------------------------
BOND/DOMESTIC
------------------------
Scudder Short Term
Bond Fund
Fund #022
Semiannual Report
June 30, 2000
The fund seeks to provide a high level of income consistent with a high degree
of principal stability.
A no-load fund with no commissions to buy, sell, or exchange shares.
<PAGE>
Contents
--------------------------------------------------------------------------------
4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
9 Portfolio Management Discussion
14 Glossary of Investment Terms
15 Investment Portfolio
20 Financial Statements
23 Financial Highlights
24 Notes to Financial Statements
29 Shareholder Meeting Results
30 Officers and Trustees
31 Investment Products and Services
33 Account Management Resources
2
<PAGE>
Scudder Short Term Bond Fund
--------------------------------------------------------------------------------
ticker symbol SCSTX fund number 022
--------------------------------------------------------------------------------
Date of o Over the six months ended June 30, 2000, Scudder Short
Inception: Term Bond Fund returned 2.38%. The fund's 30-day SEC
4/2/84 yield on June 30 was 6.32%, up from 5.86% on
December 31, 1999.
o The fund benefited from its focus on liquid, high
Total Net quality bonds, as well as its conservative duration
Assets as positioning. Management has focused on sectors that
of 6/30/00: offer attractive yields in relation to Treasuries, such
$670 million as corporates and asset-backed securities.
3
<PAGE>
Letter from the Fund's President
--------------------------------------------------------------------------------
Dear Shareholders,
During the second half of the 1990s, the strong performance of the U.S. stock
market dimmed the attractiveness of bonds' steady returns. As investors watched
the Nasdaq index surpass new milestones on what seemed to be a monthly basis,
the temptation to jump into technology stocks was sometimes irresistible. But as
the events of the first half of 2000 demonstrated, bonds still hold an important
place in investors' portfolios. In a period in which stocks experienced
significant volatility and actually lost ground (as measured by the S&P 500
Index), most diversified bond portfolios produced positive returns. More
notably, bonds also provided added stability to the portfolios of investors who
maintained a diversified approach during the stock market's winter rally.
We believe that the lesson from the last six months is that no matter what is
taking place in the financial markets, it is essential for investors to stay
focused on their goals and ensure that their investments are appropriately
suited for their needs. Unless you plan to devote your energies to investing
every day, we think that you will benefit from taking a long-term approach that
includes exposure to several asset classes. This includes domestic and
international stocks, small-caps, fixed income, and money market funds. As a
shareholder of Scudder Short Term Bond Fund, you
4
<PAGE>
already hold a key element of a diversified portfolio. The fund's management
team seeks to provide attractive monthly income and relative stability by
investing in liquid, high-quality, short-term bonds. This approach helped keep
share price volatility to a minimum amid an uncertain environment in the
financial markets. For more information on where the fund's portfolio managers
have found opportunities in the bond market, please turn to the Portfolio
Management Discussion beginning on page 9.
Thank you for your continued investment in Scudder Short Term Bond Fund. For
current information on the fund or your account, visit our Web site at
www.scudder.com. There you'll find a wealth of information, including fund
performance, the most recent news on Scudder products and services, and the
opportunity to perform account transactions. You can also speak with the one of
our representatives by calling 1-800-SCUDDER (1-800-728-3337).
Sincerely,
/s/Lin Coughlin
Linda C. Coughlin
President,
Scudder Short Term Bond Fund
5
<PAGE>
Performance Update
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
Growth of a $10,000 Investment
--------------------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Salomon Brothers
Inc. Treasury/Government
Scudder Short Sponsored Corporate
Term Bond Fund Index (1-3 years)*
'90 10000 10000
'91 11258 11026
'92 12381 12186
'93 13428 13007
'94 13506 13229
'95 14205 14246
'96 14931 15040
'97 15851 16034
'98 16683 17130
'99 17205 18015
'00 17790 18811
Yearly periods ended June 30
--------------------------------------------------------------------------------
Fund Index Comparison
--------------------------------------------------------------------------------
Total Return
Growth of Average
Period ended 6/30/2000 $10,000 Cumulative Annual
------------------------------------------------------------------------------
Scudder Short Term Bond Fund
------------------------------------------------------------------------------
1 year $ 10,340 3.40% 3.40%
------------------------------------------------------------------------------
5 year $ 12,524 25.24% 4.60%
------------------------------------------------------------------------------
10 year** $ 17,790 77.90% 5.93%
------------------------------------------------------------------------------
Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index (1-3 years)*
------------------------------------------------------------------------------
1 year $ 10,441 4.41% 4.41%
------------------------------------------------------------------------------
5 year $ 13,204 32.04% 5.71%
------------------------------------------------------------------------------
10 year** $ 18,811 88.11% 6.52%
------------------------------------------------------------------------------
* Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index
(1-3 years) is composed of Treasury, Government Sponsored Agency and
Corporate securities with maturities of one to three years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do
not reflect any fees or expenses.
** The Fund, with its current name and objective, commenced operations on
July 3, 1989. Performance figures include the performance of its
predecessor, the General 1994 Portfolio of Scudder Target Fund. Since
adopting its current objective, the cumulative and average annual
returns are 89.31% and 6.27%, respectively.
6
<PAGE>
Returns and Per Share Information
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE SCUDDER SHORT TERM BOND FUND TOTAL RETURN (%) AND
SALOMON BROTHERS INC. TREASURY/GOVERNMENT SPONSORED CORPORATE INDEX
(1-3 YEARS)* TOTAL RETURN (%)
Yearly periods ended June 30
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 12.58 9.98 8.45 .58 5.17 5.11 6.17 5.25 3.13 3.40
------------------------------------------------------------------------------------
Index Total
Return (%) 10.27 10.50 6.76 1.69 7.68 5.57 6.61 6.84 5.17 4.41
------------------------------------------------------------------------------------
Net Asset
Value ($) 11.89 12.01 12.12 11.37 11.19 11.03 11.00 10.92 10.65 10.38
------------------------------------------------------------------------------------
Income
Dividends
($) 1.09 1.03 .87 .76 .74 .72 .69 .64 .61 .62
------------------------------------------------------------------------------------
Capital
Gains
Distributions
($) -- -- -- .07 -- -- -- -- -- --
------------------------------------------------------------------------------------
</TABLE>
* Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index
(1-3 years) is composed of Treasury, Government Sponsored Agency and
Corporate securities with maturities of one to three years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do
not reflect any fees or expenses.
