Scudder
Zero Coupon
2000 Fund
Annual Report
December 31, 1998
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
12/31/98: $18.76 million
- --------------------------------------------------------------------------------
o For its most recent fiscal year ended December 31, 1998, Scudder Zero Coupon
2000 Fund posted a 7.00% total return. As of December 31, 1998, the Fund
provided a 30-day net annualized SEC yield of 3.71%.
o Treasury securities benefited from a flight to quality by investors and a
series of Federal Reserve easings during the most recent 12-month period.
Table of Contents
3 Letter from the Fund's President 12 Notes to Financial Statements
4 Performance Update 15 Report of Independent Accountants
5 Portfolio Management Discussion 16 Shareholder Meeting Results
6 Glossary of Investment Terms 20 Officers and Trustees
7 Investment Portfolio 21 Investment Products and Services
8 Financial Statements 22 Scudder Solutions
11 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, 1998. The Fund
posted a 7.00% total return over the period, as short-term Treasury securities
benefited from strong investor interest and three Fed easings from September
through November 1998.
In December 1998, shareholders of the Fund approved a plan to merge the
assets of Scudder Zero Coupon 2000 Fund into Scudder Short Term Bond Fund. We
expect the merger to take place during the first quarter of 1999.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
invests in small U.S. companies. Using a combination of quantitative and
fundamental research, the funds will focus on companies with strong earnings
growth, reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after-tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate. Please see pages 21 through 23 for more
information on Scudder products and services.
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 www.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, 1998
Fund Index Comparisons
- -----------------------------------------------
Total Return
-------------------
Period Growth
Ended of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------------
Scudder Zero Coupon 2000 Fund
--------------------------------------------
1 Year $ 10,700 7.00% 7.00%
5 Year $ 12,580 25.80% 4.70%
10 Year $ 23,849 138.49% 9.08%
--------------------------------------------
LB Government/Corporate Bond Index
--------------------------------------------
1 Year $ 10,948 9.48% 9.48%
5 Year $ 14,224 42.24% 7.30%
10 Year $ 24,405 144.05% 9.33%
Growth of a $10,000 Investment
- -----------------------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Yearly periods ended December 31
Scudder Zero Coupon 2000 Fund
Year Amount
- ---------------------------
'88 $10,000
'89 $12,039
'90 $12,592
'91 $15,114
'92 $16,343
'93 $18,958
'94 $17,455
'95 $20,787
'96 $20,922
'97 $22,284
'98 $23,849
LB Government/Corporate Bond Index
Year Amount
- ---------------------------
'88 $10,000
'89 $11,424
'90 $12,369
'91 $14,361
'92 $15,449
'93 $17,157
'94 $16,555
'95 $19,742
'96 $20,311
'97 $22,293
'98 $24,405
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
- -----------------------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
Yearly Periods Ended December 31
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 12.61 $ 12.27 $ 13.76 $ 12.55 $ 12.85 $ 10.95 $ 12.38 $ 11.77 $ 11.88 $ 11.56
- -----------------------------------------------------------------------------------------------------------------------------
Income Dividends $ .52 $ .83 $ .94 $ .93 $ .83 $ .31 $ .62 $ .68 $ .63 $ 1.13
- -----------------------------------------------------------------------------------------------------------------------------
Capital Gains Distributions $ .03 $ .08 $ -- $ 1.39 $ .89 $ .59 $ -- $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------
Fund Total Return (%) 20.39 4.59 20.03 8.13 16.00 -7.92 19.08 0.65 6.53 7.00
- -----------------------------------------------------------------------------------------------------------------------------
Index Total Return (%) 14.23 8.28 16.12 7.58 11.03 -3.51 19.24 2.90 9.75 9.48
- -----------------------------------------------------------------------------------------------------------------------------
</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 capped expenses, the total
returns for the Fund would have been lower.
4 - Scudder Zero Coupon 2000 Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Yields of Treasury securities declined across all maturities and their prices
rose during the 12 months ended December 31, 1998, as investors sought the
quality and relative safety of government securities during a year of turmoil in
the global financial markets. Benefiting from the price appreciation of
short-term Treasuries, Scudder Zero Coupon 2000 Fund posted a 7.00% total return
over its most recent fiscal year ended December 31. The Fund also provided a
30-day net annualized SEC yield of 3.71% as of December 31.
Over the past twelve months, we have been gradually shortening the duration of
the Fund, keeping virtually 100% of the bonds in the Fund's portfolio within two
months of the target date. For the same reason, we kept the Fund's duration in a
neutral stance in terms of its permissible range: As of December 31, 1998, the
Fund's duration was 1.93 years, in the middle of its allowable range of 1 to 3
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.)
Outlook
Shrinking corporate profit margins, a widening trade deficit, pressure on the
dollar, and troubles in the emerging markets could dampen U.S. economic growth
during the coming months. We do not doubt, however, the power of consumer and
investor confidence to overcome adversity, as has been shown throughout the
current economic expansion. With the outlook for the U.S. economy uncertain, our
outlook for short-term securities is nonetheless positive, as inflation remains
low and seems to be declining further.
