SCUDDER
INVESTMENTS(SM)
[LOGO]
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BOND/DOMESTIC
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Scudder Short Term
Bond Fund
Fund #022
Annual Report
December 31, 1999
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
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
9 Portfolio Management Discussion
13 Investment Portfolio
18 Financial Statements
21 Financial Highlights
22 Notes to Financial Statements
26 Report of Independent Accountants
27 Officers and Trustees
28 Investment Products and Services
30 Scudder Solutions
2
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Scudder Short Term Bond Fund
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ticker symbol SCSTX fund number 022
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Date of Inception: o In a period when bond prices were rattled by stronger
4/2/84 global growth and three interest rate increases in
the U.S., our diversified approach proved beneficial
to fund performance.
Total Net Assets as o Management found opportunities in AAA-rated corporate
of 12/31/99: bonds, particularly those in noncyclical sectors, as
$774 million well as asset-backed securities.
o Management reduced portfolio duration during the
period, a move that helped cushion the portfolio
against a negative interest rate environment.
3
<PAGE>
Letter from the Fund's President
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Dear Shareholders,
The past year proved to be very challenging for fixed income investors. In a
turn of events that few experts were predicting when the year began, inflation
concerns and multiple interest rate hikes by the U.S. Federal Reserve sparked a
steady downtrend in bond prices. With the crises of 1998 still fresh in
investors' memories, the consensus expectation was that slow global growth would
continue to provide a positive backdrop for bond prices. Exactly the opposite
proved true, however, as growth picked up steam both in the U.S. and abroad.
With consumer spending on the increase and unemployment hovering near 4%, the
Federal Reserve sought to stem potential inflationary pressures by raising
interest rates by a quarter point on three separate occasions. By year-end, the
continued strength of the economy was raising fears that the Fed would be forced
to raise rates at least twice more in 2000.
Despite the difficult interest rate environment, Scudder Short Term Bond Fund
was able to weather the volatility in the bond market over the second half of
the year. A neutral duration strategy and a focus on quality and diversification
held the fund in good stead over the period, and we believe that the slump in
bond prices represents an opportunity to pick up stable, lower-risk securities
at attractive yield levels. For more information on how the fund's management
team plans to
4
<PAGE>
position the portfolio for the year ahead, please turn to the Portfolio
Management Discussion beginning on page 9
Finally, it should be noted that Daniel Pierce retired in June of 1999 as
President of Scudder Short Term Bond Fund, at which time I assumed that role and
its responsibilities. We are fortunate that Dan's long-standing affiliation with
Scudder is ongoing, and that we will continue to benefit from his counsel going
forward. I am pleased to join the fund's team in this capacity, and look forward
to serving your interests.
Thank you for your continued investment in Scudder Short Term Bond Fund. If you
have any questions about your investment, please call Scudder Investor
Information at 1-800-SCUDDER (1-800-728-3337), or visit our Web site at
www.scudder.com.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Short Term Bond Fund
5
<PAGE>
Performance Update
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December 31, 1999
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Growth of a $10,000 Investment
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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)*
89 10000 10000
'90 10988 10972
'91 12568 12271
'92 13251 13062
'93 14335 13796
'94 13924 13880
'95 15420 15392
'96 16014 16187
'97 17002 17266
'98 17739 18467
'99 18017 18977
Yearly periods ended December 31
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 12/31/1999 $10,000 Cumulative Annual
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Scudder Short Term Bond Fund
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1 year $ 10,157 1.57% 1.57%
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5 year $ 12,940 29.40% 5.29%
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10 year** $ 18,017 80.17% 6.06%
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Salomon Brothers Inc. Treasury/Government Sponsored Corporate Index (1-3 years)*
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1 year $ 10,276 2.76% 2.76%
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5 year $ 13,672 36.72% 6.45%
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10 year** $ 18,977 89.77% 6.61%
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* 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
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Returns and Per Share Information
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Yearly periods ended December 31
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 (%)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 9.88 14.38 5.43 8.18 -2.87 10.74 3.86 6.17 4.34 1.57
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Index Total
Return (%) 9.70 11.85 6.44 5.63 .60 10.89 5.16 6.67 6.95 2.76
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Net Asset
Value ($) 11.72 12.25 11.93 12.01 10.91 11.35 11.05 11.04 10.87 10.44
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Income
Dividends
($) 1.09 1.08 .96 .80 .76 .71 .72 .67 .64 .59
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Capital
Gains
Distributions
($) -- -- -- .07 -- -- -- -- -- --
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</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 one year total return for the Fund
would have been lower.
