Plan Accounts.) The Trustees
have the authority to change the minimum account size.
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in a Fund's prospectus.)
The Pure No-Load(TM) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the NASD
Rules of Fair Practice, a mutual fund can call itself a "no-load" fund only if
the 12b-1 fee and/or service fee does not exceed 0.25% of a fund's average
annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
27
<PAGE>
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.
<TABLE>
<CAPTION>
Scudder Load Fund with 0.75% No-Load Fund with
YEARS Pure No-Load(TM)Fund 8.50% Load Fund 12b-1 Fee 0.25% 12b-1 Fee
<S> <C> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
</TABLE>
Investors are encouraged to review the fee tables on page 2 of a Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
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<PAGE>
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividend and Capital Gain Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders may change their dividend option either by
calling 1-800-225-5163 or by sending written instructions to the Transfer Agent.
Please include your account number with your written request. See "How to
contact Scudder" in a Fund's prospectus for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the relevant Fund.
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after a Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Diversification
Your investment represents an interest in a large, diversified
portfolio of carefully selected securities. Diversification may protect you
against the possible risks associated with concentrating in fewer securities.
Scudder Funds Centers
Investors may visit any of the Funds Centers maintained by the
Distributor listed in a Fund's prospectus. The Centers are designed to provide
individuals with services during any business day. Investors may pick up
literature or find assistance with opening an account, adding monies or special
options to existing accounts, making exchanges within the Scudder Family of
Funds, redeeming shares or opening retirement plans. Checks should not be mailed
to the Centers but should be mailed to "The Scudder Funds" at the address listed
under "How to Contact Scudder" in a Fund's prospectus.
Reports to Shareholders
The Trust issues to the Funds' shareholders semiannual financial
statements, audited annually by independent accountants, including a list of
investments held and statements of assets and liabilities, operations, changes
in net assets and financial highlights for each Fund.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
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<PAGE>
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the Fund's prospectus.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $2,500 or $1,000 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.
MONEY MARKET
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.
Scudder High Yield Bond Fund seeks to provide a high level of current
income and, secondarily, capital appreciation through investment
primarily in below investment grade domestic debt securities.
Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement
of principal value by actively managing currency, bond market and
maturity exposure and by security selection.
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.
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<PAGE>
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in municipal
securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high grade.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.
- --------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.
GROWTH
Scudder Classic Growth Fund seeks long-term growth of capital with
reduced share price volatility compared to other growth mutual funds.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.
Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.
Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S.
and foreign issuers. Income is an incidental consideration.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.
Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in equity securities of large U.S.
growth companies.
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a broad and flexible investment program
emphasizing common stocks.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-cap stocks.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
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Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in securities of emerging growth companies poised
to be leaders in the 21st century.
Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio will, under normal market conditions, invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks a balance of growth
and income by investing in a select mix of Scudder money market, bond
and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return. Total return consists of any capital appreciation plus dividend
income and interest. To achieve this objective, the Portfolio invests
in a select mix of international and global Scudder Funds.
The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; easy telephone exchanges
into other Scudder funds.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Fund's prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
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<PAGE>
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- ----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
34
<PAGE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
<TABLE>
<CAPTION>
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
- ----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Payments are mailed at the end
of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus. Any such requests must
be received by the Fund's transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Trust or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the [Trust, Corporation] and its agents reserve the right to establish
a maintenance charge in the future depending on the services required by the
investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
35
<PAGE>
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See"Distribution and performance
information--Dividends and capital gains
distributions" in a Fund's prospectus.)
Each Fund intends to follow the practice of distributing substantially
all of its investment company taxable income (defined under "GLOSSARY") which
includes any excess of net realized short-term capital gains over net realized
long-term capital losses. A Fund may follow the practice of distributing the
entire excess of net realized long-term capital gains over net realized
short-term capital losses. However, a Fund may retain all or part of such gain
for reinvestment, after paying the related income taxes for which shareholders
may then be asked to claim a credit against their federal income tax liability.
(See "TAXES.") If a Fund does not distribute an amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, it may be subject to such a tax. (See "TAXES.") In certain circumstances,
a Fund may determine that it is in the interest of shareholders to distribute
less than such amount or less than substantially all of its investment company
taxable income.
With respect to Short Term Bond Fund, dividends will be declared daily
and distributions of net investment income will be made monthly. Distributions
of net realized capital gains, if any, will be made in November or December to
prevent application of a federal excise tax. An additional distribution may be
made within three months of the Fund's fiscal year end, if necessary. Any
dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. Both types of
distributions will be made in shares of the Fund and confirmations will be
mailed to each shareholder unless a shareholder has elected to receive cash, in
which case a check will be sent.
With respect to Zero Coupon 2000 Fund, the net investment income of the
Fund normally will be declared and distributed as a dividend in December.
Distributions of net realized capital gains, if any, will be made in November or
December to prevent application of a federal excise tax. An additional
36
<PAGE>
distribution may be made within three months of the Fund's fiscal year end, if
necessary. Any dividends declared in October, November or December with a record
date in such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. Checks will be mailed to shareholders electing to
take dividends in cash. Confirmations will be mailed to shareholders electing to
invest dividends in additional shares for the dividends declared during the
preceding period shortly after the end of the fiscal year.
PERFORMANCE INFORMATION
(See "Distribution and performance
information-- Performance information" in a
Fund's prospectus.)
From time to time, quotations of the Funds' performances may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures may be calculated in the
following manner:
Average Annual Total Return
Average annual total return is the average annual compounded rate of
return for the periods of one year, five years, and ten years, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of a Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment over such periods
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)1/n - 1
Where:
T = average annual total return
P = a hypothetical initial investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Return for periods ended December 31, 1996
One Year Five Years Ten Years
Short Term Bond Fund 3.86% 4.97% 6.94%(1)
Zero Coupon 2000 Fund* 0.65% 6.72% 7.96%
(1) The foregoing average annual total return includes the period
prior to July 3, 1989, during which the Fund operated under
the investment objective and policies of Scudder Target Fund
General 1994 Portfolio. Average annual total return figures
for the periods prior to July 3, 1989 should not be considered
representative of the present Fund.
* If the Adviser had not temporarily maintained expenses, the
average annual total return for the one year, five years and
life of Fund would have been lower.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rates of a return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
37
<PAGE>
C = (ERV/P)-1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a
hypothetical $1,000 investment made
at the beginning of the applicable
period.
Cumulative Total Return for periods ended December 31, 1996
One Year Five Years Ten Years
Short Term Bond Fund 3.86% 27.42% 95.59%(1)
Zero Coupon 2000 Fund* 0.65% 38.43% 115.00%
(1) The foregoing cumulative total return includes the period
prior to July 3, 1989, during which the Fund operated under
the investment objective and policies of Scudder Target Fund
General 1994 Portfolio. Cumulative total return figures for
the periods prior to July 3, 1989 should not be considered
representative of the present Fund.
* If the Adviser had not temporarily maintained expenses, the
cumulative total return for the one year, five years and life
of Fund would have been lower.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
SEC Yields
Yield is the net annualized yield based on a specified 30-day (or one
month) period assuming semiannual compounding of income. Yield is calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
YIELD = 2[((a-b)/cd + 1)6 - 1]
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last
day of the period.
The SEC net annualized yield for the 30-day period ended December 31,
1996 for Short Term Bond Fund was 6.11%.
The SEC net annualized yield for the 30-day period ended December 31,
1996 for Zero Coupon 2000 Fund was 5.24%.
Quotations of a Fund's performance are based on historical earnings and
are not intended to indicate future performance of a Fund. An investor's shares
when redeemed may be worth more or less than their original cost. Performance of
a Fund will vary based on changes in market conditions and the level of a Fund's
expenses. In periods of declining interest rates a Fund's quoted yield will tend
to be somewhat higher than prevailing market rates, and in periods of rising
interest rates a Fund's quoted yield will tend to be somewhat lower.
38
<PAGE>
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of a Fund with performance quoted with respect to other investment
companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, a Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Funds, the Funds' portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Funds. In addition, the amount of assets that the Adviser has under management
in various geographical areas may be quoted in advertising and marketing
materials.
The Funds may be advertised as an investment choice in Scudder's
college planning program. The description may contain illustrations of projected
future college costs based on assumed rates of inflation and examples of
hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
39
<PAGE>
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials or
articles about these Funds. Sources for Fund performance information and
articles about the Funds include the following:
American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.
CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.
Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
40
<PAGE>
IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research and
data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.
41
<PAGE>
Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
ORGANIZATION OF THE FUNDS
(See "Fund organization" in a Fund's prospectus.)
Each Fund is a separate series of Scudder Funds Trust, a Massachusetts
business trust established under a Declaration of Trust dated July 24, 1981, as
amended. The name of the Trust was changed, effective July 3, 1989, from Scudder
Target Fund to Scudder Funds Trust. Prior to action taken by the Trustees of the
Trust on March 7, 1990, Scudder Zero Coupon 2000 Fund was named 2000 U.S.
Government Zero Coupon Target Portfolio. On December 23, 1987 the par value of
the shares of beneficial interest of the Trust was changed from no par value to
$.01 par value per share. The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest of $.01 par value, issued in
separate series. Each share of each series represents an equal proportionate
interest in that series with each other share of that series. Shareholders have
one vote for each share held on matters on which they are entitled to vote.
Effective as of July 3, 1989, two series of the Trust, the General 1990
Portfolio and U.S. Government 1990 Portfolio, sold their assets to another
series of the Trust, the General 1994 Portfolio, in exchange for shares of the
1994 Portfolio, as approved by shareholders on June 26, 1989. Effective as of
the same date, the General 1994 Portfolio changed its name to Scudder Short Term
Bond Fund and changed its investment objectives from current income, capital
preservation and possible capital appreciation to its current investment
objective.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with such a share of the general
liabilities of the Trust. If a series were unable to meet its obligations, the
assets of all other series may in some circumstances be available to creditors
for that purpose, in which case the assets of such other series could be used to
meet liabilities which are not otherwise properly chargeable to them. Expenses
with respect to any two or more series are to be allocated in proportion to the
asset value of the respective series except where allocations of direct expenses
can otherwise be fairly made. The officers of the Trust, subject to the general
supervision of the Trustees, have the power to determine which liabilities are
allocable to a given series, or which are general or allocable to two or more
series. In the event of the dissolution or liquidation of the Trust or any
series, the holders of the shares of any series are entitled to receive as a
class the underlying assets of such shares available for distribution to
shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment management agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Trustees have the authority to designate additional series and to
designate the relative rights and preferences as between the different series.
All shares issued and outstanding will be fully paid and non-assessable by the
Trust, and redeemable as described in this Statement of Additional Information
and in each Fund's prospectus.
The Trustees, in their discretion, may authorize the division of shares
of a Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
42
<PAGE>
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes (which under present regulations would require a Fund first to
obtain an exemptive order of the SEC), nor of changing the method of
distribution of shares of a Fund.
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Trust. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in a Fund's prospectus.)