All performance is historical, assumes reinvestment of all dividends
and capital gains, and is not indicative of future results. Investment
return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than when purchased. If the
Adviser had not maintained the Fund's expenses, the total return for
the Fund would have been lower.
7
<PAGE>
Portfolio Summary
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
Diversification
--------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Corporate Bonds 32% Management continues to
Collateralized Mortgage focus on sectors -- such
Obligations 20% as corporate bonds,
Asset-Backed Securities 15% mortgage-backeds, and
Cash Equivalents 13% asset-backed securities
Government National -- that offer attractive
Mortgage Association 11% yields in relation to
U.S. Government Agency Treasuries.
Pass-Thrus 5%
U.S. Government & Treasury
Obligations 2%
Foreign Bonds-- U.S.$
Denominated 2%
------------------------------------
100%
------------------------------------
--------------------------------------------------------------------------------
Quality
--------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
U.S. Government & Treasury The Fund's weighting in
Obligations 46% bonds rated A and BBB
AAA* 20% has increased during the
AA 6% last six months, as has
A 20% its weighting in U.S.
BBB 8% Government and Treasury
------------------------------------ obligations.
100%
------------------------------------
Category includes cash equivalents
--------------------------------------------------------------------------------
Effective Maturity
--------------------------------------------------------------------------------
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Under 1 year 23% Management has reduced
1 < 5 years 66% duration from 2.9 years
5 < 8 years 8% as of December 31, 1999,
8 years or greater 2% reflecting the difficult
Greater than 15 years 1% environment for
------------------------------------ short-term bonds.
100%
------------------------------------
Weighted average effective
maturity: 2.75 years
For more complete details about the Fund's investment portfolio, see page 15. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
<PAGE>
Portfolio Management Discussion
--------------------------------------------------------------------------------
June 30, 2000
In the following interview, portfolio managers Robert S. Cessine and John E.
Dugenske discuss Scudder Short Term Bond Fund's strategy and the market
environment in the six-month period ended June 30, 2000.
Q: During a period in which the attention of most investors was focused on the
gyrations of the global equity markets, long-term Treasury bonds generally
posted a strong performance. On the other hand, shorter-term Treasuries did not
produce impressive returns. What was the cause for this divergence within the
bond market?
A: The bond market's recent performance has been the direct result of investors'
shifting expectations regarding the direction of interest rates, as well as
changes in the balance of supply and demand in the market. With regard to the
performance of long-term government bonds, the primary factor was the Treasury's
buyback program, which is designed to reduce outstanding debt by curtailing
issuance and taking existing bonds off investors' hands. Seeing the potential
for a significant reduction in supply, investors moved into longer-term bonds
(where the Treasury was focusing its buyback efforts), driving up prices, and
sending yields plummeting. From January 20 to April 10, for instance, the yield
on the 10-year Treasury note fell from 6.79% to 5.77%.
At the same time, however, shorter-term government bonds were experiencing the
pressure associated with the Federal Reserve's interest rate increases. At the
start of 2000, the Federal Funds rate stood at 5.50%. But the combination of
continued strong growth, a shrinking pool of available workers, rising energy
prices, and a roaring stock market compelled the Fed to take aggressive action
to slow growth to a more manageable pace. Consequently, interest rates were
boosted by a quarter-point on February 2 and March 21, and by a half-point on
May 16. These rate hikes exerted pressure on shorter-term bonds over most of the
period, causing what is known as an "inverted yield curve." Ordinarily,
long-term bonds carry higher yields than short-term issues in order to
compensate investors for
9
<PAGE>
tying up their money over a longer period. In a state of inversion, however,
shorter-term bonds carry higher yields than longer-term issues. While this
anomaly has often served as the precursor to a recession, this particular
instance of inversion was largely due to the disruptions associated with the
Treasury's buyback program. As the reporting period drew to a close, signs began
to emerge that the economy was beginning to slow down after all, suggesting that
the Fed's rate increases were finally beginning to have an effect. Sensing an
end to the tightening cycle, investors moved back into bonds in the final six
weeks of the period. The two-year note finished the second quarter at 6.43%,
versus a high of 6.91% on May 18, and 6.21% on December 31, 1999.
Q: How did these factors affect the performance of bonds outside of the Treasury
sector?
A: In this environment, non-government issues generally underperformed
Treasuries. Corporate bonds, mortgage-backed securities, and asset-backeds all
were negatively affected by the inversion of the Treasury yield curve. While
these groups picked up ground in the final weeks of the period once the bond
market began to stabilize, funds that were heavily invested in these areas --
such as Short Term Bond Fund -- were unable to keep up with the strong returns
of government issues. On the plus side, shorter duration corporate bonds (or
those with lower interest rate sensitivity) beat longer-duration corporates,
high-quality bonds generally outperformed those of lesser quality, and liquid
issues bested non-liquid issues. The fund was well-positioned to take advantage
of these disparities, which proved helpful to performance.
Q: How did the fund perform over the first half of the year?
A: Over the six-month period ended June 30, 2000, the fund produced a total
return of 2.38%, which trailed the 2.96% return of it unmanaged benchmark, the
Salomon Brothers Treasury/Government Sponsored Corporate
10
<PAGE>
Index. As of June 30, the fund's 30-day SEC yield stood at 6.32%, up from 5.86%
on December 31, 1999.