In December 1998, shareholders of the Fund approved a plan to merge the assets
of Scudder Zero Coupon 2000 Fund into Scudder Short Term Bond Fund. We expect
the merger to take place during the first quarter of 1999.
Sincerely,
Your Portfolio Management Team
/s/Stephen A. Wohler /s/Timothy G. Raney
Stephen A. Wohler Timothy G. Raney
5 - 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 the rate of
return by the gradual appreciation of the security,
which is redeemed at face value on a specified
maturity date.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms)
6 - Scudder Zero Coupon 2000 Fund
<PAGE>
Investment Portfolio as of December 31, 1998
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Securities 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Separate Trading Registered Interest and Principal, 11/15/2000
(4.57%*) .............................................................................. 11,799,000 10,841,983
U.S. Treasury Separate Trading Registered Interest and Principal, 2/15/2001
(4.59%*) .............................................................................. 8,750,000 7,945,438
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Securities (Cost $18,069,199) 18,787,421
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $18,069,199) (a) 18,787,421
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $18,126,386. At December 31,
1998, unrealized appreciation based on tax cost consisted entirely of
aggregated gross unrealized appreciation of $661,035.
* Bond equivalent yield to maturity; not a coupon rate. (Unaudited)
The accompanying notes are an integral part of the financial statements.
7 - Scudder Zero Coupon 2000 Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $18,069,199) ................ $ 18,787,421
Cash ................................................................ 49,026
Receivable for Fund shares sold ..................................... 81,687
Other assets ........................................................ 190
----------------
Total assets ........................................................ 18,918,324
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed .................................... 99,915
Other payables and accrued expenses ................................. 57,993
----------------
Total liabilities ................................................... 157,908
-------------------------------------------------------------------------------------------
Net assets, at market value $ 18,760,416
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................. 6,151
Unrealized appreciation on investments .............................. 718,222
Accumulated net realized loss ....................................... (1,159,459)
Paid-in capital ..................................................... 19,195,502
-------------------------------------------------------------------------------------------
Net assets, at market value $ 18,760,416
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($18,760,416 / 1,622,443 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ...................................................... $11.56
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8 - Scudder Zero Coupon 2000 Fund
<PAGE>
Statement of Operations
year ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Interest ............................................................. $ 1,227,913
----------------
Expenses:
Management fee ....................................................... 117,324
Services to shareholders ............................................. 72,693
Custodian and accounting fees ........................................ 43,204
Trustees' fees and expenses .......................................... 25,818
Auditing ............................................................. 30,231
Reports to shareholders .............................................. 13,863
Registration fees .................................................... 12,533
Legal ................................................................ 15,899
Other ................................................................ 2,726
----------------
Total expenses before reductions ..................................... 334,291
Expense reductions ................................................... (138,729)
----------------
Expenses, net ........................................................ 195,562
-------------------------------------------------------------------------------------------
Net investment income 1,032,351
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments ................................... 188,259
Net unrealized appreciation on investments during the period ......... 115,735
-------------------------------------------------------------------------------------------
Net gain on investment transactions 303,994
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,336,345
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9 - Scudder Zero Coupon 2000 Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ...................................... $ 1,032,351 $ 1,172,267
Net realized gain (loss) from investments .................. 188,259 161,395
Net unrealized appreciation (depreciation) on
investments during the period ........................... 115,735 1,997
---------------- ----------------
Net increase in net assets resulting from operations ....... 1,336,345 1,335,659
---------------- ----------------
Distributions to shareholders from net investment
income .................................................. (1,777,128) (1,127,761)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................. 6,301,265 3,450,490
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 1,745,734 1,105,633
Cost of shares redeemed .................................... (9,299,772) (9,750,463)
---------------- ----------------
Net decrease in net assets from Fund share
transactions ............................................ (1,252,773) (5,194,340)
---------------- ----------------
Decrease in net assets ..................................... (1,693,556) (4,986,442)
Net assets at beginning of period .......................... 20,453,972 25,440,414
Net assets at end of period (including undistributed
net investment income of $6,151 and $734,074, ---------------- ----------------
respectively) ........................................... $ 18,760,416 $ 20,453,972
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 1,721,605 2,161,757
---------------- ----------------
Shares sold ................................................ 527,342 290,883
Shares issued to shareholders in reinvestment of
distributions ........................................... 150,939 96,147
Shares redeemed ............................................ (777,443) (827,182)
---------------- ----------------
Net decrease in Fund shares ................................ (99,162) (440,152)
---------------- ----------------
Shares outstanding at end of period ........................ 1,622,443 1,721,605
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - 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,
1998(a) 1997(a) 1996(a) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------
Net asset value, beginning of period ................................ $ 11.88 $ 11.77 $ 12.38 $ 10.95 $ 12.85
------------------------------------------------------------
Income from investment operations:
Net investment income ............................................... .63 .63 .64 .65 .59
Net realized and unrealized gain (loss) on investments .............. .18 .11 (.57) 1.40 (1.59)
------------------------------------------------------------
Total from investment operations .................................... .81 .74 .07 2.05 (1.00)
------------------------------------------------------------
Less distributions:
From net investment income .......................................... (1.13) (.63) (.68) (.62) (.31)
From net realized gains on investments .............................. -- -- -- -- (.59)
------------------------------------------------------------
Total distributions ................................................. (1.13) (.63) (.68) (.62) (.90)
------------------------------------------------------------
------------------------------------------------------------
Net asset value, end of period ...................................... $ 11.56 $ 11.88 $ 11.77 $ 12.38 $ 10.95
------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ................................................ 7.00 6.53 .65 19.08 (7.92)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 19 20 25 29 25
Ratio of operating expenses, net to average daily net assets (%) .... 1.00 1.00 1.00 1.00 1.00
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ...................................... 1.71 1.76 1.45 1.48 1.47
Ratio of net investment income to average daily net assets (%) ...... 5.28 5.44 5.42 5.59 5.23
Portfolio turnover rate (%) ......................................... 12.95 5.74 85.2 86.6 89.3
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total returns would have been lower had certain expenses not been reduced.
