Scudder
Zero Coupon
2000 Fund
Annual Report
December 31, 1997
Pure No-Load(TM) Funds
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.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder Zero Coupon 2000 Fund
- --------------------------------------------------------------------------------
Date of Inception: 2/4/86 Total Net Assets as of Ticker Symbol: SGZTX
12/31/97: $20.4 million
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o In a year that proved to be rewarding for fixed-income investors, Scudder Zero
Coupon 2000 Fund posted a positive total return of 6.53% for its most recent
fiscal year ended December 31, 1997.
o The Fund provided a 30-day net annualized SEC yield of 4.86% as of December
31, 1997.
Table of Contents
3 Letter from the Fund's President 14 Notes to Financial Statements
4 Performance Update 17 Report of Independent Accountants
5 Portfolio Management Discussion 18 Shareholder Meeting Results
8 Glossary of Investment Terms 20 Officers and Trustees
9 Investment Portfolio 21 Investment Products and Services
10 Financial Statements 22 Scudder Solutions
13 Financial Highlights
2 - Scudder Zero Coupon 2000 Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder Zero Coupon 2000 Fund's
performance over its most recent fiscal year ended December 31, 1997. The Fund's
managers continue to invest in high quality U.S. Treasuries, with almost all
maturities set within one year of the Fund's 2000 target date. Given the Fund's
relatively short time to maturity, the Fund's philosophy is to seek as high an
investment return over a selected period as is consistent with the minimization
of investment risk. For more information on the Fund's investment strategy,
results, and outlook, please read the portfolio management discussion beginning
on page 5.
For those of you who are interested in new Scudder products, we recently
introduced a new industry sector fund, Scudder Financial Services Fund. One of
Scudder's Choice Series sector funds, the Fund seeks long-term growth by
investing in financial services companies in the U.S. and abroad. In addition,
two other Choice Series funds will be launched on March 2: Scudder Health Care
Fund, seeking long-term growth from health care companies located around the
world, and Scudder Technology Fund, pursuing long-term growth by investing in
companies that develop, produce, or distribute technology.
Finally, as you may know, the Fund's investment adviser has changed its
name to Scudder Kemper Investments, Inc., from Scudder, Stevens & Clark, Inc.,
pursuant to the acquisition of a majority interest in Scudder, Stevens & Clark
by Zurich Insurance Company, and the combining of Scudder's business with that
of Zurich Kemper Investments, Inc.
If you have any questions regarding Scudder Zero Coupon 2000 Fund or any
other Scudder fund, please do not hesitate to call Investor Relations at
1-800-225-2470. Or visit Scudder's Web site at http://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, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/97 $10,000 Cumulative Annual
- --------------------------------------
SCUDDER ZERO COUPON 2000 FUND
- --------------------------------------
1 Year $ 10,653 6.53% 6.53%
5 Year $ 13,638 36.38% 6.40%
10 Year $ 24,899 148.99% 9.55%
- --------------------------------------
LB GOVERNMENT/CORPORATE BOND INDEX
- --------------------------------------
1 Year $ 10,975 9.75% 9.75%
5 Year $ 14,430 44.30% 7.61%
10 Year $ 23,984 139.84% 9.13%
- --------------------------------------
- -----------------------------------------------------------------
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
- ----------------------
'87 $10,000
'88 $11,171
'89 $13,449
'90 $14,067
'91 $16,884
'92 $18,257
'93 $21,178
'94 $19,500
'95 $23,221
'96 $23,372
'97 $24,899
LB GOVERNMENT/CORPORATE BOND INDEX
Year Amount
- ----------------------
'87 $10,000
'88 $10,759
'89 $12,291
'90 $13,307
'91 $15,450
'92 $16,621
'93 $18,459
'94 $17,811
'95 $21,240
'96 $21,853
'97 $23,894
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>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 10.92 $ 12.61 $ 12.27 $ 13.76 $ 12.55 $ 12.85 $ 10.95 $ 12.38 $ 11.77 $ 11.88
INCOME DIVIDENDS.. $ .63 $ .52 $ .83 $ .94 $ .93 $ .83 $ .31 $ .62 $ .68 $ .63
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .03 $ .08 $ -- $ 1.39 $ .89 $ .59 $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 11.71 20.39 4.59 20.03 8.13 16.00 -7.92 19.08 .65 6.53
INDEX TOTAL
RETURN (%)........ 7.58 14.23 8.28 16.12 7.58 11.03 -3.51 19.24 2.90 9.75
</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.