Q: How is the portfolio positioned?
A: The fund continues to hold significant weightings in corporate bonds and
asset-backed securities. We believe that the yield spreads in these sectors (or,
the difference between their yields and the yields on government bonds of
similar maturities) are attractive on a historical basis. In our view, the
difference in yield more than compensates investors for the difference in credit
quality at this juncture. As a result, we feel that there is a strong likelihood
that corporates and asset-backeds will produce strong performance over the next
three to six months. The fund holds a roughly equal weighting in the two sectors
for diversification purposes. Within the corporate sector, the fund is
overweighted in bonds issued by companies in the finance, telecommunications,
media, and energy groups. Our focus on quality allowed the fund to avoid bonds
whose issuers suffered significant earnings disappointments during the period,
which proved helpful to relative performance. We have opted to keep the fund's
duration (interest rate sensitivity) in a range of slightly short to neutral
with respect to the benchmark, given the highly uncertain environment
surrounding Fed policy. This decision marginally benefited performance in a
difficult environment for short-term bonds.
Q: What is your outlook for the bond market from here?
A: Looking ahead, we believe that the bond market will remain on hold for the
near term as investors strive to determine the extent to which the economy is
slowing, and the amount of Fed rate hikes that are in store over the remainder
of the year. In the near term, it is likely that the market will remain very
sensitive to economic data and comments from Fed governors as investors seek
confirmation that the initial signs of a slowdown will in fact signal an end to
the Fed's tightening cycle. Given this unsettled environment, we intend to
continue diversifying
11
<PAGE>
the portfolio among high quality, attractively valued short-term bonds. In
addition, we will take advantage of our extensive research capabilities to seek
to capitalize on pricing exaggerations in the market. Finally, it is likely that
we will seek opportunities to increase the fund's position in mortgage-backed
and asset-backed securities. We believe that this approach will enable the fund
to produce favorable risk-adjusted returns over the second half of the year.
12
<PAGE>
Scudder Short Term Bond Fund:
A Team Approach to Investing
Scudder Short Term Bond Fund is managed by a team of Scudder Kemper Investments,
Inc. (the "Adviser") professionals, each of whom plays an important role in the
fund's management process. Team members work together to develop investment
strategies and select securities for the fund's portfolio. They are supported by
the Adviser's large staff of economists, research analysts, traders, and other
investment specialists who work in offices across the United States and abroad.
The Adviser believes that a team approach benefits fund investors by bringing
together many disciplines and leveraging the firm's extensive resources.
Co-lead portfolio manager Robert S. Cessine joined the team in 1998 and helps
set the fund's investment strategy. Mr. Cessine joined the Adviser in 1993 and
has over 16 years of investment and financial services industry experience.
Co-lead portfolio manager John E. Dugenske joined the team in 2000 and is
responsible for setting the fund's investment strategy with Mr. Cessine. Mr.
Dugenske joined the Adviser in 1998 and has 10 years of investment industry
experience.
13
<PAGE>
Glossary of Investment Terms
--------------------------------------------------------------------------------
Asset-Backed Bonds or notes backed by loan paper or accounts receivable
Securities originated by banks, credit card companies, or other
providers of credit and often "enhanced" by a bank Letter of
Credit or by insurance coverage provided by an institution
other than the issuer.
Duration A measure of bond price volatility. Duration can be defined
as the approximate percentage change in price for a 100
basis point (one single percentage point) change in market
interest rate levels. A duration of 5, for example, means
that the price of a bond should rise by approximately 5% for
a one percentage point drop in interest rates, and fall by
5% for a one percentage point rise in interest rates.
Inverted Yield An unusual situation where short-term interest rates are
Curve higher than long-term interest rates. An inverted curve
results when a surge in demand for short-term credit drives
up short-term rates, while long-term rates move up more
slowly since borrowers are not willing to commit themselves
to pay high rates for many years. This scenario is often
indicative of negative sentiment concerning a country's
economic health.
Yield Curve A graph showing the term structure of interest rates by
plotting the yields of all bonds of the same quality with
maturities ranging from the shortest to the longest
available. The resulting curve shows the relationship
between short-, intermediate-, and long-term interest rates.