Scudder, Stevens & Clark, Inc. (the "Adviser"), an investment counsel
firm, acts an investment adviser to the Funds. This organization is one of the
most experienced investment management firms in the United States. It was
established as a partnership in 1919 and pioneered the practice of providing
investment counsel to individual clients on a fee basis. In 1928, it introduced
the first no-load mutual fund to the public. In 1953, the Adviser introduced
Scudder International Fund, Inc., the first mutual fund available in the U.S.
investing internationally in several foreign countries. The firm reorganized
from a partnership to a corporation on June 28, 1985.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax Free
Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment Fund,
Scudder World Income Opportunities Fund, Inc., The Argentina Fund, Inc., The
Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund, Inc., The Japan
Fund, Inc. and The Latin America Dollar Income Fund, Inc. Some of the foregoing
companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
In selecting among the securities in which a Fund may invest, the
conclusions and investment decisions of the Adviser with respect to a Fund are
based primarily on the analyses of its own research department. The Adviser
receives published reports and statistical compilations of the issuers
themselves, as well as analyses from brokers and dealers who may execute
portfolio transactions for the Adviser's clients. However, the Adviser regards
this information and material as an adjunct to its own research activities.
Certain investments may be appropriate for a Fund and also for other
clients advised by the Adviser. Investment decisions for the Funds and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one series or client or in
different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
43
<PAGE>
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by a Fund. Purchase and sale orders for a Fund may be combined
with those of other series or other clients of the Adviser in the interest of
the most favorable net results to that Fund.
The Investment Management Agreements (the "Agreements") for Short Term
Bond Fund and Zero Coupon 2000 Fund are dated September 7, 1993 and June 6,
1991, respectively. The continuance of the Agreements was approved by Trustees
on September 4, 1996. Each Agreement will continue in effect until September 30,
1997 and from year to year thereafter only if its continuance is approved
annually by the vote of a majority of those Trustees who are not parties to such
Agreement or interested persons of the Adviser or the Trust, cast in person at a
meeting called for the purpose of voting on such approval, and either by vote of
a majority of the Trustees or a majority of the outstanding voting securities of
the respective Fund. Each Agreement may be terminated at any time without
payment of penalty by either party on sixty days written notice, and
automatically terminates in the event of its assignment.
Under each Agreement, the Adviser regularly provides a Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold, and what portion of the Fund's
assets shall be held uninvested, subject always to the provisions of the Trust's
Declaration of Trust and By-Laws, the 1940 Act, the Internal Revenue Code of
1986 and the Fund's investment objectives, policies and restrictions, as each
may be amended, and subject further to such policies and instructions as the
Trustees of the Trust may from time to time establish. The Adviser also advises
and assists the officers of the Trust in taking such steps as are necessary or
appropriate to carry out the decisions of its Trustees and the appropriate
committee of the Trustees regarding the conduct of the business of the Trust.
Under each Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
a Fund's operations as an open-end investment company including, but not limited
to, preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting a Fund in the conduct of its business, subject to the direction and
control of the Trustees.
The Adviser pays the compensation and expenses of the Trust except
those for attending Board and committee meetings outside New York, New York or
Boston, Massachusetts of all Trustees, officers and executive employees of the
Trust affiliated with the Adviser and makes available, without expense to a
Fund, the services of the Adviser's directors, officers and employees as may
duly be elected officers, subject to their individual consent to serve and to
any limitations imposed by law, and provides the Trust's office space and
facilities and provides investment advisory, research and statistical facilities
and all clerical services relating to research, statistical and investment work.
For these services, Short Term Bond Fund pays the Adviser a fee at an
annual rate of 0.60% of the first $500 million of average daily net assets,
0.50% of the next $500 million of such assets, 0.45% of the next $500 million of
such assets, 0.40% of the next $500 million of such assets, 0.375% of the next
$1 billion of such assets and 0.35% of such assets in excess of $3 billion. For
the fiscal years ended December 31, 1994, 1995 and 1996, the investment
management fees for Short Term Bond Fund amounted to $12,415,709, $9,529,973 and
$8,232,708, respectively.
For these services, Zero Coupon 2000 Fund pays the Adviser a fee at an
annual rate of 0.60% of the Fund's average daily net assets. For the fiscal year
ended December 31, 1994, the Adviser did not impose a portion of its management
fees which amounted to $117,316 and the portion imposed amounted to $33,453. For
the fiscal year ended December 31, 1995, the Adviser did not impose a portion of
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<PAGE>
its management fee which amounted to $129,399 and the portion imposed amounted
to $31,783. For the fiscal year ended December 31, 1996, the Adviser did not
impose a portion of its management fee which amounted to $158,725 and the
portion imposed amounted to $38,606.
The fees are payable monthly, provided the Funds will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of a Fund and unpaid. The Adviser has
voluntarily agreed, with respect to Zero Coupon 2000 Fund, not to impose all or
a portion of its management fee and to maintain the annualized expenses at not
more than 1.00% of the average daily net assets until December 31, 1997. The
Adviser retains the ability to be repaid by the Fund if expenses fall below the
specified limit prior to the end of the fiscal year. These expense limitation
arrangements can decrease the Fund's expenses and improve its performance.
The yield on shares of a Fund will be increased to the extent that the
Adviser maintains a Fund's expenses, and thereafter will be reduced to the
extent that full payment by a Fund of the fee and expenses is instituted.
Under each Agreement, a Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; brokerage commissions; legal, auditing or
accounting expenses; taxes or governmental fees; the fees and expenses of the
Transfer Agent; and any other expenses, including clerical expense, of issue,
redemption or repurchase of shares; the expenses of and fees for registering or
qualifying securities for sale; the fees and expenses of the Trustees, officers
and employees of the Trust who are not affiliated with the Adviser; the cost of
printing and distributing reports and notices to shareholders; and the fee or
disbursements of custodians. A Fund may arrange to have third parties assume all
or part of the expenses of sale, underwriting and distribution of shares of a
Fund. A Fund is also responsible for its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify officers and Trustees of the Trust with respect thereto.
The expense ratio, the ratio of operating expenses to average net
assets, for Short Term Bond Fund was 0.73%, 0.75% and 0.80% for the fiscal years
ended December 31, 1994, 1995 and 1996, respectively.
The expense ratio, the ratio of operating expenses to average net assets,
for Zero Coupon 2000 Fund was 1.00% for each fiscal year ended December 31,
1994, 1995 and 1996.
Each Agreement provides that a Fund may use any name derived from the
name "Scudder, Stevens & Clark" only as long as the Agreements remains in
effect.
In reviewing the terms of the Agreements and in discussions with the
Adviser concerning the Agreements, Trustees who are not "interested persons" of
the Trust or the Adviser are represented by independent counsel at the Funds'
expense.
Each Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which the Agreements relate, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreements.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.
None of the Trustees or officers may have dealings with the Funds as
principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Funds.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
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<PAGE>
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
(See "Trustees and Officers" in a Fund's prospectus.)
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------
<S> <C> <C> <C>
Daniel Pierce (63)*#+ President and Chairman of the Board and Vice President,
Trustee Managing Director of Scudder, Director and Assistant
Stevens & Clark, Inc. Treasurer
Sheryle J. Bolton (50) Trustee Consultant --
417 Montgomery Street
Suite 500
San Francisco, CA 94104
Thomas J. Devine (70) Trustee Consultant --
149 East 73rd Street
New York, NY 10021
Peter B. Freeman (64) Trustee Corporate Director and Trustee --
100 Alumni Avenue
Providence, RI 02906
Dudley H. Ladd (53)*+ Trustee Managing Director of Scudder, Director & Senior Vice
Stevens & Clark, Inc. President
Dr. Wilson Nolen (70) Trustee Consultant --
1120 Fifth Avenue, #10-B
New York, NY 10128
Kathryn L. Quirk (44)*#++ Trustee, Vice Managing Director of Scudder, Director, Senior Vice
President and Stevens & Clark, Inc. President & Clerk
Assistant Secretary
Jerard K. Hartman (64)++ Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
Thomas W. Joseph (58)+ Vice President Principal of Scudder, Stevens & Vice President,
Clark, Inc. Director, Treasurer &
Assistant Clerk
David S. Lee (63)+ Vice President Managing Director of Scudder, President, Assistant
Stevens & Clark, Inc. Treasurer and Director
Thomas F. McDonough (50)+ Vice President, Principal of Scudder, Stevens & Assistant Clerk
Secretary and Clark, Inc.
Assistant Treasurer
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<PAGE>
Pamela A. McGrath (43)+ Vice President and Managing Director of Scudder, --
Treasurer Stevens & Clark, Inc.
Edward J. O'Connell (51)++ Vice President and Principal of Scudder, Stevens & Assistant Treasurer
Assistant Treasurer Clark, Inc.
Thomas M. Poor (53)+ Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.
</TABLE>
* Messrs. Ladd, Pierce and Ms. Quirk are considered by the Trust and its
counsel to be Trustees who are "interested persons" of the Adviser or
of the Trust, within the meaning of the 1940 Act.
** Unless otherwise stated, all Officers and Trustees have been associated
with their respective company for more than five years but not
necessarily in the same capacity.
# Mr. Pierce and Ms. Quirk are members of the Executive Committee, which
may exercise all of the powers of the Trustees when the Trustees are
not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
++ Address: 345 Park Avenue, New York, New York 10154
As of March 31, 1997, all Trustees and officers of Short Term Bond Fund
as a group owned beneficially (as that term is defined under Section 13(d) of
the Securities Exchange Act of 1934) less than 1% of the outstanding shares of
the Fund.
As of March 31, 1997, all Trustees and officers of Zero Coupon 2000
Fund as a group owned beneficially (as that term is defined under Section 13(d)
of the Securities Exchange Act of 1934) __________ shares or, _____% of the
outstanding shares of the Fund.
Certain accounts for which the Adviser acts as investment adviser owned
___________ shares of Short Term Bond Fund in the aggregate or _____% of the
outstanding shares on March 31, 1997. The Adviser may be deemed to be the
beneficial owner of such shares, but disclaims any beneficial interest in such
shares.
As of March 31, 1997, _________ shares in the aggregate or _____% of
the outstanding shares of Zero Coupon 2000 Fund, were held in the name of
Charles Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership in them.
To the best of each Fund's knowledge, as of March 31, 1997, no person
owned beneficially more than 5% of Short Term Bond Fund's outstanding shares or
more than 5% of Zero Coupon 2000 Fund's outstanding shares except as stated
above.
The Trustees and officers of the Trust also serve in similar capacities
with other Scudder funds.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with
Scudder, Stevens & Clark, Inc. (The "Advisor"). These "Independent Trustees"
have primary responsibility for assuring that each Fund is managed in the best
interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
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<PAGE>
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Funds' investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by each Fund's independent public accountants and
by independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
The Independent Trustees met seven times during 1996, including Board
and Committee meetings and meetings to review each Fund's contractual
arrangements as described above. All of the Independent Trustees attended 100%
of all such meetings.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from Funds:
an annual trustee's fee of $4,000; a fee of $400 for attendance at each Board
meeting, audit committee meeting, or other meeting held for the purposes of
considering arrangements between the Funds and the Adviser or any affiliate of
the Adviser; $150 for any other committee meeting (although in some cases the
Independent Trustees have waived committee meeting fees); and reimbursement of
expenses incurred for travel to and from Board Meetings. No additional
compensation is paid to any Independent Trustee for travel time to meetings,
attendance at directors' educational seminars or conferences, service on
industry or association committees, participation as speakers at directors'
conferences, service on special trustee task forces or subcommittees or service
as lead or liaison trustee. Independent Trustees do not receive any employee
benefits such as pension, retirement or health insurance. For the year ended
December 31, 1996, Trustee's fees amounted to $18,170 for Short Term Bond Fund
and $18,169 for Zero Coupon 2000 Fund.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type an complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1996 from the Trust and from all of Scudder funds as a group.