11 - 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.
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 a remaining
maturity greater than sixty days are valued by pricing agents approved by the
Officers of the Fund, whose 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. All other debt securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Trustees.
Money market instruments having an original maturity of sixty days or less are
valued at amortized cost.
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, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $1,102,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2002 ($550,000), 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. Distributions to
shareholders are recorded on the ex-dividend date.
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 transactions are accounted for on a trade date basis. Interest
income is generally recorded on the accrual basis under the amortized cost
method whereby the Fund adjusts the cost of each investment assuming a constant
accretion to maturity of any discount. All original issue discounts are accreted
for both tax and financial reporting purposes.
12 - Scudder Zero Coupon 2000 Fund
<PAGE>
B. Purchases and Sales of Securities
During the year ended December 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $2,532,886 and
$5,715,911, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, 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. 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, 1999. For the
year ended December 31, 1998, the fee pursuant to the Agreement amounted to
$117,324, all of which was not imposed.
On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's Agreement with Scudder Kemper Inc. was deemed to have
been assigned and, therefore, terminated. In December 1998, the Board of
Trustees and the shareholders of the Fund approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the former
Agreement, except for the dates of execution and termination.
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, 1998, the amount charged to the Fund by SSC
aggregated $57,732, of which $11,565 was not imposed, and $23,385 is unpaid at
December 31, 1998.
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, 1998, the
amount charged to the Fund by STC aggregated $11,441, of which $2,203 was not
imposed, and $5,574 is unpaid at December 31, 1998.
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, 1998, the amount charged to the Fund by SFAC aggregated $37,500, of
which $7,637 was not imposed, and $15,625 is unpaid at December 31, 1998.
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, 1998,
Trustees' fees and expenses aggregated $25,818.
13 - Scudder Zero Coupon 2000 Fund
<PAGE>
D. Plan of Reorganization
On December 15, 1998, the shareholders of the Fund approved a Plan of
Reorganization (the "Reorganization") that previously had been approved by the
Fund's Board of Trustees. The Reorganization provides for the transfer of
substantially all of the assets and all of the identified and stated liabilities
of the Fund to Scudder Short Term Bond Fund, another series of the Scudder Funds
Trust, in a tax free exchange of shares. Following this exchange, the Fund will
be liquidated and abolished as a Series of the Scudder Funds Trust.
As a result of the Reorganization, each shareholder of the Scudder Zero Coupon
2000 Fund will become a shareholder of Scudder Short Term Bond Fund and will
hold, immediately after the closing of the Reorganization (the "Closing"), that
number of full and fractional voting shares of Scudder Short Term Bond Fund
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares held in the Scudder Zero Coupon 2000 Fund as of the
close of business on the business day preceding the Closing. The Closing is
expected to take place during the first quarter of 1999.
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:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Zero Coupon 2000 Fund (the
"Fund") at December 31, 1998, the results of its operations for the year then
ended and 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 five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 22, 1999
15 - 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 December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve an Agreement and Plan of Reorganization for the Fund.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
885,133 94,132 54,616 31,295
2. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
940,018 67,986 57,172 0
3. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
880,515 83,599 69,767 31,295
- --------------------------------------------------------------------------------
* 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>
This Page
intentionally
left blank.
17 - Scudder Zero Coupon 2000 Fund
<PAGE>
This Page
intentionally
left blank.
18 - Scudder Zero Coupon 2000 Fund
<PAGE>
This Page
intentionally
left blank.
19 - Scudder Zero Coupon 2000 Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director
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
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
Stephen A. Wohler*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
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--
Prime Reserve Shares*
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 Corporate Bond 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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment 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 Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
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. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++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 -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: 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.
Distributions Direct
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 8,000 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
800 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 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 $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
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
[LOGO]