Yield Spread The difference in yield between two types of bonds. A
mortgage-backed security's yield is often measured against
the yield of a Treasury bond of similar maturity as a market
yardstick. If GNMA yield spreads are "narrow," for example,
it typically means that GNMA yields have been declining, and
prices rising, compared with Treasury bonds of similar
maturity.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
14
<PAGE>
Investment Portfolio As of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Repurchase Agreements 13.0%
--------------------------------------------------------------------------------------------
<S> <C> <C>
State Street Bank and Trust Company, 6.48%, to be
repurchased at $87,076,995 on 7/3/2000**
(Cost $87,030,000) .......................................... 87,030,000 87,030,000
-----------
--------------------------------------------------------------------------------------------
U.S. Treasury Obligations 1.7%
--------------------------------------------------------------------------------------------
U.S. Treasury Bond, 6.5%, 2/15/2010 ............................ 5,300,000 5,481,366
U.S. Treasury Bond, 8%, 11/15/2021 ............................. 4,700,000 5,681,877
--------------------------------------------------------------------------------------------
Total U.S Treasury Obligations (Cost $11,129,775) 11,163,243
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Government National Mortgage Association 11.2%
--------------------------------------------------------------------------------------------
Pass-thru, 8% with various maturities to 12/15/2010 ............ 10,019,984 10,169,947
Pass-thru, 7% with various maturities to 6/15/2014 ............. 6,467,972 6,392,628
Pass-thru, 8.5% with various maturities to 12/15/2029 .......... 39,754,700 40,641,530
7.5%, 10/1/2014 ................................................ 222,138 221,305
11%, 7/15/2015 ................................................. 33,868 36,685
9%, 11/15/2020 ................................................. 70,596 73,155
5.55%, 9/20/2024 ............................................... 9,195,755 9,218,744
11.5%, 1/1/2029 ................................................ 7,282,600 7,992,581
--------------------------------------------------------------------------------------------
Total Government National Mortgage Association (Cost $74,798,477) 74,746,575
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
U.S. Government Agency Pass-Thrus 5.1%
--------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
9.5%, 8/1/2016 .............................................. 2,987,463 3,125,006
Series 2131 BA, 6%, 11/15/2017 .............................. 15,631,012 15,264,621
Series 2066 PQ, 6.15%, 3/15/2021 ............................ 6,600,000 6,474,138
Series 2198 PA, 6.75%, 12/1/2029 ............................ 10,000,000 9,918,700
Series T-20 A2, 7.06%, 6/25/2016 ............................ 8,400,000 8,183,438
Series T-22 A7, 5.758%, 11/25/2029 .......................... 16,444,363 16,459,780
Series T-23 A1, 6.75%, 5/25/2030 ............................ 13,773,272 13,784,032
Federal National Mortgage Association:
5.125%, 2/13/2004 ........................................... 11,000,000 10,324,490
8%, 12/1/2012 ............................................... 5,396,783 5,452,424
7.5%, 12/1/2014 ............................................. 205,766 204,995
Series 1998-44 QC, 6%, 1/18/2014 ............................ 6,600,000 6,496,842
Series 1999-51 LB, 6.5%, 3/25/2014 .......................... 11,224,000 11,090,659
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
----------------------------------------------------------------------------------------
<S> <C> <C>
Series 1999-51 PB, 6%, 7/25/2017 ....................... 16,210,700 15,901,562
Series 1999-54 LB, 6.5%, 4/25/2014 ..................... 12,556,000 12,395,032
Student Loan Marketing Association, 6.43%, 1/25/2013 ...... 15,200,000 15,202,375
----------------------------------------------------------------------------------------
Total U.S. Government Agency Pass-Thrus (Cost $151,900,079) 150,278,094
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 20.3%
----------------------------------------------------------------------------------------
First Bank System Inc., Series 1993-F, 7.14%, 11/25/2024 .. 2,458,472 2,448,484
General Electric Capital Mortgage Services, Inc.,
Series 1992-E, 7%, 1/25/2008 ........................... 1,869,576 1,862,565
Residential Funding Mortgage Securities, Inc.,
Series 2000-HI1 AI2, 7.58%, 9/25/2010 .................. 9,500,000 9,407,969
Residential Funding Mortgage Securities I Inc.,
Series 1997-S19 A6, 6.5%, 12/25/2012 ................... 3,278,417 3,258,943
Residential Funding Mortgage Security, Series 1992-J9 B2,
7.81%, 4/28/2022 ....................................... 3,188,915 3,172,971
----------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations (Cost $20,392,151) 20,150,932
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Foreign Bonds -- Non U.S.$ Denominated 1.5%
----------------------------------------------------------------------------------------
Province of Ontario, 7.375%, 1/27/2003
(Cost $10,139,500) ..................................... 10,000,000 10,061,600
-----------
----------------------------------------------------------------------------------------
Asset Backed 15.4%
----------------------------------------------------------------------------------------
Miscellaneous 0.9%
Coast-Plymouth Tax Lien Capital, LLC, Series 1999-A,
6.76%, 11/15/2004 ...................................... 6,320,249 6,292,566
-----------
Automobile Receivables 4.4%
Capital Automobile Receivable Asset Trust, Series 1999-1
A2, 5.58%, 6/15/2002 ................................... 10,000,000 9,896,800
First Security Auto Owner Trust, Series 2000-1, A4,
7.4%, 10/15/2005 ....................................... 8,600,000 8,656,438