<TABLE>
<CAPTION>
Name Scudder Funds Trust* All Scudder Funds
---- -------------------- -----------------
<S> <C> <C> <C>
Thomas J. Devine, $8,700 $156,058 (18 funds)
Trustee
Peter B. Freeman, $8,300 $131,734 (33 funds)
Trustee
Dr. Wilson Nolen, $8,950 $165,608 (17 funds)
Trustee
Sheryle J. Bolton, $8,700 $71,200 (9 funds)
Trustee
</TABLE>
* Scudder Funds Trust consists of two Funds: Scudder Short Term Bond Fund and
Scudder Zero Coupon 2000 Fund.
Members of the Board of Trustees who are employees of Scudder or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of Scudder, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
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<PAGE>
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement dated
July 15, 1985 remains in effect from year to year thereafter only if its
continuance is approved annually by a majority of the Trustees who are not
parties to such agreement or interested persons of any such party and either by
vote of a majority of the Trustees or a majority of the outstanding voting
securities of the Trust. The continuance of the underwriting agreement was most
recently approved by the Trustees on September 4, 1996 and will continue in
effect until September 30, 1997.
Under the underwriting agreement, the Trust is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of the Trust's registration statement and prospectus and any
amendments and supplements thereto; the registration and qualification of shares
for sale in the various states, including registering the Trust as a
broker/dealer in the various states as required; the fees and expenses of
preparing, printing and mailing prospectuses (see below for expenses relating to
prospectuses paid by the Distributor), notices, proxy statements, reports or
other communications (including newsletters) to shareholders of each Fund; the
cost of printing and mailing confirmations of purchases of shares and the
prospectuses accompanying such confirmations; any issue taxes or any initial
transfer taxes; a portion of shareholder toll-free telephone charges and
expenses of shareholder service representatives; the cost of wiring funds for
share purchases and redemptions (unless paid by the shareholder who initiates
the transaction); the cost of printing and postage of business reply envelopes;
and a portion of the cost of computer terminals used by both the Trust and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of Fund shares to
the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of each Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
service representatives, a portion of the cost of computer terminals, and of any
activity which is primarily intended to result in the sale of shares issued by
the Trust.
Note: Although no Fund has a 12b-1 Plan and shareholder approval
would be required in order to adopt one, the underwriting
agreement provides that each Fund will also pay those fees and
expenses permitted to be paid or assumed by a Fund pursuant to
a 12b-1 Plan, if any, adopted by the Fund, notwithstanding any
other provision to the contrary in the underwriting agreement,
and the Fund or a third party will pay those fees and expenses
not specifically allocated to the Distributor in the
underwriting agreement.
As agent, the Distributor currently offers each Fund's shares on a
continuous basis to investors in all states. The underwriting agreement provides
that the Distributor accepts orders for shares at net asset value as no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of a Fund.
TAXES
(See "Distribution and performance information--Dividends and
capital gains distributions" and "Transaction information--Tax
information, Tax identification number" in a Fund's prospectus.)
Each Fund intends to qualify as a separate regulated investment company
under Subchapter M of the Code. Such qualification does not involve governmental
supervision or management of investment practices or policy. Each series of a
series fund is treated as a separate taxpayer. Accordingly, each Fund is treated
as a separate taxpayer.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
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<PAGE>
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires a Fund to distribute to shareholders during a calendar year an amount
equal to at least 98% of a Fund's ordinary income for the calendar year, at
least 98% of the excess of its capital gains over capital losses (adjusted for
certain ordinary losses) realized during the one-year period ending October 31
during such year, and all ordinary income and capital gains for prior years that
were not previously distributed. Investment companies with taxable years ending
on November 30 or December 31 may make an irrevocable election to measure the
required capital gain distribution for excise tax purposes, using their actual
taxable year, rather than the one-year period ending October 31.
Investment company taxable income generally includes dividends,
interest (including original issue discount) and net short-term capital gains in
excess of net long-term capital losses, less expenses. Net realized capital
gains of a Fund for a fiscal year are computed by taking into account any
capital loss carryforward of the Fund.
As of December 31, 1996, Short Term Bond 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.
As of December 31, 1996, Zero Coupon 2000 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 21, 2003
($178,000) and December 31, 2004 ($374,000), the respective expiration dates.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by such Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between a pro rata share of such gains and the
individual tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Since no portion of a Fund's income is expected to be comprised of
dividends from domestic corporations, none of the income distributions of a Fund
are expected to be eligible for the deduction for dividends received by
corporations, except when a Fund invests in certain high yield, original issue
discount obligations, discussed below.
Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of a Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of a Fund on the
reinvestment date.
If a Fund holds zero coupon securities or other securities which are
issued at discount, a portion of the difference between the issue price and the
face amount of such securities ("original issue discount") will be treated as
income to the Fund each year, although no current payments will be received by
the Fund with respect to such income. This original issue discount will comprise
a part of the investment company taxable income of a Fund which must be
distributed to shareholders in order to maintain its qualification as a
regulated investment company and to avoid federal income tax at the Fund level.
Shareholders will be subject to income tax on such original issue discount,
whether or not they elect to receive their distributions in cash. In the event
that a Fund acquires a debt instrument at a market discount, it is possible that
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<PAGE>
a portion of any gain recognized on the disposition of such instrument may be
treated as ordinary income.
If Short Term Bond Fund invests in certain high yield original issue
discount obligations issued by corporations, a portion of the original issue
discount accruing on the obligations may be eligible for the deduction for
dividends received by corporations. In such event, dividends of investment
company taxable income received from the Fund by its corporate shareholders, to
the extent attributable to such portion of accrued original issue discount, may
be eligible for this deduction for dividends received by corporations if so
designated by the Fund in a written notice to shareholders.
Since Zero Coupon 2000 Fund invests primarily in zero coupon
securities, upon which it will receive no cash payments of interest, to the
extent shareholders of the Fund elect to take their distributions in cash, the
Fund may have to generate the required cash from interest earned on non-zero
coupon securities, from the disposition of such securities, or possibly from the
disposition of some of the zero coupon securities.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
Redemptions of shares, including exchanges for shares of another Scudder Fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
An individual may make a deductible IRA contribution of up to $2,000
or, if less, the amount of the individual's earned income (up to $2,000 per
individual for married couples if only one spouse has earned income), for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,000 per individual for married couples if only one spouse
has earned income) for that year. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Also, annual contributions may
be made to a spousal IRA even if the spouse has earnings in a given year if the
spouse elects to be treated as having no earnings (for IRA contribution
purposes) for the year.
Distributions by a Fund result in a reduction in the net asset value of
a Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Over-the-counter options on debt securities written or purchased by
Short Term Bond Fund will be subject to tax under Section 1234 of the Code. In
general, no loss is recognized by the Fund upon payment of a premium in
connection with the purchase of a put or call option. The character of any gain
or loss recognized (i.e., long-term or short-term) will generally depend in the
case of a lapse or sale of the option on the Fund's holding period for the
option and in the case of an exercise of a put option on the Fund's holding
period for the underlying security. The purchase of a put option may constitute
a short sale for federal income tax purposes, causing an adjustment in the
holding period of the underlying security or a substantially identical security
of the Fund. If the Fund writes a put or call option, no gain is recognized upon
its receipt of a premium. If the option lapses or is closed out, any gain or
loss is treated as a short-term capital gain or loss. If a call option written
by the Fund is exercised, the character of the gain or loss depends on the
holding period of the underlying security. The exercise of a put option written
by the Fund is not a taxable transaction for the Fund.
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Many futures and forward contracts entered into by Short Term Bond Fund
and all listed nonequity options written or purchased by the Fund (including
options on debt securities, options on futures contracts, and options on
securities indices) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term, and on the last trading day of the Fund's fiscal year (and
generally, on October 31 for purposes of the 4% excise tax), all outstanding
Section 1256 positions will be marked-to-market (i.e. treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts, certain futures contracts and
options and similar financial instruments entered into or acquired by the Fund
will be treated as ordinary income or loss. Under certain circumstances, entry
into a futures contract to sell a security may constitute a short sale for
federal income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security owned by the Fund.
Subchapter M of the Code requires that each Fund realize less than 30%
of its annual gross income from the sale or other disposition of stock,
securities and certain options, futures and forward contracts held for less than
three months. Certain options, futures and forward transactions of Short Term
Bond Fund may increase the amount of gains realized by the Fund that are subject
to the 30% limitation. Accordingly, the amount of such transactions that the
Fund may undertake may be limited.
Positions of Short Term Bond Fund which consist of at least one
position not governed by Section 1256 and at least one future, forward, or
option on a futures contract governed by Section 1256 which substantially
diminishes the Fund's risk of loss with respect to such other position will be
treated as a "mixed straddle." Mixed straddles are subject to the straddle rules
of Section 1092 of the Code, and may result in the deferral of losses if the
non-Section 1256 position is in an unrealized gain at the end of a reporting
period.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time Short Term Bond Fund accrues
receivables or accrues liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and on
disposition of certain futures contracts, forward contracts and options, gains
or losses attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security or contract and the date of disposition
are also treated as ordinary gain or loss. These gains or losses, referred to
under the Code as "Section 988" gains or losses, may increase or decrease the
amount of the Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.
Each Fund will be required to report to the IRS all distributions of
taxable income and capital gains as well as gross proceeds from the redemption
or exchange of its shares, except in the case of certain exempt shareholders.
Under the backup withholding provisions of Section 3406 of the Code,
distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if a
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld. In addition, the IRS imposes a penalty of $50.00 per failure on
shareholders who fail to furnish their tax identification numbers to a Fund.
Shareholders of a Fund may be subject to state and local taxes on
distributions received from a Fund and on redemptions of their shares. Under the
laws of certain states, distributions of investment company taxable income are
taxable to shareholders as dividends, even though a portion of such
distributions may be derived from interest on U.S. Government obligations which,
if received directly by such shareholders, would be exempt from state income
tax.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, each Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
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Dividend and interest income received by Short Term Bond Fund from
sources outside the United States may be subject to withholding and other taxes
imposed by such foreign jurisdictions. Tax conventions between certain countries
and the U.S. may reduce or eliminate these foreign taxes, however, and foreign
countries generally do not impose taxes on capital gains in respect of
investments by foreign investors.
Each Fund is organized as part of a Massachusetts business trust, and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that each Fund continues to be treated as a regulated
investment company under Subchapter M of the Code.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of a Fund, including the possibility that such a shareholder
may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate
under an applicable income tax treaty) on amounts constituting ordinary income
received by him or her, where such amounts are treated as income from U.S.
sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
(See "Fund organization--Investment adviser" in a
Fund's prospectus.)
Brokerage Commissions
To the maximum extent feasible, the Adviser places orders for portfolio
transactions through the Distributor which in turn places orders on behalf of a
Fund with other brokers and dealers. The Distributor receives no commissions,
fees or other remuneration from the Funds for this service. Allocation of
brokerage is supervised by the Adviser.