4 - Scudder Zero Coupon 2000 Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Scudder Zero Coupon 2000 Fund provided a 30-day net annualized SEC yield of
4.86% as of December 31, 1997. The Fund's total return of 6.53% for the 12-month
period reflects a $0.11 increase in the Fund's net asset value to $11.88, plus
$0.63 per share in income distributions. The unmanaged Lehman Brothers
Government/Corporate Bond Index's return during the same period was 9.75%. The
difference in return between the Fund and its comparative index mirrors the
Fund's ever-shortening average maturity.
Scudder Zero Coupon 2000 Fund seeks to provide investors with as high an
investment return over a selected period as is consistent with direct
investments in government securities and the minimization of reinvestment risk,
with the additional advantages of professional management, diversification, and
liquidity. The Fund invests in high quality zero coupon bonds that pay no
current income but, similar to savings bonds, are issued at substantial
discounts to their value at maturity. When held to maturity, a zero coupon
bond's entire return comes from the difference between its issue price and its
par value.
Bonds Benefit as Inflation Fades
The year 1997 was rewarding for most bond investors as the market's focus
gradually shifted from the possibility of an overheating U.S. economy and
increases in inflation to the Asian currency crisis and speculation about
deflation. As Asian currencies such as the Korean won and the Thai baht
surrendered approximately half of their value versus the U.S. dollar from July
to December, expectations grew that lower-cost Asian imports and reduced profit
expectations for global U.S.-based companies would keep the domestic economy and
inflation under control for some time to come, despite near full employment.
Yield declines -- as shown in the chart above -- and price gains in the Treasury
bond sector reflected this favorable environment.
THE ORIGINAL DOCUMENT HAS A LINE CHART HERE
LINE CHART TITLE:
U.S. Treasury Yield Curve
12/31/96 versus 12/31/97
LINE CHART DATA:
12/31/97 12/31/96
---------------------------------------------------------------
3 mos 5.186% 5.342%
6 mos 5.297 5.435
1 yr 5.488 5.476
2 yrs 5.868 5.642
3 yrs 6.010 5.669
5 yrs 6.206 5.705
10 yrs 6.418 5.741
30 yrs 6.641 5.924
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
5 - Scudder Zero Coupon 2000 Fund
<PAGE>
maturity date, we try to limit share price volatility where possible while at
the same time seeking a higher return than that provided by many other
fixed-income investments.
As the Fund approaches its maturity in the year 2000, we continue to gradually
shorten the duration of the Fund, keeping over 90% of the bonds in the Fund's
portfolio within two months of the target date, and almost 99% within one year
of the date. For the same reason, we are keeping the Fund's duration in a
neutral stance in terms of its permissible range: As of December 31, 1997, the
Fund's duration was 3 years, in the middle of its allowable range of two years
to four years. (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 and the more
stable its price is likely to be.)
Economic and Market Prospects
Amid the gloom (and economic pain for the people of Asia) of the Asian currency
crisis is a ray of sunshine -- the relaxing of inflation worries in the U.S.
bond market. Though no one can predict exactly how long this period of
tranquility for bond investors will last, we expect this slow-growth,
low-inflation environment to continue and to
6 - Scudder Zero Coupon 2000 Fund
<PAGE>
benefit Treasury investors over the coming months. As we approach 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/Timothy G. Raney /s/Stephen A. Wohler
Timothy G. Raney 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 Kemper
Investments, Inc. (SKI) 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 SKI'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 SKI's extensive resources.