Ford Credit Auto Owner Trust, Series 1998-C A5,
5.86%, 10/15/2002 ...................................... 10,915,000 10,785,384
-----------
29,338,622
-----------
Credit Card Receivables 4.0%
Discover Card Master Trust I, Series 2000-2 A, 6.13%,
9/18/2007 .............................................. 12,500,000 12,496,094
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
------------------------------------------------------------------------------------
<S> <C> <C>
Discover Card Master Trust I, Series 1996-4 A, 6.156%,
10/16/2013 ......................................... 4,000,000 4,022,480
MBNA Master Credit Card Trust, Series 1996-C B,
6.74%, 8/15/2003 ................................... 10,000,000 10,000,000
-----------
26,518,574
-----------
Home Equity Loans 2.3%
Contimortgage Net Interest Margin Notes, Series 1997-3,
7/16/2028 .......................................... 4,884,428 976,886
EQCC Home Equity Loan Trust, Series 1996-4 A6,
6.88%, 7/15/2004 ................................... 4,000,000 3,978,720
Residential Asset Securities Corp., Series 1999-KS3,
7.18%, 1/25/2025 ................................... 11,000,000 10,809,219
-----------
15,764,825
-----------
Manufactured Housing Receivables 3.8%
GE Capital Mortgage Services, Inc., Series 1999-HE3 A2,
7%, 8/25/2013 ...................................... 10,000,000 9,896,875
Green Tree Financial Corp. Series 1993-4 B1, 7.2%,
1/15/2019 .......................................... 3,064,682 2,798,437
Green Tree Financial Corp., Series 1995-8 B1, 7.3%,
12/15/2026 ......................................... 9,151,720 6,709,355
Green Tree Financial Corp. Series 1996-5 B2, 8.45%,
7/15/2027 .......................................... 9,832,276 5,905,511
-----------
25,310,178
-----------
------------------------------------------------------------------------------------
Total Asset Backed (Cost $114,283,860) 103,224,765
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Corporate Bonds 31.8%
------------------------------------------------------------------------------------
Consumer Staples 2.1%
Gillette Company, 5.75%, 8/3/2001 ..................... 7,000,000 6,887,090
Safeway Inc., 6.05%, 11/15/2003 ....................... 7,400,000 7,066,186
-----------
13,953,276
-----------
Communications 2.0%
MCI Communications Corp., 6.125%, 4/15/2002 ........... 7,000,000 6,841,660
Sprint Capital Corp., 5.875%, 5/1/2004 ................ 7,000,000 6,571,390
-----------
13,413,050
-----------
Financial 12.0%
Associates Corp. of North America, 6.903%, 5/8/2003 ... 7,000,000 7,061,040
Bank One Corp., 6.4%, 8/1/2002 ........................ 6,500,000 6,364,540
BankAmerica Corp., 5.75%, 3/1/2004 .................... 9,100,000 8,554,728
CNL Funding, 7.295%, 3/18/2012 ........................ 5,586,862 5,480,362
Chase Manhattan Corp., 5.75%, 4/15/2004 ............... 5,000,000 4,705,800
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
----------------------------------------------------------------------------------
<S> <C> <C>
FleetBoston Financial Group, 6.458%, 3/27/2003 ........ 7,000,000 7,074,830
Ford Motor Credit Corp., 7.25%, 1/15/2003 ............. 7,000,000 6,951,350
General Electric Capital Corp., 6.02%, 5/4/2001 ....... 7,000,000 6,938,960
Heller Financial Inc., 7.875%, 5/15/2003 .............. 7,000,000 6,989,920
NBD Bank NA Michigan, 6.25%, 8/15/2003 ................ 6,500,000 6,253,000
Prudential Funding Corp, 6.19%, 2/15/2002 ............. 7,000,000 6,987,120
Wells Fargo & Co., 6.29%, 4/26/2002 ................... 7,000,000 7,007,280
-----------
80,368,930
-----------
Media 2.1%
Cox Communications, Inc., 7.5%, 8/15/2004 ............. 7,000,000 6,948,690
TCI Communications Inc., 6.375%, 5/1/2003 ............. 7,500,000 7,291,200
-----------
14,239,890
-----------
Durables 2.2%
DaimlerChrysler NA Holdings, 7.125%, 4/10/2003 ........ 7,500,000 7,443,375
General Motors Acceptance Corp., 6.75%, 12/10/2002 .... 7,000,000 6,880,930
-----------
14,324,305
-----------
Technology 3.2%
Hewlett-Packard Co., 7.15%, maturities to 6/15/2005 .. 7,000,000 7,012,810
International Business Machines Corp., 7.25%, 11/1/2002 7,500,000 7,546,425
Raytheon Co., 6.45%, 8/15/2002 ........................ 7,000,000 6,819,820
-----------
21,379,055
-----------
Energy 2.1%
Atlantic Richfield Co., 5.55%, 4/15/2003 .............. 7,000,000 6,748,560
Conoco Inc., 5.9%, 4/15/2004 .......................... 7,500,000 7,161,975
-----------
13,910,535
-----------
Utilities 0.7%
Detroit Edison Co., 5.93%, 2/1/2001 ................... 5,000,000 4,957,000
-----------
Miscellaneous 5.4%
Ford Credit Auto Owner Trust, 2000-C, A4, 7.24%,
maturities to 2/15/2004 ............................ 5,600,000 5,596,500
International Paper Co., 8%, maturities to 7/8/2003 .. 7,000,000 7,029,260
Toyota Auto Receivables Owner Trust, 7.21%, maturities
to 4/15/2007 ....................................... 7,650,000 7,635,656
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value ($)
---------------------------------------------------------------------------------------
<S> <C> <C>
Transamerica Finance Corp., 7.25%, 8/15/2002 ............. 10,000,000 9,921,900
United States West Communications, 7.625%, maturities
to 6/9/2003 ........................................... 6,000,000 5,984,040
-----------
36,167,356
-----------
---------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $214,224,718) 212,713,397
---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $683,898,560) (a) 669,368,606
---------------------------------------------------------------------------------------
</TABLE>
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $683,910,279. At June 30,
2000, net unrealized depreciation for all securities based on tax cost
was $14,541,673. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $993,850 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $15,535,523.