A Fund's purchases and sales of portfolio securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and ask prices. Purchases of
underwritten issues may be made which will include an underwriting fee paid to
the underwriter. Portfolio transactions in debt securities may also be placed on
an agency basis, with a commission being charged.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results
taking into account such factors as price, commission (negotiable in the case of
national securities exchange transactions), if any, size of order, difficulty of
execution and skill required of the executing broker/dealer. The Adviser seeks
to evaluate the overall reasonableness of brokerage commissions paid (to the
extent applicable) through the familiarity of the Distributor with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Fund to reported commissions paid by others, if available. The Adviser
reviews on a routine basis commission rates, execution and settlement services
performed, making internal and external comparisons. Scudder Short Term Bond
Fund and Scudder Zero Coupon 2000 Fund paid no brokerage commissions for the
fiscal years ended December 31, 1994, 1995 and 1996.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes; who pay, directly or indirectly, a portion
of the Trust's expenses, such as custodian or transfer agent fees; or who supply
research, market and statistical information to the Trust or the Adviser. The
term "research, market and statistical information" includes advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities; and the availability of securities or purchasers or sellers of
securities; and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. The Adviser is not authorized when placing portfolio transactions
for a Fund to pay a brokerage commission (to the extent applicable) in excess of
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that which another broker might have charged for effecting the same transaction
solely on account of the receipt of research, market or statistical information.
The Adviser will not place orders with brokers or dealers on the basis that a
broker or dealer has or has not sold shares of the Trust. Except for
implementing the policy stated above, there is no intention to place portfolio
transactions with particular brokers or dealers or groups thereof. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market-makers for the security being traded unless, after exercising
care, it appears that more favorable results are available otherwise.
Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions through the Funds' Custodian and a credit
against the custodian fee due to the custodian equal to one-half of the
commission on any such transaction will be given.
Although certain research, market and statistical information from
brokers and dealers can be useful to a Fund and to the Adviser, it is the
opinion of the Adviser that such information supplements the Adviser's own
research effort, since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Funds and not all such
information is used by the Adviser in connection with a Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to a Fund.
The Trustees intend to review from time to time whether the recapture
for the benefit of a Fund of some portion of the brokerage commissions or
similar fees paid by a Fund on portfolio transactions is legally permissible and
advisable.
Portfolio Turnover
The portfolio turnover rate is defined by the SEC as the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding all securities with maturities at time of
acquisition of one year or less. The portfolio turnover rate for Short Term Bond
Fund was 101.1% and 61.8% for the fiscal years ended December 31, 1995 and 1996,
respectively. The portfolio turnover rate for Zero Coupon 2000 Fund was 86.6%
and 85.2% for the fiscal years ended December 31, 1995 and 1996, respectively.
Purchases and sales are made for a Fund whenever necessary, in
management's opinion, to meet each Fund's objective.
NET ASSET VALUE
The net asset value of shares of each Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of the Fund, less all liabilities, by the total
number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Funds' pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
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<PAGE>
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Funds' Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of each Fund included in each Fund's
Prospectus and the Financial Statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance on the report of Coopers & Lybrand L.L.P., One Post Office
Square, Boston, Massachusetts, 02109, independent accountants, and given on the
authority of that firm as experts in accounting and auditing.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust and a disclaimer stating that each
series shall not be liable for the obligations of any other series. The
Declaration of Trust also provides for indemnification out of the Trust's
property of any shareholder held personally liable for the claims and
liabilities to which a shareholder may become subject by reason of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Trust itself would be unable to meet its obligations.
Other Information
Short Term Bond Fund's CUSIP number is 810902-20-5.
Zero Coupon 2000 Fund's CUSIP number is 810902-23-9.
Each Fund has a fiscal year ending on December 31.
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Portfolio securities of each Fund are held separately, pursuant to a
custodian agreement, by the Funds' custodian, State Street Bank and Trust
Company, 255 Franklin Street, Boston, Massachusetts 02101.
The law firm of Dechert Price & Rhoads is counsel to the Trust.
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA 02109,
serves as independent accountants to the Trust.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net asset value
for the Funds.
Short Term Bond Fund and Zero Coupon 2000 Fund each pays Scudder Fund
Accounting Corporation an annual fee equal to .025% of the first $150 million of
average daily net assets, .0075% of such assets in excess of $150 million up to
$1 billion and .0045% of such assets in excess of $1 billion. Scudder Fund
Accounting Corporation charged Short Term Bond Fund and Zero Coupon 2000 Fund an
aggregate fee of $199,888 and $37,500, respectively, for the fiscal year ended
December 31, 1996.
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts
02107-2291, a subsidiary of the Adviser, is the transfer, dividend-paying and
shareholder service agent for each Fund. Each Fund pays Scudder Service
Corporation an annual fee for each account maintained as a participant. Short
Term Bond Fund and Zero Coupon 2000 Fund each pays Scudder Service Corporation
an annual fee of $26.00 for each account maintained for a shareholder. The fees
incurred by Short Term Bond Fund and Zero Coupon 2000 Fund for the fiscal year
ended December 31, 1996 amounted to $2,258,259 and $56,774, respectively.
Scudder Trust Company, an affiliate of the Adviser, provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. Annual service fees are paid by a Fund to
Scudder Trust Company for such accounts. Short Term Bond Fund and Zero Coupon
2000 Fund each pays Scudder Trust Company a fee of $29.00 for each account
maintained. The fees incurred by Short Term Bond and Zero Coupon 2000 Fund for
the fiscal year ended December 31, 1996 were $564,119 and $10,653, respectively.
The name "Scudder Funds Trust" is the designation of the Trustees for
the time being under a Declaration of Trust dated June 24, 1981, as amended from
time to time, and all persons dealing with the Trust must look solely to the
property of the Trust for the enforcement of any claims against the Trust as
neither the Trustees, officers, agents nor shareholders assume any personal
liability for obligations entered into on behalf of the Trust. Upon the initial
purchase of shares, the shareholder agrees to be bound by the Trust's
Declaration of Trust, as amended from time to time. The Declaration of Trust is
on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with a Fund must look only to the assets of a
Fund for the enforcement of any claims against a Fund as no other series of the
Trust assumes any liabilities for obligations entered into on behalf of a Fund.
SCUDDER FUNDS TRUST, 345 Park Avenue, New York, New York 10154, has
filed with the U.S. Securities and Exchange Commission, Washington, D.C. 20549,
a Registration Statement under the 1933 Act, as amended, with respect to the
shares of Short Term Bond Fund and Zero Coupon 2000 Fund offered by each Fund's
prospectus. Each Fund's prospectus and this Statement of Additional Information
do not contain all of the information set forth in the Registration Statement
and its amendments, certain parts of which are omitted in accordance with Rules
and Regulations of the SEC. The Registration Statement and its amendments, may
be inspected at the principal office of the SEC at 450 Fifth Street, N.W.,
Washington and copies thereof may be obtained from the SEC at prescribed rates.
FINANCIAL STATEMENTS
Scudder Short Term Bond Fund
The financial statements, including the Investment Portfolio, of
Scudder Short Term Bond Fund, together with the Report of Independent
Accountants and Financial Highlights are incorporated by reference and attached
hereto on pages 9 through 24, inclusive, in the Annual Report to the
Shareholders of the Fund dated December 31, 1996, and are hereby deemed to be a
part of this Statement of Additional Information.
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Scudder Zero Coupon 2000 Fund
The financial statements, including the Investment Portfolio, of
Scudder Zero Coupon 2000 Fund, together with the Report of Independent
Accountants and Financial Highlights are incorporated by reference and attached
hereto on pages 8 through 15, inclusive, in the Annual Report to the
Shareholders of the Fund dated December 31, 1996, and are hereby deemed to be a
part of this Statement of Additional Information.
RATINGS OF CORPORATE BONDS
The two highest ratings of Moody's for corporate bonds are Aaa and Aa.
Bonds rated Aaa are judged by Moody's to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa are judged to be of
high quality by all standards. Together with the Aaa group, they comprise what
are generally known as high-grade bonds. Aa bonds are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future. Moody's Baa rated bonds are considered
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and may have speculative characteristics
as well.
The two highest ratings of S&P for corporate bonds are AAA and AA.
Bonds rated AAA have the highest rating assigned by S&P to a debt obligation.
Capacity to pay interest and repay principal is extremely strong. Bonds rated AA
have a very strong capacity to pay interest and repay principal and differ from
the highest rated issues only in a small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated securities. S&P's BBB rated bonds, or
medium-grade category bonds, are between sound obligations and those where the
speculative elements begin to predominate. Although these bonds have adequate
asset coverage and normally are protected by satisfactory earnings, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and principal.
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GLOSSARY
1. Bond
A contract by an issuer (borrower) to repay the owner of the contract
(lender) the face amount of the bond on a specified date (maturity
date) and to pay a stated rate of interest until maturity. Interest is
generally paid semi-annually in amounts equal to one-half the annual
interest rate.
2. Debt Obligation
A general term which includes fixed income and variable rate
securities, obligations issued at a discount and other types of
securities which evidence a debt.
3. Discount and Premium
(a) Market Discount and Premium - A discount (premium) bond is a bond
selling in the market at a price lower (higher) than its face value.
The amount of the market discount (premium) is the difference between
market value and face value.
(b) Original Issue Discount - An original issue discount is the
discount from face value at which the bond is first offered to the
public.
4. Face Value
The value of a bond that appears on the face of the bond, unless the
value is otherwise specified by the issuing company. Face value is
ordinarily the amount the issuing company promises to pay at maturity.
Face value is not an indication of market value.
5. Fixed Income Obligation
An instrument under which the lender agrees to pay interest, either at
a stated rate or according to a specified formula, over the life of the
instrument, as well as to repay principal at maturity.
6. Investment Company Taxable Income
The investment company taxable income of a Fund includes dividends,
interest (including original issue discount) and net short-term capital
gains in excess of long-term capital losses, less expenses.
7. Liquidation
The process of converting securities or other property into cash.
8. Maturity
The date on which the principal amount of a debt obligation comes due
by the terms of the instrument.
9. Maturity Date
Zero Coupon Fund will mature on the third Friday in December 2000 and
proceeds of the liquidation of the Fund will be distributed shortly
thereafter.
10. Maturity Value
The actual maturity value per share of Zero Coupon Fund will be the
actual net asset value per share on the Maturity Date.
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When used with respect to periods prior to the Maturity Date, maturity
value means an estimate of the approximate anticipated net asset value
per share of Zero Coupon 2000 Fund on its Maturity Date, calculated by
dividing the aggregate face value of all securities in the Fund
increased by any unamortized premiums and decreased by any unamortized
original issue discounts plus all other assets, minus all liabilities,
by the number of outstanding shares at the time of calculation of
Maturity Value.
11. Maturity Year
The calendar year in which Zero Coupon 2000 Fund will mature. All
investments in a Fund will mature within two years of the Fund's
Maturity Year.
12. Net Asset Value Per Share
The value of the share of a Fund for purposes of sales and redemptions.
(See "NET ASSET VALUE.")
13. Net Investment Income
The net investment income of a Fund is comprised of its interest
income, including amortizations of original issue and certain market
discounts, less amortizations of premiums and expenses paid or accrued.
14. Par Value
Par value of a bond is a dollar amount representing the denomination
and assigned value of the bond. It signifies the dollar value on which
interest on the bonds is computed and is usually the same as face value
and maturity value for an individual bond. For example, most bonds are
issued in $1,000 denominations and they have a face value, maturity
value and par value of $1,000. Their market price can of course vary
significantly from $1,000 during their life between issuance and
maturity.
15. Target or Target Year
See Maturity Year.
16. Target Date
See Maturity Date.
17. Zero Coupon Security
A non-interest (non-cash) paying debt obligation which is issued at a
substantial discount from its face value. Income is accrued over the
life of the obligation, and cash equal to the face value is due at
maturity.