Lead Portfolio Manager Timothy G. Raney has responsibility for overseeing the
Fund's day-to-day operations and setting the Fund's investment strategy. Tim,
who has eight years of investment industry experience, joined the Adviser in
1989 as a taxable securities trader and also played a key role in the
development of automated trade and compliance software. 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 SKI since 1979.
7 - Scudder Zero Coupon 2000 Fund
<PAGE>
Glossary of Investment Terms
INFLATION An overall increase in the prices of goods
and services, as happens when business and
consumer spending increases relative to the
supply of goods available in the marketplace
-- in other words, when too much money is
chasing too few goods. High inflation has a
negative impact on the prices of fixed-income
securities.
30-DAY SEC YIELD The standard yield reference for bond funds
since the SEC required all bond funds to
quote yields based on a prescribed formula.
This yield calculation reflects the 30-day
average of the net annualized income earnings
capability of every holding in a given fund's
portfolio, assuming each is held to maturity.
TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return --
annualized or compound -- is based on a
combination of capital return plus income and
capital gain distributions, if any, expressed
as a percentage gain or loss in value.
TREASURIES Negotiable debt obligations of the U.S.
government, secured by its full faith and
credit, and issued at various schedules and
maturities.
ZERO COUPON BOND A bond that makes no periodic interest
payments but instead is sold at a deep
discount from its face value. The buyer of
such a bond receives a rate of return through
the gradual appreciation of the security,
which is redeemed at face value on a
specified maturity date.
(Sources: SKI; Barron's Dictionary of Finance and Investment Terms)
8 - Scudder Zero Coupon 2000 Fund
<PAGE>
Investment Portfolio as of December 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Note, 5.125%, 11/30/98 .................................................... 100,000 99,562
U.S. Treasury Note, 5%, 1/31/99 ......................................................... 150,000 149,016
U.S. Treasury Separate Trading Registered Interest and Principal, 5/15/00, (5.65*) ...... 630,000 552,019
U.S. Treasury Separate Trading Registered Interest and Principal, 11/15/00, (5.68*) ..... 9,999,000 8,513,149
U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/01, (5.70*) ...... 10,980,000 9,211,451
U.S. Treasury Separate Trading Registered Interest and Principal, 11/15/01, (5.72*) ..... 2,388,000 1,919,307
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Securities (Cost $19,842,017) 20,444,504
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $19,842,017) (a) 20,444,504
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $19,898,013. At December 31,
1997, unrealized appreciation based on tax cost consisted entirely of
aggregated gross unrealized appreciation of $546,491.
* Bond equivalent yield to maturity; not a coupon rate (unaudited).
The accompanying notes are an integral part of the financial statements.