Included in the portfolio are investments in mortgage or asset-backed
securities which are interests in separate pools of mortgages or
assets. Effective maturities of these investments may be shorter than
stated maturities due to prepayments. All separate investments in
Federal National Mortgage Association and Government National Mortgage
Association issues which have similar coupon rates have been aggregated
for presentation purposes in the investment portfolio.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Financial Statements
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $683,898,560) ................ $ 669,368,606
Interest receivable .................................................... 5,890,501
Receivable for Fund shares sold ........................................ 266,160
Due from Adviser ....................................................... 26,591
Other assets ........................................................... 10,650
---------------
Total assets ........................................................... 675,562,508
Liabilities
----------------------------------------------------------------------------------------
Due to custodian bank .................................................. 153,811
Dividends payable ...................................................... 773,916
Payable for Fund shares redeemed ....................................... 3,100,367
Accrued management fee ................................................. 275,152
Accrued reorganization costs ........................................... 197,105
Accrued Trustees' fees and expenses .................................... 57,228
Other accrued expenses and payables .................................... 826,844
---------------
Total liabilities ...................................................... 5,384,423
----------------------------------------------------------------------------------------
Net assets, at value $ 670,178,085
----------------------------------------------------------------------------------------
Net Assets
----------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 1,545,989
Net unrealized appreciation (depreciation) on investments .............. (14,529,954)
Accumulated net realized gain (loss) ................................... (171,659,458)
Paid-in capital ........................................................ 854,821,508
Net assets, at value ................................................... $ 670,178,085
Net Asset Value
----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($670,178,085 /
64,579,489 outstanding shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) .............................. $ 10.38
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations for the six months ended June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
Investment Income
------------------------------------------------------------------------------
Income:
Interest ...................................................... $ 24,008,256
---------------
Expenses:
Management fee ................................................ 2,026,417
Services to shareholders ...................................... 1,034,476
Custodian and accounting fees ................................. 80,362
Auditing ...................................................... 24,206
Legal ......................................................... 12,012
Trustees' fees and expenses ................................... 69,926
Reports to shareholders ....................................... 73,239
Registration fees ............................................. 17,472
Reorganization ................................................ 232,689
Other ......................................................... 11,553
---------------
Total expenses, before expense reductions ..................... 3,582,352
Expense reductions ............................................ (301,106)
---------------
Total expenses, after expense reductions ...................... 3,281,246
------------------------------------------------------------------------------
Net investment income (loss) 20,727,010
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... (7,400,266)
Net unrealized appreciation (depreciation) during the period on
investments ................................................ 2,758,862
------------------------------------------------------------------------------
Net gain (loss) on investment transactions (4,641,404)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 16,085,606
------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended
2000 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ...................... $ 20,727,010 $ 50,299,608
Net realized gain (loss) on investment transactions (7,400,266) (23,781,107)
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... 2,758,862 (13,156,530)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations ................................ 16,085,606 13,361,971
--------------- ---------------
Distributions to shareholders from net investment
income ......................................... (20,932,493) (49,964,406)
--------------- ---------------
Fund share transactions:
Proceeds from shares issued in tax-free
reorganization ................................. -- 17,782,383
Proceeds from shares sold ......................... 160,873,609 790,459,825
Reinvestment of distributions ..................... 15,891,445 38,144,688
Cost of shares redeemed ........................... (275,921,593) (1,027,543,228)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ............................. (99,156,539) (181,156,332)
--------------- ---------------
Increase (decrease) in net assets ................. (104,003,426) (217,758,767)
Net assets at beginning of period ................. 774,181,511 991,940,278
Net assets at end of period (including
undistributed net investment income of
$1,545,989 and $1,751,472, respectively) ....... $ 670,178,085 $ 774,181,511
Other Information
--------------------------------------------------------------------------------------
Shares outstanding at beginning of period ......... 74,130,248 91,279,720
--------------- ---------------
Shares issued in tax-free reorganization .......... -- 1,643,474
Shares sold ....................................... 15,494,637 73,357,835
Shares issued to shareholders in reinvestment of
distributions .................................. 1,531,453 3,589,874
Shares redeemed ................................... (26,576,849) (95,740,655)
--------------- ---------------
Net increase (decrease) in Fund shares ............ (9,550,759) (17,149,472)
Shares outstanding at end of period ............... 64,579,489 74,130,248
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<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, 2000(a) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $10.44 $10.87 $11.04 $11.05 $11.35 $10.91
-----------------------------------------------------
------------------------------------------------------------------------------------
Income from investment operations:
------------------------------------------------------------------------------------
Net investment income .30(b) .60(b) .66(b) .73(b) .74(b) .71
------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investment
transactions (.05) (.44) (.19) (.07) (.32) .44
-----------------------------------------------------
------------------------------------------------------------------------------------
Total from investment
operations .25 .16 .47 .66 .42 1.15
------------------------------------------------------------------------------------
Less distributions from:
------------------------------------------------------------------------------------
Net investment income (.31) (.59) (.64) (.67) (.72) (.43)
------------------------------------------------------------------------------------
Tax return on capital -- -- -- -- -- (.28)
-----------------------------------------------------
------------------------------------------------------------------------------------
Total distributions (.31) (.59) (.64) (.67) (.72) (.71)
------------------------------------------------------------------------------------
Net asset value, end of period $10.38 $10.44 $10.87 $11.04 $11.05 $11.35
-----------------------------------------------------
------------------------------------------------------------------------------------
Total Return (%) 2.38** 1.57(d) 4.34(c) 6.17 3.86 10.74
------------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
------------------------------------------------------------------------------------
Net assets, end of period
($ millions) 670 774 992 1,166 1,468 1,823
------------------------------------------------------------------------------------
Ratio of expenses before
expense reductions (%) .97(e)* .87 .86 .86 .80 .75
------------------------------------------------------------------------------------
Ratio of expenses, after
expense reductions (%) .89(e)* .85 .86 .86 .80 .75
------------------------------------------------------------------------------------
Ratio of net investment income
(%) 5.84* 5.60 6.07 6.64 6.66 6.37
------------------------------------------------------------------------------------
Portfolio turnover rate (%) 194* 256 95 39 62 101
------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended June 30, 2000 (Unaudited).
(b) Based on monthly average shares outstanding during the period.
(c) If the Adviser had not reimbursed the Fund $12,808,543 for losses
incurred with certain portfolio transactions, the total return for the
year ended December 31, 1998 would have been lower.
(d) Total return would have been lower had certain expenses not been
reduced.
(e) The ratios of operating expenses excluding costs incurred in connection
with the reorganization before and after expense reductions were .93%
and .85%, respectively.
* Annualized
** Not annualized
23
<PAGE>
Notes to Financial Statements (Unaudited)
--------------------------------------------------------------------------------
A. Significant Accounting Policies
Scudder Short Term Bond Fund (the "Fund") is a diversified series of Scudder
Funds Trust (the "Trust") which is registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with accounting
principles generally accepted in the United States 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 Trust, 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. Money market instruments purchased with 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 Board of Trustees.
Repurchase Agreements. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian or
sub-custodian bank, receives delivery of the underlying securities, the amount
of which at the time of purchase and each subsequent business day is required to
be maintained at such a level that the market value is equal to at least the
principal amount of the repurchase price plus accrued interest.