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Compound Interest Table(1)
The table below shows the return on $100 over 5, 10 and 15 year periods
assuming interest rates of 5%, 7%, 9%, 11% and 13%.
Years
-----
Interest Rate 5 10 15
5% $128.0 $163.8 $209.7
7% 141.0 198.9 280.6
9% 155.2 241.1 374.5
11% 170.8 291.7 498.3
13% 187.7 352.3 661.4
(1)Compounded semiannually at one-half the annual rate similar to normal
bond calculation of yield-to-maturity. The calculation is different
from a calculation of anticipated growth which involves additional
assumptions. (See "THE FUNDS' INVESTMENT OBJECTIVES AND
POLICIES--Management of Reinvestment Risk and Anticipated Growth of
Zero Coupon 2000 Fund" and "DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.")
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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
<PAGE>
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26- SCUDDER SHORT TERM BOND FUND
<PAGE>
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27- SCUDDER SHORT TERM BOND FUND
<PAGE>
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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
<PAGE>
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.
<PAGE>
SCUDDER FUNDS TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
<S> <C>
a. Financial Statements
Included in Part A of this Registration Statement:
For Scudder Short Term Bond Fund:
Financial Highlights for Scudder Short Term Bond Fund for the ten fiscal
years ended December 31, 1996.
For Scudder Zero Coupon 2000 Fund:
Financial Highlights for Scudder Zero Coupon 2000 Fund for the ten fiscal
years ended December 31, 1996.
Included in Part B of this Registration Statement:
For Scudder Short Term Bond Fund:
Investment Portfolio as of December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statements of Changes in Net Assets for the two fiscal years ended
December 31, 1995 and 1996
Financial Highlights for the ten fiscal years ended December 31, 1996
Notes to Financial Statements
Report of Independent Accountants
For Scudder Zero Coupon 2000 Fund:
Investment Portfolio as of December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statements of Changes in Net Assets for the two fiscal years ended
December 31, 1995 and 1996
Financial Highlights for the ten fiscal years ended December 31, 1996
Notes to Financial Statements
Report of Independent Accountants
Statements, schedules and historical information other than those listed above have
been omitted since they are either not applicable or are not required.
b. Exhibits:
All references are to the Registrant's Registration Statement on Form N-1A filed with
the Securities and Exchange Commission on July 24, 1981. File Nos. 2-73371 & 811-3229
(the "Registration Statement").
Part C - Page 1
<PAGE>
1. (a) Amended and Restated Declaration of Trust dated December 21, 1987 is
incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement.
(b) Instrument dated September 17, 1982 Establishing and Designating Series of
Shares is incorporated by reference to Post-Effective Amendment No. 2 to
the Registration Statement.
(c) Instrument dated March 21, 1984 Establishing and Designating an Additional
Series of Shares is incorporated by reference to Post-Effective Amendment
No. 4 to the Registration Statement.
(d) Instrument dated January 30, 1986 Establishing and Designating an
Additional Series of Shares is incorporated by reference to Post-Effective
Amendment No. 9 to the Registration Statement.
(e) Certificate of Amendment of Declaration of Trust is incorporated by
reference to Post-Effective Amendment No. 14 to the Registration Statement.
(f) Amendment of Establishment and Designation of Additional Series of Shares
is incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement.
(g) Abolition of series by the Registrant on behalf of the U.S. Government
1990 Portfolio is incorporated by reference to Post-Effective Amendment
No. 14 to the Registration Statement.
(h) Abolition of series by the Registrant on behalf of the General 1990
Portfolio is incorporated by reference to Post-Effective Amendment No. 14
to the Registration Statement.
(i) Abolition of series by the Registrant on behalf of the Scudder Zero Coupon
1995 Fund, dated July 15, 1992 is incorporated by reference to
Post-Effective Amendment No. 18 to the Registration Statement.
(j) Redesignation of Series of Registrant dated March 7, 1990 is incorporated
by reference to Post-Effective Amendment No. 15 to the Registration
Statement.
(k) Certificate of Amendment of Declaration of Trust is incorporated by
reference to Post-Effective Amendment No. 16 to the Registration Statement.
2. (a) By-Laws of the Registrant dated as of July 24, 1981 are incorporated by
reference to the Registration Statement.
(b) Amendment to the By-Laws of Registrant as of March 5, 1984 is incorporated
by reference to Post-Effective Amendment No. 5 to the Registration
Statement.
(c) Amendment to the By-Laws of Registrant as of October 1, 1984 is
incorporated by reference to Post-Effective Amendment No. 7 to the
Registration Statement.
Part C - Page 2
<PAGE>
(d) Amendment to the By-Laws of Registrant as of September 17, 1992 is
incorporated by reference to Post-Effective Amendment No. 21 to the
Registration Statement.
3. Inapplicable.
4. Specimen certificate representing shares of beneficial interest with $.01
par value is incorporated by reference to Post-Effective Amendment No. 14
to the Registration Statement.
5. (a) Investment Advisory Agreement between the Registrant (on behalf of Scudder
Short Term Bond Fund) and Scudder, Stevens & Clark, Inc. ("Scudder") dated
June 6, 1991 is incorporated by reference to Post-Effective Amendment No.
16 to the Registration Statement.
(b) Investment Advisory Agreement between the Registrant (on behalf of the
Zero Coupon Funds) and Scudder dated June 6, 1991 is incorporated by
reference to Post-Effective Amendment No. 16 to the Registration Statement.
(c) Investment Management Agreement between the Registrant (on behalf of
Scudder Short Term Bond Fund) and Scudder dated March 18, 1992 is
incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement.
(d) Investment Management Agreement between the Registrant (on behalf of
Scudder Short Term Bond Fund) and Scudder dated September 7, 1993 is
incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement.
6. Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. (Formerly Scudder Fund Distributors, Inc.) dated July 15,
1985 is incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement.
7. Inapplicable.
8. (a)(1) Custodian Agreement between the Registrant and State Street Bank and Trust
Company ("State Street Bank") dated December 17, 1982 is incorporated by
reference to Post-Effective Amendment No. 1 to the Registration Statement.
(a)(2) Fee schedule for Custodian Agreement between the Registrant and State
Street Bank is incorporated by reference to Post-Effective Amendment No.
12 to the Registration Statement.
(a)(3) Amendment to the Custodian Agreement between the Registrant and State
Street Bank dated September 14, 1987 is incorporated by reference to
Post-Effective Amendment No. 12 to the Registration Statement.
(a)(4) Amendment to the Custodian Agreement between the Registrant and State
Street Bank dated September 16, 1988 is incorporated by reference to
Post-Effective Amendment No. 12 to the Registration Statement.
Part C - Page 3
<PAGE>
(a)(5) Amendment to the Custodian Agreement between the Registrant and State
Street Bank dated December 13, 1990 is incorporated by reference to
Post-Effective Amendment No. 15 to the Registration Statement.
(a)(6) Fee schedule for Custodian Agreement between the Registrant on behalf of
Scudder Zero Coupon 2000 Fund and State Street Bank is incorporated by
reference to Post-Effective Amendment No. 21 to the Registration Statement.
9. (a) Transfer Agency and Service Agreement with fee schedule between the
Registrant and Scudder Service Corporation dated October 2, 1989 is
incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement.
(a)(2) Revised fee schedule dated October 1, 1995 for Exhibit 9(a) is filed
herein.
(a)(3) Revised fee schedule dated October 1, 1996 for Exhibit 9(a) is filed
herein.
(b)(1) COMPASS Service Agreement with fee schedule with Scudder Trust Company
dated January 1, 1990 is incorporated by reference to Post-Effective
Amendment No. 14 to the Registration Statement.
(b)(2) COMPASS Service Agreement with Scudder Trust Company dated October 1, 1995
is incorporated by reference to Post-Effective Amendment No. 22 to the
Registration Statement.
(b)(3) Revised fee schedule dated October 1, 1996 for Exhibit 9(b)(2) is filed
herein.
(c) Shareholder Services Agreement between the Registrant and Charles Schwab &
Co., Inc. dated June 1, 1990 is incorporated by reference to
Post-Effective Amendment No. 15 to the Registration Statement.
(d)(1) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Zero Coupon 2000 Fund, and Scudder Fund Accounting Corporation
dated January 10, 1995 is incorporated by reference to Post-Effective
Amendment No. 21 to the Registration Statement.
(d)(2) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Short Term Bond Fund, and Scudder Fund Accounting Corporation
dated July 19, 1995 is incorporated by reference to Post-Effective
Amendment No. 22 to the Registration Statement.
10. Opinion of Legal Counsel is filed herein.
11. Consent of Independent Accountants is filed herein.
12. Inapplicable.
13. Inapplicable.
14. (a) Scudder Flexi-Plan for Corporations and Self-Employed Individuals is
incorporated by reference to Exhibit 14(a) to Scudder Equity Trust,
Post-Effective Amendment No. 12 on Form N-1A (File Nos. 2-78724 and
811-1444) filed on December 2, 1988.
Part C - Page 4
<PAGE>
(b) Scudder Individual Retirement Plan is incorporated by reference to Exhibit
14(b) to Scudder Equity Trust, Post-Effective Amendment No. 12 on Form
N-1A (File Nos. 2-78724 and 811-1444) filed on December 2, 1988.
(c) SEP-IRA is incorporated by reference to Exhibit 14(c) to Scudder Equity
Trust, Post-Effective Amendment No. 12 on Form N-1A (File Nos. 2-78724 and
811-1444) filed on December 2, 1988.
(d) Scudder Funds 403(b) Plan is incorporated by reference to Exhibit 14(d) to
Scudder Equity Trust, Post-Effective Amendment No. 12 on Form N-1A (File
Nos. 2-78724 and 811-1444) filed on December 2, 1988.
(e) Scudder Cash or Deferred Profit Sharing Plan under Section 401(k) is
incorporated by reference to Exhibit 14(e) to Scudder Equity Trust,
Post-Effective Amendment No. 12 on Form N-1A (File Nos. 2-78724 and
811-1444) filed on December 2, 1988.
15. Inapplicable.
16. Inapplicable.
17. Financial Data Schedules for Scudder Short Term Bond Fund and Scudder Zero
Coupon 2000 Fund are filed herein.
18. Inapplicable.
Power of Attorney for Thomas J. Devine, Peter B. Freeman and Wilson Nolen.
(Incorporated by reference to the signature page to Post-Effective Amendment No. 12 to
the Registration Statement.)
Power of Attorney for Lynn S. Birdsong, Juris Padegs and Daniel Pierce.
(Incorporated by reference to the signature page to Post-Effective Amendment No. 21 to
the Registration Statement.)
Power of Attorney for Sheryle J. Bolton.
(Incorporated by reference to the signature page to Post-Effective Amendment No. 22 to
the Registration Statement.)
Powers of Attorney for Dudley H. Ladd and Kathryn L. Quirk are filed herein.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
- -------- --------------------------------------------------------------
None
<TABLE>
<CAPTION>
Item 26. Number of Holders of Securities (as of March 31, 1997).
- -------- -------------------------------------------------------
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
<S> <C> <C>
Shares of beneficial interest
($.01 par value)
Short Term Bond Fund 66,422
Zero Coupon 2000 Fund 2,042
</TABLE>
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder, Stevens & Clark, Inc.,
its subsidiaries including Scudder Investor Services, Inc.,
and all of the registered investment companies advised by
Scudder, Stevens & Clark, Inc. insures the Registrant's
Trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Part C - Page 5
<PAGE>
Article IV, Sections 4.1 - 4.3 of Registrant's Declaration of
Trust provide as follows:
Section 4.1 No Personal Liability of Shareholders,
--------------------------------------------------
Trustees, Etc.