9 - Scudder Zero Coupon 2000 Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1997
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments, at market (identified cost $19,842,017) ................. $ 20,444,504
Interest receivable .................................................. 3,589
Receivable for Fund shares sold ...................................... 106,411
Other assets ......................................................... 380
----------------
Total assets ......................................................... 20,554,884
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Due to custodian bank ................................................ 33,273
Other payables and accrued expenses .................................. 67,639
----------------
Total liabilities .................................................... 100,912
-------------------------------------------------------------------------------------------
Net assets, at market value $ 20,453,972
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................. 734,074
Unrealized appreciation on investments ............................... 602,487
Accumulated net realized loss ........................................ (1,330,864)
Paid-in capital ...................................................... 20,448,275
-------------------------------------------------------------------------------------------
Net assets, at market value $ 20,453,972
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($20,453,972 / 1,721,605 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ..... $11.88
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Zero Coupon 2000 Fund
<PAGE>
Statement of Operations
year ended December 31, 1997
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest ............................................................. $ 1,387,950
-----------------
Expenses:
Management fee ....................................................... 129,600
Services to shareholders ............................................. 97,995
Custodian and accounting fees ........................................ 42,223
Trustees' fees and expenses .......................................... 22,312
Auditing ............................................................. 25,808
Reports to shareholders .............................................. 27,653
Registration fees .................................................... 14,766
Legal ................................................................ 13,713
Other ................................................................ 5,527
-----------------
Total expenses before reductions ..................................... 379,597
Expense reductions ................................................... (163,914)
-----------------
Expenses, net ........................................................ 215,683
---------------------------------------------------------------------------------------------
Net investment income 1,172,267
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments ................................... 161,395
Net unrealized appreciation on investments during the period ......... 1,997
---------------------------------------------------------------------------------------------
Net gain on investment transactions 163,392
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,335,659
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Zero Coupon 2000 Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income .......................................... $ 1,172,267 $ 1,432,554
Net realized gain (loss) from investments ...................... 161,395 (261,794)
Net unrealized appreciation (depreciation) on investments
during the period ........................................... 1,997 (1,086,030)
--------------- ---------------
Net increase in net assets resulting from operations ........... 1,335,659 84,730
--------------- ---------------
Distributions to shareholders from net investment income ....... (1,127,761) (1,477,442)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold ...................................... 3,450,490 6,651,479
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................... 1,105,633 1,435,813
Cost of shares redeemed ........................................ (9,750,463) (10,477,503)
--------------- ---------------
Net decrease in net assets from Fund share transactions ........ (5,194,340) (2,390,211)
--------------- ---------------
Decrease in net assets ......................................... (4,986,442) (3,782,923)
Net assets at beginning of period .............................. 25,440,414 29,223,337
Net assets at end of period (including undistributed net --------------- ---------------
investment income of $734,074 and $689,568, respectively) ...... $ 20,453,972 $ 25,440,414
--------------- ---------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ...................... 2,161,757 2,359,785
--------------- ---------------
Shares sold .................................................... 290,883 560,049
Shares issued to shareholders in reinvestment of
distributions ............................................... 96,147 122,172
Shares redeemed ................................................ (827,182) (880,249)
--------------- ---------------
Net decrease in Fund shares .................................... (440,152) (198,028)
--------------- ---------------
Shares outstanding at end of period ............................ 1,721,605 2,161,757
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Zero Coupon 2000 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,
1997(a) 1996(a) 1995 1994 1993 1992 1991 1990 1989 1988
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning ---------------------------------------------------------------------------------------------
of period ...................... $11.77 $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92 $10.34
---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ............ .63 .64 .65 .59 .79 .94 .99 .86 .51 .63
Net realized and unrealized gain
(loss) on investments .......... .11 (.57) 1.40 (1.59) 1.23 .17 1.44 (.29) 1.73 .58
Total from investment ---------------------------------------------------------------------------------------------
operations ..................... .74 .07 2.05 (1.00) 2.02 1.11 2.43 .57 2.24 1.21
---------------------------------------------------------------------------------------------
Less distributions:
From net investment income ....... (.63) (.68) (.62) (.31) (.83) (.93) (.94) (.83) (.52) (.63)
From net realized gains on
investments .................... -- -- -- (.59) (.89) (1.39) -- (.08) (.03) --
---------------------------------------------------------------------------------------------
Total distributions .............. (.63) (.68) (.62) (.90) (1.72) (2.32) (.94) (.91) (.55) (.63)
---------------------------------------------------------------------------------------------
Net asset value, end of ---------------------------------------------------------------------------------------------
period ......................... $11.88 $11.77 $12.38 $10.95 $12.85 $12.55 $13.76 $12.27 $12.61 $10.92
------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ............. 6.53 .65 19.08 (7.92) 16.00 8.13 20.03 4.59 20.39 11.71
Ratios and Supplemental Data
Net assets, end of period
($ millions) ................... 20 25 29 25 31 29 33 33 32 5
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 (%) ........... 1.76 1.45 1.48 1.47 1.28 1.28 1.23 1.39 1.62 3.37
Ratio of net investment income to
average daily net assets (%) ... 5.44 5.42 5.59 5.23 5.29 6.38 7.12 7.62 7.10 8.10
Portfolio turnover rate (%) ...... 5.74 85.2 86.6 89.3 101.6 118.8 90.7 98.5 87.1 149.2
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
13 - 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 purchased with an original
maturity 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. Money market instruments having an original 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, as amended, 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, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $1,275,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2002 ($723,000), 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
14 - 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, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $1,246,960 and
$7,844,015, respectively.