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 federal
income tax provision was required. In addition, from November 1, 1999 through
December 31, 1999, the Fund incurred approximately $2,648,000 of net realized
capital losses. As permitted by tax regulations, the Fund intends to elect to
defer these losses and treat them as arising in the fiscal year ended December
31, 2000.
24
<PAGE>
At December 31, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $161,600,000 which may be applied against any realized net taxable
gains of each succeeding year until fully utilized or until December 31, 2002
($27,264,000), December 31, 2003 ($60,090,000), December 31, 2004 ($27,917,000),
December 31, 2005 ($18,998,000), December 31, 2006 ($6,027,000), December 31,
2007 ($21,304,000), the respective expiration dates.
In addition, the Fund inherited approximately $1,094,000 of capital losses from
its merger with Scudder's Zero Coupon 2000 Fund, which can be used to offset
gains in future years, or until December 31, 2001($542,000), December 31, 2002
($178,000), and December 31, 2003 ($374,000), the respective expiration dates,
subject to certain limitations imposed by Section 382 of the Internal Revenue
Code.
Distribution of Income and Gains. All of the net investment income of the Fund
is declared as a daily dividend and is distributed to shareholders monthly. 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 at least annually.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from accounting principles generally accepted in the United
States. 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis. Original issue discounts are accreted for both tax and
financial reporting purposes.
25
<PAGE>
B. Purchases and Sales of Securities
During the six months ended June 30, 2000, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $527,839,716 and $663,782,612, respectively. Purchases and sales of
U.S. Government obligations aggregated $123,571,468 and $145,059,770,
respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or 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 0.60% on the first
$500,000,000 of average daily net assets, 0.50% on the next $500,000,000 of such
net assets, 0.45% on the next $500,000,000 of such net assets, 0.40% on the next
$500,000,000 of such net assets, 0.375% on the next $1,000,000,000 of such net
assets and 0.35% on such net assets in excess of $3,000,000,000, computed and
accrued daily and payable monthly. Effective October 1, 1998, the Adviser has
agreed not to impose all or a portion of the Fund's management fee until April
30, 2001 in order to maintain the annualized expenses of the Fund at not more
than 0.85% of average daily net assets. Certain expenses incurred in connection
with the reorganization are excluded from the expense limitation. For the six
months ended June 30, 2000, the Adviser did not impose a portion of its
management fee aggregating $255,777, and the amount imposed aggregated
$1,770,640. This was equivalent to an annualized effective rate of 0.50% of the
Fund's daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend-paying and shareholder service agent for the Fund. For the
six months ended June 30, 2000, the amount charged to the Fund by SSC aggregated
$587,581, of which $378,135 is unpaid at June 30, 2000.
26
<PAGE>
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
record-keeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the six months ended June 30,
2000, the amount charged to the Fund by STC aggregated $197,031, of which
$28,685 is unpaid at June 30, 2000.
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 six months
ended June 30, 2000, the amount charged to the Fund by SFAC aggregated $48,774,
of which $8,657 is unpaid at June 30, 2000.
The Trust pays each of its Trustees 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 six months ended June 30,
2000, Trustees' fees and expenses aggregated $16,744. In addition, a one-time
fee of $53,182 was accrued for payment to those Trustees not affiliated with the
Adviser who are not standing for re-election, under the reorganization discussed
in Note G. Inasmuch as the Adviser will also benefit from administrative
efficiencies of a consolidated Board, the Adviser has agreed to bear $26,591 of
such costs.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the period, the Fund's custodian
and transfer agent fees were reduced by $4,634 and $14,104, respectively, under
these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated, pro rata based upon net assets, among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to 33 percent of its net assets under the
agreement.
27
<PAGE>
F. Merger
On April 12, 1999, the Fund acquired all the net assets of Scudder Zero Coupon
2000 Fund pursuant to a plan of reorganization approved by shareholders on
December 15, 1998. The acquisition was accomplished by a tax-free exchange of
1,643,474 shares of the Fund (valued at $17,782,383) for 1,558,491 shares of
Scudder Zero Coupon 2000 Fund outstanding on April 12, 1999. Scudder Zero Coupon
2000 Fund's net assets at that date ($17,782,383), including $394,788 of
unrealized appreciation, were combined with those of the Fund. The aggregate net
assets of the Fund immediately before the acquisition were $931,962,736. The
combined net assets of the Fund immediately following the acquisition were
$949,745,119.
G. Reorganization
In early 2000, Scudder Kemper initiated a restructuring program for most of its
Scudder no-load open-end funds in response to changing industry conditions and
investor needs. The program proposes to streamline the management and operations
of most of the no-load open-end funds Scudder Kemper advises principally through
the liquidation of several small funds, mergers of certain funds with similar
investment objectives, the creation of one Board of Directors/Trustees and the
adoption of an administrative fee covering the provision of most of the services
currently paid for by the affected funds. Costs incurred in connection with this
restructuring initiative are being borne jointly by Scudder Kemper and certain
of the affected funds. These costs, including printing, shareholder meeting
expenses and professional fees, are presented as reorganization expenses in the
Statement of Operations of the Fund.
28
<PAGE>
Shareholder Meeting Results (Unaudited)
--------------------------------------------------------------------------------
A Special Meeting of Shareholders (the "Meeting") of Scudder Short Term Bond
Fund (the "fund") was held on July 13, 2000, 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 elect Trustees of the fund.
Number of Votes:
Trustee For Withheld
--------------------------------------------------------------------------------
Henry P. Becton, Jr. 35,143,902 997,222
Linda C. Coughlin 35,131,317 1,009,808
Dawn-Marie Driscoll 35,131,339 1,009,786
Edgar R. Fiedler 35,121,619 1,019,506
Keith R. Fox 35,145,668 995,457
Joan E. Spero 35,091,658 1,049,466
Jean Gleason Stromberg 35,123,039 1,018,086
Jean C. Tempel 35,145,448 995,677
Steven Zaleznick 35,108,146 1,032,979
--------------------------------------------------------------------------------
2. To ratify the selection of PricewaterhouseCoopers LLP as the independent
accountants for the fund for the current fiscal year.