--------------
No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property
or the acts, obligations or affairs of the Trust. No
Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any
Person, other than to the Trust or its Shareholders, in
connection with Trust Property or the affairs of the
Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his
duties with respect to such Person; and all such Persons
shall look solely to the Trust Property for satisfaction
of claims of any nature arising in connection with the
affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such
liability of the Trust, he shall not, on account thereof,
be held to any personal liability. The Trust shall
indemnify and hold each Shareholder harmless from and
against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or
having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably
incurred by him in connection with any such claim or
liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the
assets of the one or more series of which the Shareholder
who is entitled to indemnification or reimbursement was a
Shareholder at the time the act or event occurred, which
gave rise to the claim against or liability of said
Shareholder. The rights accruing to a Shareholder under
this Section 4.1 shall not impair any other right to which
such Shareholder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.
Section 4.2 Non-Liability of Trustees, Etc.
-------------------------------------------
No Trustee, officer, employee or agent of the Trust shall
be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof
for any action or failure to act (including without
limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence
or reckless disregard of the duties involved in the
conduct of his office.
Section 4.3 Mandatory Indemnification.
--------------------------------------
(a) Subject to the exceptions and limitations
contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee
or officer of the Trust shall be indemnified by
the Trust to the fullest extent permitted by law
against all liability and against all expenses
reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal,
administrative, or other, including appeals),
actual or threatened; and the words "liability"
and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid
in settlement, fines, penalties and other
liabilities.
Part C - Page 6
<PAGE>
(b) No indemnification shall be provided hereunder to
a Trustee or officer:
(i) against any liability to the Trust, a series
thereof, or the Shareholders by reason of a final
adjudication by a court or other body before
which a proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in
the conduct of his office;
(ii) with respect to any matter as to which he
shall have been finally adjudicated not to have
acted in good faith in the reasonable belief that
his action was in the best interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as
provided in paragraph (b)(i) or (b)(ii) resulting
in a payment by a Trustee or officer, unless
there has been a determination that such Trustee
or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his
office;
(A) by the court or other body approving
the settlement or other disposition; or
(B) based upon a review of readily
available facts (as opposed to a full trial
-type inquiry) by (x) vote of a majority of
the Disinterested Trustees acting on the
matter (provided that a majority of the
Disinterested Trustees then in office act
on the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may
be insured against by policies maintained by the
Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may
now or hereafter be entitled, shall continue as
to a person who has ceased to be such Trustee or
officer and shall inure to the benefit of the
heirs, executors, administrators and assigns of
such a person. Nothing contained herein shall
affect any rights to indemnification to which
personnel of the Trust other than Trustees and
officers may be entitled by contract or otherwise
under law.
(d) Expenses of preparation and presentation of a
defense to any claim, action, suit or proceeding
of the character described in paragraph (a) of
this Section 4.3 may be advanced by the Trust
prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the
recipient to repay such amount if it is
ultimately determined that he is not entitled to
indemnification under this Section 4.3 provided
that either:
(i) such undertaking is secured by a surety bond
or some other appropriate security provided by
the recipient, or the Trust shall be insured
against losses arising out of any such advances:
or
(ii) a majority of the Disinterested Trustees
acting on the matter (provided that a majority of
the Disinterested Trustees act on the matter) or
an independent legal counsel in a written opinion
shall determine, based upon a review of readily
available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that
the recipient ultimately will be found entitled
to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is
one who is not (i) an "Interested Person" of the Trust
(including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of
the Commission), or (ii) involved in the claim, action,
suit or proceeding.
Part C - Page 7
<PAGE>
Item 28. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
The Adviser has stockholders and employees who are denominated
officers but do not as such have corporation-wide
responsibilities. Such persons are not considered officers for
the purpose of this Item 28.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Director, Vice President, Assistant Treasurer, Chief Operating Officer & Chief
Financial Officer, Scudder, Stevens & Clark, Inc. (investment adviser)**
Lynn S. Birdsong Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
President & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
President, The Japan Fund, Inc. (investment company)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V. (investment
company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company) +
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
Director, Sovereign High Yield Investment Company (investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager) #
Nicholas Bratt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President & Director, Scudder New Europe Fund, Inc. (investment company)**
President & Director, The Brazil Fund, Inc. (investment company)**
President & Director, The First Iberian Fund, Inc. (investment company)**
President & Director, Scudder International Fund, Inc. (investment company)**
President & Director, Scudder Global Fund, Inc. (President on all series except Scudder
Global Fund) (investment company)**
President & Director, The Korea Fund, Inc. (investment company)**
President & Director, Scudder New Asia Fund, Inc. (investment company)**
President, The Argentina Fund, Inc. (investment company)**
Vice President, Scudder, Stevens & Clark Corporation (Delaware) (investment adviser)**
Vice President, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Vice President, Scudder, Stevens & Clark of Canada Ltd. (Canadian investment adviser)
Toronto, Ontario, Canada
Vice President, Scudder, Stevens & Clark Overseas Corporationoo
E. Michael Brown Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Trustee, Scudder GNMA Fund (investment company)*
Trustee, Scudder U.S. Treasury Fund (investment company)*
Trustee, Scudder Tax Free Money Fund (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Cash Investment Trust (investment company)*
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Director & President, Scudder Realty Holding Corporation (a real estate holding
company)*
Director & President, Scudder Trust Company (a trust company)+++
Part C - Page 8
<PAGE>
Director, Scudder Trust (Cayman) Ltd.
Mark S. Casady Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director & Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director & Vice President, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Linda C. Coughlin Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman & Trustee, AARP Cash Investment Funds (investment company)**
Chairman & Trustee, AARP Growth Trust (investment company)**
Chairman & Trustee, AARP Income Trust (investment company)**
Chairman & Trustee, AARP Tax Free Income Trust (investment company)**
Chairman & Trustee, AARP Managed Investment Portfolios Trust (investment company)**
Director & Senior Vice President, Scudder Investor Services, Inc. (broker/dealer)*
Director, SFA, Inc. (advertising agency)*
Margaret D. Hadzima Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Assistant Treasurer, Scudder Investor Services, Inc. (broker/dealer)*
Jerard K. Hartman Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder California Tax Free Trust (investment company)*
Vice President, Scudder Equity Trust (investment company)**
Vice President, Scudder Cash Investment Trust (investment company)*
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Vice President, Scudder Portfolio Trust (investment company)*
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder International Fund, Inc. (investment company)**
Vice President, Scudder Investment Trust (investment company)*
Vice President, Scudder Municipal Trust (investment company)*
Vice President, Scudder Mutual Funds, Inc. (investment company)**
Vice President, Scudder New Asia Fund, Inc. (investment company)**
Vice President, Scudder New Europe Fund, Inc. (investment company)**
Vice President, Scudder Securities Trust (investment company)*
Vice President, Scudder State Tax Free Trust (investment company)*
Vice President, Scudder Funds Trust (investment company)**
Vice President, Scudder Tax Free Money Fund (investment company)*
Vice President, Scudder Tax Free Trust (investment company)*
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
Vice President, Scudder Pathway Series (investment company)*
Vice President, Scudder Variable Life Investment Fund (investment company)*
Vice President, The Brazil Fund, Inc. (investment company)**
Vice President, The Korea Fund, Inc. (investment company)**
Vice President, The Argentina Fund, Inc. (investment company)**
Vice President & Director, Scudder, Stevens & Clark of Canada, Ltd. (Canadian
investment adviser) Toronto, Ontario, Canada
Vice President, The First Iberian Fund, Inc. (investment company)**
Vice President, The Latin America Dollar Income Fund, Inc. (investment company)**
Vice President, Scudder World Income Opportunities Fund, Inc. (investment company)**
Richard A. Holt Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Scudder Variable Life Investment Fund (investment company)*
Part C - Page 9
<PAGE>
Dudley H. Ladd Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President & Trustee, Scudder Cash Investment Trust (investment company)*
Director, Scudder Global Fund, Inc. (investment company)**
Director, Scudder International Fund, Inc. (investment company)**
Director, Scudder Mutual Fund, Inc. (investment company)**
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Portfolio Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Trustee, Scudder Securities Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Trustee, Scudder Equity Trust (investment company)**
Trustee, Scudder Funds Trust (investment company)**
Vice President, Scudder U.S. Treasury Money Fund (investment company)*
President & Director, SFA, Inc. (advertising agency)*
Senior Vice President & Director, Scudder Investor Services, Inc. (broker/dealer)*
Vice President & Director, Scudder Precious Metals, Inc. xxx
John T. Packard Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, Montgomery Street Income Securities, Inc. (investment company) o
Chairman, Scudder Realty Advisors, Inc. (realty investment adviser) x
Daniel Pierce Chairman & Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Chairman, Vice President & Director, Scudder Global Fund, Inc. (investment company)**
Chairman & Director, Scudder New Europe Fund, Inc. (investment company)**
Chairman & Director, The First Iberian Fund, Inc. (investment company)**
Chairman & Director, Scudder International Fund, Inc. (investment company)**
Chairman & Director, Scudder New Asia Fund, Inc. (investment company)**
President & Trustee, Scudder Equity Trust (investment company)**
President & Trustee, Scudder GNMA Fund (investment company)*
President & Trustee, Scudder Portfolio Trust (investment company)*
President & Trustee, Scudder Funds Trust (investment company)**
President & Trustee, Scudder Securities Trust (investment company)*
President & Trustee, Scudder Investment Trust (investment company)*
President & Director, Scudder Institutional Fund, Inc. (investment company)**
President & Director, Scudder Fund, Inc. (investment company)**
President & Director, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Variable Life Investment Fund (investment company)*
Vice President & Trustee, Scudder Pathway Series (investment company)*
Trustee, Scudder California Tax Free Trust (investment company)*
Trustee, Scudder State Tax Free Trust (investment company)*
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
Chairman & President, Scudder, Stevens & Clark of Canada, Ltd. (Canadian investment
adviser), Toronto, Ontario, Canada
Chairman & Director, Scudder Global Opportunities Funds (investment company) Luxembourg
Chairman, Scudder, Stevens & Clark, Ltd. (investment adviser) London, England
President & Director, Scudder Precious Metals, Inc. xxx
Vice President, Director & Assistant Secretary, Scudder Realty Holdings Corporation
(a real estate holding company)*
Vice President, Director & Assistant Treasurer, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Scudder Latin America Investment Trust PLC (investment company)@
Director, Fiduciary Trust Company (banking & trust company) Boston, MA
Part C - Page 10
<PAGE>
Director, Fiduciary Company Incorporated (banking & trust company) Boston, MA
Trustee, New England Aquarium, Boston, MA
Incorporator, Scudder Trust Company (a trust company)+++
Kathryn L. Quirk Director & Secretary, Scudder, Stevens & Clark, Inc. (investment adviser)**
Director, Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment
company)**
Director, Vice President & Assistant Secretary, Scudder International Fund, Inc.