C. Related Parties
Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
Under the Management Agreement with Scudder Kemper, 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. 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 April 30,
1998. For the year ended December 31, 1997, the fee pursuant to these agreements
amounted to $129,600, all of which 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, 1997, the amount charged to the Fund by SSC
aggregated $46,588, of which $19,604 was not imposed, and $7,723 is unpaid at
December 31, 1997.
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, 1997, the
amount charged to the Fund by STC aggregated $8,564, of which $3,604 was not
imposed, and $111 is unpaid at December 31, 1997.
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, 1997, the amount charged to the Fund by SFAC aggregated $26,394, of
which $11,106 was not imposed, and $10,769 is unpaid at December 31, 1997.
15 - Scudder Zero Coupon 2000 Fund
<PAGE>
The Fund pays each Trustee not affiliated with the Adviser an annual retainer
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the year ended December 31, 1997,
Trustees' fees and expenses aggregated $22,312.
16 - 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,
1997, 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, 1997 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, 1997, 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 11, 1998
17 - Scudder Zero Coupon 2000 Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Zero Coupon 2000
Fund (the "Fund") was held on October 27, 1997, at the offices of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), 25th Floor, 345
Park Avenue (at 51st Street), New York, New York 10154. At the Meeting, as
adjourned and reconvened, the following matters were voted upon by the
shareholders (the resulting votes for each matter are presented below). With
regard to certain proposals, it was recommended that the Meeting be reconvened
in order to provide shareholders with an additional opportunity to return their
proxies. The date of the reconvened meeting at which the matters were decided is
noted after the proposed matter.
1. To elect Trustees.
Number of Votes:
----------------
Director For Withheld
-------- --- --------
Henry P. Becton, Jr. 864,722 41,139
Dawn-Marie Driscoll 883,808 42,053
Peter B. Freeman 884,915 40,946
George M. Lovejoy, Jr. 888,114 37,747
Dr. Wesley W. Marple, Jr. 888,114 37,747
Daniel Pierce 888,308 37,553
Kathryn L. Quirk 887,907 37,954
Jean C. Tempel 884,253 41,608
2. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
846,297 34,327 45,237 911
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise. (Approved on December 2, 1997.)
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
921,736 66,176 64,850 909
18 - Scudder Zero Coupon 2000 Fund
<PAGE>
4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
925,395 57,220 70,147 909
5. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
<S> <C> <C> <C> <C>
5.1 Diversification 800,708 51,639 72,603 911
5.2 Borrowing 795,238 57,108 72,604 911
5.3 Senior securities 796,950 57,016 70,984 911
5.4 Concentration 796,642 57,324 70,984 911
5.5 Underwriting of securities 800,708 50,233 74,009 911
5.6 Investment in real estate 802,328 48,614 74,008 911
5.7 Purchase of physical commodities 799,169 51,772 74,009 911
5.8 Lending 800,910 50,031 74,009 911
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
864,900 13,903 47,058
* 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.
19 - Scudder Zero Coupon 2000 Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and Trustee
George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner, Technology Equity Partners
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Treasurer and Secretary
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
20 - 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
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
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
Scudder S&P 500 Index 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 Growth and Income 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, Inc.
Retirement Programs
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal 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. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **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 Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various other stock exchanges.
21 - Scudder Zero Coupon 2000 Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
22 - Scudder Zero Coupon 2000 Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
</TABLE>
23 - Scudder Zero Coupon 2000 Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
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