Number of Votes:
Broker
For Against Abstain Non-Votes*
------------------------------------------------------------------------------
34,661,714 764,540 714,870 0
------------------------------------------------------------------------------
------------------------------------------------------------------------------
* Broker non-votes are proxies received by the fund from brokers or
nominees when the broker or nominee neither has received instructions
from the beneficial owner or other persons entitled to vote nor has
discretionary power to vote on a particular matter.
29
<PAGE>
Officers and Trustees
--------------------------------------------------------------------------------
Linda C. Coughlin* Robert S. Cessine*
o President and Trustee o Vice President
Henry P. Becton, Jr. John E. Dugenske*
o Trustee; President and General o Vice President
Manager, WGBH Educational
Foundation Ann M. McCreary*
o Vice President
Dawn-Marie Driscoll
o Trustee; President, Driscoll John Millette*
Associates; Executive Fellow, o Vice President and Secretary
Center for Business Ethics,
Bentley College John R. Hebble*
o Treasurer
Peter B. Freeman
o Trustee; Corporate Director Caroline Pearson*
o Assistant Secretary
George M. Lovejoy, Jr.
o Trustee; President and Director, *Scudder Kemper Investments, Inc.
Fifty Associates
Wesley W. Marple, Jr.
o Trustee; Professor of Business
Administration, Northeastern
University
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Managing Director,
First Light Capital
30
<PAGE>
Investment Products and Services
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
--------------------------------------------------------------------------------
The Scudder Family of Funds@
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Money Market U.S. Growth
Scudder U.S. Treasury Money Fund Value
Scudder Cash Investment Trust Scudder Large Company Value Fund
Scudder Money Market Series -- Scudder Value Fund***
Prime Reserve Shares* Scudder Small Company Value Fund
Premium Shares*
Managed Shares* Growth
Scudder Tax Free Money Fund+ Scudder Classic Growth Fund***
Scudder Capital Growth Fund***
Tax Free+ Scudder Large Company Growth Fund***
Scudder Medium Term Tax Free Fund Scudder Select 1000 Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder High Yield Tax Free Fund*** Scudder Small Company Stock Fund***
Scudder California Tax Free Fund** Scudder 21st Century Growth Fund***
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund** Global Equity
Worldwide
U.S. Income Scudder Global Fund
Scudder Short Term Bond Fund Scudder International Fund++
Scudder GNMA Fund*** Scudder Global Discovery Fund***
Scudder Income Fund Scudder Emerging Markets Growth Fund
Scudder Corporate Bond Fund Scudder Gold Fund
Scudder High Yield Bond Fund
Regional
Global Income Scudder Greater Europe Growth Fund
Scudder Global Bond Fund Scudder Pacific Opportunities Fund
Scudder Emerging Markets Income Fund Scudder Latin America Fund
The Japan Fund, Inc.***
Asset Allocation
Scudder Pathway Conservative Portfolio Industry Sector Funds
Scudder Pathway Balanced Portfolio Choice Series
Scudder Pathway Growth Portfolio Scudder Health Care Fund
Scudder Technology Fund
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund***
Scudder Select 500 Fund
Scudder S&P 500 Index Fund
</TABLE>
31
<PAGE>
--------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
--------------------------------------------------------------------------------
Retirement Programs and Education Accounts
--------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA IRA for Minors
Inherited IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**@@
Scudder Horizon Advantage**@@@
--------------------------------------------------------------------------------
Closed-End Funds#
--------------------------------------------------------------------------------
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia 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 or classes thereof 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 Class S 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 Kemper Investments'
insurance agencies, 1-800-225-2470.
@@@ A no-load variable annuity contract issued by Glenbrook Life and Annuity
Company and underwritten by Allstate Financial Services, Inc., sold by
Scudder Kemper Investments' 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.
32
<PAGE>
Account Management Resources
--------------------------------------------------------------------------------
For shareholders of Scudder funds including those in the AARP Investment Program
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average"
-- buy more shares when the fund's price is lower and
fewer when it's higher, which can reduce your average
purchase price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government
checks -- invested in up to four Scudder funds at one
time.
* 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- Automated Information Lines
clock electronic
account Scudder Class S Shareholders:
service and Call SAIL(TM) -- 1-800-343-2890
information,
including some AARP Investment Program Shareholders:
transactions Call Easy-Access Line -- 1-800-631-4636
Personalized account information, the ability to exchange
or redeem shares, and information on other Scudder funds
and services via touchtone telephone.
Web Site
Scudder Class S Shareholders --
www.scudder.com
AARP Investment Program Shareholders --
aarp.scudder.com
Personal Investment Organizer: Offering account
information and transactions, interactive worksheets,
prospectuses and applications for all 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.
33
<PAGE>
Those who Automatic Withdrawal Plan
depend on
investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days
withdrawal after each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Scudder Class S Shareholders:
information Call a Scudder representative at
about these 1-800-SCUDDER
services
AARP Investment Program Shareholders:
Call an AARP Investment Program representative at
1-800-253-2277
Please address For Scudder Class S Shareholders:
all written
correspondence The Scudder Funds
to PO Box 2291
Boston, Massachusetts
02107-2291
For AARP Investment Program Shareholders:
AARP Investment Program from Scudder
PO Box 2540
Boston, Massachusetts
02208-2540
34
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About the Fund's Adviser
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 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 over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services 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 Financial Services Group. The Zurich Financial Services 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
INVESTMENTS(SM)
[LOGO]
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
A member of the [LOGO] Zurich Financial Services Group