(investment company)**
Director, Vice President & Assistant Secretary, Scudder New Asia Fund (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Equity Trust (investment
company)**
Trustee, Vice President & Assistant Secretary, Scudder Securities Trust (investment
company)*
Trustee, Vice President & Assistant Secretary, Scudder Funds Trust (investment
company)**
Trustee, Scudder Investment Trust (investment company)*
Trustee, Scudder Municipal Trust (investment company)*
Vice President & Trustee, Scudder Tax Free Money Fund (investment company)*
Vice President & Trustee, Scudder Tax Free Trust (investment company)*
Vice President & Secretary, AARP Growth Trust (investment company)**
Vice President & Secretary, AARP Income Trust (investment company)**
Vice President & Secretary, AARP Tax Free Income Trust (investment company)**
Vice President & Secretary, AARP Cash Investment Funds (investment company)**
Vice President & Secretary, AARP Managed Investment Portfolios Trust (investment
company)**
Vice President & Secretary, The Japan Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder World Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)o
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Pathway Series (investment company)*
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund (investment
company)*
Vice President & Assistant Secretary, The First Iberian Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, The Latin America Dollar Income Fund, Inc.
(investment company)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President, Scudder GNMA Fund (investment company)*
Director, Senior Vice President & Clerk, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation (in-house
fund accounting agent)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (a real
estate holding company)*
Part C - Page 11
<PAGE>
Director & Clerk, Scudder Service Corporation (in-house transfer agent)*
Director, SFA, Inc. (advertising agency)*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc. xxx
Cornelia M. Small Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
President, AARP Cash Investment Funds (investment company)**
President, AARP Growth Trust (investment company)**
President, AARP Income Trust (investment company)**
President, AARP Tax Free Income Trust (investment company)**
President, AARP Managed Investment Portfolio Trust (investment company)**
Edmond D. Villani Director, President & Chief Executive Officer, Scudder, Stevens & Clark, Inc.
(investment adviser)**
Chairman & Director, The Argentina Fund, Inc. (investment company)**
Chairman & Director, The Latin America Dollar Income Fund, Inc. (investment company)**
Chairman & Director, Scudder World Income Opportunities Fund, Inc. (investment
company)**
Supervisory Director, Scudder Mortgage Fund (investment company) +
Supervisory Director, Scudder Floating Rate Funds for Fannie Mae Mortgage Securities I
& II (investment company)+
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Director, The Brazil Fund, Inc. (investment company)**
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
President & Director, Scudder, Stevens & Clark Overseas Corporationoo
President & Director, Scudder, Stevens & Clark Corporation (Delaware) (investment
adviser)**
Director, Scudder Realty Advisors, Inc. (realty investment adviser) x
Director, IBJ Global Investment Management S.A., (Luxembourg investment management
company) Luxembourg, Grand-Duchy of Luxembourg
Stephen A. Wohler Director, Scudder, Stevens & Clark, Inc. (investment adviser)**
Vice President, Montgomery Street Income Securities, Inc. (investment company)o
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon, U.K.
</TABLE>
Item 29. Principal Underwriters.
- -------- -----------------------
(a) Scudder California Tax Free Trust
Scudder Cash Investment Trust
Scudder Equity Trust
Scudder Fund, Inc.
Part C - Page 12
<PAGE>
Scudder Funds Trust
Scudder Global Fund, Inc.
Scudder GNMA Fund
Scudder Institutional Fund, Inc.
Scudder International Fund, Inc.
Scudder Investment Trust
Scudder Municipal Trust
Scudder Mutual Funds, Inc.
Scudder Pathway Series
Scudder Portfolio Trust
Scudder Securities Trust
Scudder State Tax Free Trust
Scudder Tax Free Money Fund
Scudder Tax Free Trust
Scudder U.S. Treasury Money Fund
Scudder Variable Life Investment Fund
AARP Cash Investment Funds
AARP Growth Trust
AARP Income Trust
AARP Tax Free Income Trust
AARP Managed Investment Portfolios Trust
The Japan Fund, Inc.
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C> <C>
E. Michael Brown Assistant Treasurer
Two International Place
Boston, MA 02110
Mark S. Casady Director and Vice President
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant
345 Park Avenue Clerk
New York, NY 10154
Margaret D. Hadzima Assistant Treasurer
Two International Place
Boston, MA 02110
Part C - Page 13
<PAGE>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Thomas W. Joseph Director, Vice President, Vice President
Two International Place Treasurer and Assistant Clerk
Boston, MA 02110
Dudley H. Ladd Director and Senior Vice President Trustee
Two International Place
Boston, MA 02110
David S. Lee Director, President and Assistant Vice President
Two International Place Treasurer
Boston, MA 02110
Thomas F. McDonough Assistant Clerk Vice President, Secretary
Two International Place and Assistant Treasurer
Boston, MA 02110
Thomas H. O'Brien Assistant Treasurer
345 Park Avenue
New York, NY 10154
Edward J. O'Connell Assistant Treasurer Vice President and Assistant
345 Park Avenue Treasurer
New York, NY 10154
Daniel Pierce Director, Vice President President and Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President and Trustee, Vice President
345 Park Avenue Clerk and Assistant Secretary
New York, NY 10154
Edmund J. Thimme Vice President
345 Park Avenue
New York, NY 10154
Benjamin Thorndike Vice President
Two International Place
Boston, MA 02110
David B. Watts Assistant Treasurer
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President
Two International Place
Boston, MA 02110
Part C - Page 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 29.
(c)
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other Compensation
Underwriter Commissions and Repurchases Commissions
----------- ----------- --------------- -----------
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder, Stevens &
Clark, Inc., Two International Place, Boston, MA 02110.
Records relating to the duties of the Registrant's custodian
are maintained by State Street Bank and Trust Company,
Heritage Drive, North Quincy, Massachusetts. Records relating
to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 31. Management Services.
- -------- --------------------
Inapplicable.
Item 32. Undertakings.
- -------- -------------
Inapplicable.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and
Commonwealth of Massachusetts on the 15th day of April, 1997.
SCUDDER FUNDS TRUST
By /s/Thomas F. McDonough
---------------------
Thomas F. McDonough,
Secretary
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce
- --------------------------------------
Daniel Pierce* President (Principal Executive April 15, 1997
Officer) and Trustee
/s/Sheryle J. Bolton
- --------------------------------------
Sheryle J. Bolton* Trustee April 15, 1997
/s/Thomas J. Devine
- --------------------------------------
Thomas J. Devine* Trustee April 15, 1997
/s/Peter B. Freeman
- --------------------------------------
Peter B. Freeman* Trustee April 15, 1997
/s/Dudley H. Ladd
- --------------------------------------
Dudley H. Ladd* Trustee April 15, 1997
/s/Wilson Nolen
- --------------------------------------
Wilson Nolen* Trustee April 15, 1997
/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk* Trustee, Vice President and April 15, 1997
Assistant Secretary
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Pamela A. McGrath
- --------------------------------------
Pamela A. McGrath Treasurer (Principal Financial and April 15, 1997
Accounting Officer) and Vice President
</TABLE>
*By: /s/Thomas F. McDonough
----------------------
Thomas F. McDonough
Attorney-in-fact pursuant to powers of attorney for Thomas J. Devine,
Peter B. Freeman and Wilson Nolen contained in the signature page of
Post-Effective Amendment No. 12 to the Registration Statement filed
March 3, 1989, for Daniel Pierce in the signature page of
Post-Effective Amendment No. 21 to the Registration Statement filed
April 17, 1995 for Sheryle J. Bolton in the signature page of
Post-Effective Amendment No. 22 to the Registration Statement filed
April 30, 1996 and for Dudley H. Ladd in the signature page of this
Post-Effective Amendment.
2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and
Commonwealth of Massachusetts on the 25th day of April, 1997.
SCUDDER FUNDS TRUST
By /s/Thomas F. McDonough
------------------------
Thomas F. McDonough, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in her capacity as trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Dudley H. Ladd
- --------------------------------------
Dudley H. Ladd Trustee April 14, 1997
</TABLE>
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and
Commonwealth of Massachusetts on the day of April, 1997.
SCUDDER FUNDS TRUST
By /s/Thomas F. McDonough
------------------------
Thomas F. McDonough, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in her capacity as trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint David S. Lee, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, her true and lawful attorney and agent to execute in her name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Kathryn L. Quirk
- --------------------------------------
Kathryn L. Quirk Trustee April 25, 1997
</TABLE>
<PAGE>
File No. 2-73371
File No. 811-3229
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 23
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 22
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER FUNDS TRUST
<PAGE>
SCUDDER FUNDS TRUST
EXHIBIT INDEX
Exhibit 9(a)(2)
Exhibit 9(a)(3)
Exhibit 9(b)(3)
Exhibit 10
Exhibit 11
Exhibit 17
4
9(a)(2)
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
TRANSFER AGENCY AND SERVICE AGREEMENT
Scudder Family of Funds
(Except Scudder Cash Investment Trust)
Annual maintenance fee for each account
- ---------------------------------------
1/12th of the annual maintenance fee shall be charged and payable each month. It
will be charged for any account which at any time during the month had a share
balance in the fund. The minimum monthly charge to any portfolio is $1,000.
Money Market Funds $28.90
Monthly Income Funds 25.00
Quarterly Distribution Funds 20.40
Annual Distribution Funds 17.55
Other fees
New Account Set Up $ 5.00 each
Disaster Recovery 0.25 per year
Closed Accounts 1.20 per year
TIN Certificates 0.15 each
TIN Maintenance 0.25 each
Check Writing:
Set Up 5.00 per account
Retail Check Clearance 0.96 per check
Corporate Check Clearance 0.46 per check
Out of pocket expenses shall be reimbursed by the fund to Scudder Service
Corporation or paid directly by the fund. Such expenses include but are not
limited to the following:
Telephone (portion allocable to servicing accounts)
Postage, overnight service or similar services
Stationery and envelopes
Shareholder Statements - printing and postage
Checks - stock supply, printing and postage
Data circuits
Lease and maintenance of S.A.I.L. and Easy Access
Forms
Microfilm and microfiche
Expenses incurred at the specific direction of the fund
Payment
- -------
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
On behalf of the Funds listed on
Attachment A: Scudder Service Company
By:_________________________ By:_____________________
David S. Lee Daniel Pierce
Vice President President
Date: October 1, 1995 Date: October 1, 1995
<PAGE>
ATTACHMENT A
TRANSFER AGENCY AND SERVICE AGREEMENT
Money Market Accounts
Scudder California Tax Free Money Fund
Scudder Cash Investment Trust
Scudder New York Tax Free Money Fund
Scudder Tax Free Money Fund
Scudder U.S. Treasury Money Fund
Monthly Income Funds
Scudder California Tax Free Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Tax Free Fund
Scudder International Bond Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund
Scudder Massachusetts Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund
Scudder Ohio Tax Free Fund
Scudder Pennsylvania Tax Free Fund
Scudder Short Term Bond Fund
Quarterly Distribution Funds
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder Emerging Markets Income Fund
Scudder Income Fund
Annual Distribution Funds
<TABLE>
<S> <C>
Scudder Capital Growth Fund Scudder Latin America Fund
Scudder Development Fund Scudder Micro Cap Fund
Scudder Global Fund Scudder Pacific Opportunities Fund
Scudder Global Discovery Fund Scudder Quality Growth Fund
Scudder Gold Fund Scudder Small Company Value Fund
Scudder Emerging Markets Growth Fund Scudder 21st Century Growth Fund
Scudder Greater Europe Growth Fund Scudder Value Fund
Scudder International Fund Scudder Zero Coupon 2000 Fund
</TABLE>
revised as of September 9, 1996
2
9(a)(3)
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
TRANSFER AGENCY AND SERVICE AGREEMENT
Scudder Family of Funds
(Except Scudder Cash Investment Trust)
Annual service charge for each account
- --------------------------------------
1/12th of the annual service charge shall be charged and payable each month. It
will be charged for any account which at any time during the month had a share
balance in the fund. The minimum monthly charge to any portfolio is $1,500.00
per relationship for an omnibus account, or $10.00 per subaccount, whichever is
greater.
<TABLE>
<CAPTION>
Regular Accounts Retirement Accounts
---------------- -------------------
<S> <C> <C>
Money Market Funds $31.50 $34.50
Non-Money Market Funds 26.00 29.00
Additional Charge per Account for Funds with
Redemption Fee 2.00 2.00
Other fees
Closed Account 4.00 5.00
New Account Setup Charge 7.50 7.50**
Maintenance Charge 5.00 5.00**
National Securities Clearing Corporation
(NSCC) Charge per Transaction 1.00 1.00
Information Access:
VRU Access Charge per Call 0.20 0.20
Internet To be determined To be determined
</TABLE>
** = Applies to retail retirement accounts
Out of pocket expenses shall be reimbursed by the fund to Scudder Service
Corporation or paid directly by the fund. Such expenses include but are not
limited to the following:
Telephone (portion allocable to servicing accounts)
Postage, overnight service or similar services
Stationery and envelopes
Shareholder Statements - printing and postage
Checks - stock supply, printing and postage
Data circuits
Forms
Microfilm and microfiche
Expenses incurred at the specific direction of the fund
Bank check clearing and processing charges
This schedule covers representative assisted services offered from Monday
through Friday, 8:00 a.m. to 8:00 p.m. EST.
<PAGE>
Payment
- -------
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
<TABLE>
<CAPTION>
On behalf of the Funds listed on
Attachment A: Scudder Service Company
<S> <C>
By:_________________________ By:_____________________
David S. Lee Daniel Pierce
President or Vice President President
Date: October 1, 1996 Date: October 1, 1996
</TABLE>
2
<PAGE>
ATTACHMENT A
TRANSFER AGENCY AND SERVICE AGREEMENT
MONEY MARKET FUND SERVICE ACCOUNT
Money Market Accounts
Scudder California Tax Free Money Fund
Scudder New York Tax Free Money Fund
Scudder Tax Free Money Fund
Scudder U.S. Treasury Money Fund
NON-MONEY MARKET FUND SERVICE ACCOUNT
Monthly Income Funds
Scudder California Tax Free Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder High Yield Tax Free Fund
Scudder International Bond Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund
Scudder Massachusetts Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund
Scudder Ohio Tax Free Fund
Scudder Pennsylvania Tax Free Fund
Scudder Short Term Bond Fund
Quarterly Distribution Funds
Scudder Balanced Fund
Scudder Emerging Markets Income Fund
Scudder Growth and Income Fund
Scudder Income Fund
Annual Distribution Funds
Scudder Large Company Value Fund Scudder Latin America Fund
Scudder Classic Growth Fund Scudder Micro Cap Fund
Scudder Development Fund Scudder Pacific Opportunities Fund
Scudder Global Discovery Fund Scudder Large Company Growth Fund
Scudder Global Fund Scudder Small Company Value Fund
Scudder Gold Fund Scudder 21st Century Growth Fund
Scudder Emerging Markets Growth Fund Scudder Value Fund
Scudder Greater Europe Growth Fund Scudder Zero Coupon 2000 Fund
Scudder International Fund
dated as of October 1, 1996
3
9(b)(3)
SCUDDER TRUST COMPANY
FEE INFORMATION FOR SERVICES PROVIDED UNDER
COMPASS AND TRAK 2000 SERVICE AGREEMENT
Annual service charge for each participant's account in a retirement and
employee benefit plan:
Each Account or
---------------
Sub Account
-----------
Money Market $34.50
Non-Money Market 29.00
Closed Account 5.00
Information Access:
VRU Access Charge per Call 0.20
Internet To be determined
1/12th of the annual service charge shall be charged and payable each month. It
will be charged for any account or subaccount which at any time during the month
had a share or unit account balance in the fund.
Out of pocket expenses shall be paid by the Fund directly to the Vendor. Such
expenses include but are not limited to the following:
Supplies:
Stationery and envelopes in connection with participant statements and
administrative
Reports
Telephone (portion allocable to servicing accounts)
Postage, overnight
service or similar services
Microfilm and Microfiche
Checks
On behalf of the Funds listed on
Attachment A: Scudder Trust Company
By:_________________________ By:_____________________
David S. Lee Dennis M. Cronin, Jr.
President or Vice President Senior Vice President and Treasurer
Date: October 1, 1996 Date: October 1, 1996
<PAGE>
ATTACHMENT A
COMPASS and TRAK 2000 SERVICE AGREEMENT
MONEY MARKET FUND SERVICE ACCOUNTS
Money Market Accounts
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
NON-MONEY MARKET FUND SERVICE ACCOUNTS
Monthly Income Funds
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Quarterly Distribution Funds
Scudder Balanced Fund
Scudder Emerging Markets Income Fund
Scudder Growth and Income Fund
Scudder Income Fund
Annual Distribution Funds
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Emerging Markets Growth Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
Scudder Zero Coupon 2000 Fund
October 1, 1996
2
LAW OFFICES OF
DECHERT PRICE & RHOADS
TEN POST OFFICE SQUARE SOUTH
BOSTON, MA 02109-4603
TELEPHONE: (617) 728-7100
FAX: (617) 426-6567
April 24, 1997
Scudder Funds Trust
Two International Place
Boston, MA 02110
Re: Post-Effective Amendment No. 23 to Registration Statement on Form N-1A
(File No. 2-73371 (the "Registration Statement")
----------------------------------------------------------------------
Gentlemen:
Scudder Funds Trust, formerly Scudder Target Fund, (the "Trust") is a
trust created under a written Declaration of Trust dated July 24, 1981, and
executed and delivered in Boston, Massachusetts. The Declaration of Trust was
amended by an Amended and Restated Declaration of Trust dated December 21, 1987
(as further amended, the "Declaration of Trust"). The beneficial interest
thereunder is represented by transferable shares with a par value of $.01 per
share ("Trust Shares"). The Trustees have the powers set forth in the
Declaration of Trust, subject to the terms, provisions and conditions therein
provided.
We are of the opinion that the legal requirements have been complied
with in the creation of the Trust and that said Declaration of Trust is legal
and valid.
Under Article V, Section 5.4 of the Declaration of Trust, the Trustees
are empowered, in their discretion, from time to time, to issue Trust Shares for
such amount and type of consideration, at such time or times and on such terms
as the Trustees may deem best. Under Article V, Section 5.1, it is provided that
the number of Trust Shares authorized to be issued under the Declaration of
Trust is unlimited. Under Article V, Section 5.11, the Trustees may authorize
the division of Trust Shares into two or more series. By instruments dated June
29, 1989 and March 7, 1990, the Trustees changed the names of five series of the
Trust such that the then existing six series of the Trust were designated as
follows: Scudder Zero Coupon 1990 Fund, Scudder Zero Coupon 1995 Fund, Scudder
Zero Coupon 2000 Fund, Scudder Zero Coupon 2005 Fund, Scudder Zero Coupon 2010
<PAGE>
Scudder Funds Trust
April 30, 1997
Page 2
Fund and Scudder Short Term Bond Fund. By written instrument dated December 31,
1990 and July 15, 1992, the Trustees abolished and dissolved the Scudder Zero
Coupon 1990 Fund and Scudder Zero Coupon 1995 Fund. Shares of the Zero Coupon
1995 Fund were acquired by Scudder Short Term Bond Fund in exchange for shares
of Scudder Short Term Bond Fund in a reorganization effective June 29, 1992.
We understand that you are about to register under the Securities Act
of 1933, 27,871,565 Shares (27,673,537 of Scudder Short Term Bond Fund and
198,028 of Scudder Zero Coupon 2000 Fund) by Post-Effective Amendment No. 23 to
the Registration Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of said 27,871,565 Shares, comprising the Shares covered by Post-Effective
Amendment No. 23 to the Registration Statement, has been duly taken, and that
all such Shares may be legally and validly issued for cash, and when sold will
be fully paid and non-assessable by the Trust upon receipt by the Trust or its
agent of consideration for such Shares in accordance with the terms in the
Registration Statement, subject to compliance with the Securities Act of 1933,
as amended, the Investment Company Act of 1940, as amended, and applicable state
laws regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Post-Effective Amendment No. 23 to the Registration
Statement.
Very truly yours,
/s/Dechert Price & Rhoads
Exhibit 11
Coopers & Lybrand
Consent of Independent Accountants
To the Trustees of Scudder Funds Trust:
We consent to the incorporation by reference in Post-Effective Amendment No. 23
to the Registration Statement of Scudder Funds Trust on Form N-1A, of our
reports dated February 14, 1997 on our audit of the financial statements and
financial highlights of Scudder Short Term Bond Fund and Scudder Zero Coupon
2000 Fund, which reports are included in the Annual Report to Shareholders for
the period ended December 31, 1996 which is incorporated by reference in the
Post-Effective Amendment to the Registration Statement.
We also consent to the reference to our Firm under the caption, "Experts."
/s/Coopers & Lybrand L.L.P.
---------------------------
Boston, Massachusetts Coopers & Lybrand L.L.P.
April 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
Short Term Bond Fund Annual Report for the fiscal year ended December 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Scudder Short Term Bond Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,462,868,566
<INVESTMENTS-AT-VALUE> 1,463,393,000
<RECEIVABLES> 12,422,768
<ASSETS-OTHER> 1,001,026
<OTHER-ITEMS-ASSETS> 374
<TOTAL-ASSETS> 1,476,817,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,646,283
<TOTAL-LIABILITIES> 8,646,283
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,590,412,079
<SHARES-COMMON-STOCK> 132,860,852
<SHARES-COMMON-PRIOR> 144,046,277
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (122,820,012)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 578,818
<NET-ASSETS> 1,468,170,885
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 120,750,294
<OTHER-INCOME> 0
<EXPENSES-NET> 12,907,481
<NET-INVESTMENT-INCOME> 107,842,813
<REALIZED-GAINS-CURRENT> (33,115,928)
<APPREC-INCREASE-CURRENT> (17,329,463)
<NET-CHANGE-FROM-OPS> 57,397,422
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 104,839,251
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,416,978
<NUMBER-OF-SHARES-REDEEMED> 66,287,694
<SHARES-REINVESTED> 7,197,179
<NET-CHANGE-IN-ASSETS> (354,650,165)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (94,805,084)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,232,708
<INTEREST-EXPENSE> 840
<GROSS-EXPENSE> 12,907,481
<AVERAGE-NET-ASSETS> 1,620,430,016
<PER-SHARE-NAV-BEGIN> 11.35
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> (.32)
<PER-SHARE-DIVIDEND> (.72)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.05
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Scudder
Zero Coupon 2000 Fund Annual Report for the fiscal year ended December 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Scudder Zero Coupon 2000 Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 24,914,154
<INVESTMENTS-AT-VALUE> 25,514,644
<RECEIVABLES> 68,887
<ASSETS-OTHER> 461
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,583,992
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 143,578
<TOTAL-LIABILITIES> 143,578
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,642,615
<SHARES-COMMON-STOCK> 2,161,757
<SHARES-COMMON-PRIOR> 2,246,071
<ACCUMULATED-NII-CURRENT> 689,568
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,492,259)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
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</TABLE>