7
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Portfolio Summary
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December 31, 1999
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Diversification
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Corporate Bonds 31% Management continued to
Asset-Backed Securities 24% find attractive value
Collateralized Mortgage opportunities in the
Obligations 16% corporate and
U.S. Government Agency asset-backed sectors.
Pass-Thrus 11%
Government National
Mortgage Association 10%
U.S. Treasury Obligations 4%
Cash Equivalents 3%
Foreign Bonds -- U.S.
Denominated 1%
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100%
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Quality
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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 40% government obligations
AAA* 26% has risen in the last
AA 15% six months, while its
A 12% position in BBB-rated
BBB 7% bonds has declined.
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100%
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* Category includes cash equivalents
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Effective Maturity
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A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Under 1 year 19% Management's decision to
1 through 5 years 69% trim the fund's duration
5 through 8 years 8% helped performance amid
8 years or greater 1% a negative interest rate
Greater than 15 years 3% environment.
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100%
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Weighted average effective
maturity: 2.9 years
For more complete details about the Fund's investment portfolio, see page 13. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
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Portfolio Management Discussion
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December 31, 1999
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 twelve-month period ended December 31, 1999.
Q: The bond market experienced one of the worst years of the twentieth century
in 1999. How did this play out in the various subsectors you follow, and what
were some of the causes?
A: The environment for government bonds has steadily deteriorated over the past
year, but certain sectors of the market have held up relatively well. The
greatest amount of attention has been given to the performance of the benchmark
30-year Treasury bond, whose yield rose from 5.10% to 6.48% (as its price fell)
over the course of the year. Of greater concern to us was the fact that the two-
and three-year notes, which are particularly sensitive to Federal Reserve
policy, were also under pressure, particularly in the fourth quarter. The reason
for the downdraft was the market's growing concern over inflation pressures in
the U.S. economy. Even though broad measures such as the Consumer Price Index
have shown that inflation is still relatively tame, investors are concerned that
the combination of tight labor markets, improved growth overseas, and soaring
stock prices have made an acceleration of inflation inevitable. The Fed sought
to preempt inflation by raising interest rates three times in 1999, and the
consensus expectation is that more rate hikes will be necessary in 2000. With
the economy still barreling along, the bond market has been unnerved by the fact
that there is no discernable point at which the Fed will stop raising rates.
Until investors gain a sense that the Fed has completed its current tightening
cycle, we believe it is likely that volatility will continue.
Outside of Treasuries, certain sectors of the bond market fared well. According
to the Merrill Lynch fixed income indices, mortgage- and asset-backed securities
both provided positive performance over the full year, while government agency
notes were down less than 1%.
9
<PAGE>
Corporate issues performed poorly over the full year, but outperformed
Treasuries in the fourth quarter as fears of a supply-demand imbalance ahead of
Y2K dissipated. The stronger performance of these sectors proved beneficial to
fund performance. Our diversified approach among a variety of corporates,
asset-backeds, agency notes, and mortgages helped to mitigate the effects of the
difficult interest rate environment.
Q: How did the fund perform in this environment?
A: For the twelve-month period ended December 31, 1999, the fund posted a total
return of 1.57%, compared to the 2.76% for its unmanaged benchmark, the Solomon
Brothers Treasury/Government Sponsored Corporate Index. Relative performance was
slightly better during the fourth quarter, the fund returned 0.81%, versus 0.68%
for the index.
Q: How did you position the portfolio among the various subsectors of the bond
market?
A: We increased the fund's holdings in asset-backed securities, which we view as
one of the most attractive areas among short-term issues. The sector offers
attractive yield spreads over Treasuries at what we believe to be a low level of
risk. As of December 31, asset-backeds made up 23.1% of net assets, versus 19.1%
on June 30. We have also found spreads to be attractive in AAA-rated corporates,
a group that was trading at roughly 80 basis points (or eight-tenths of a
percentage point) over comparable Treasuries at year end. Given the low risk
inherent in this sector, we have been taking advantage of the attractive yields.
We believe that this strategy has enabled the fund to withstand the downdraft in
bond prices by positioning it to benefit from the recent outperformance of
asset-backeds and high-grade corporates.
Our corporate position is well diversified among bonds issued by steady,
noncyclical companies with stable cash flows and strong balance sheets. We have
repositioned the
10
<PAGE>
portfolio so that the majority of our positions in individual corporate bonds
(26 overall) are each 1-1.5% of total assets. In the process, we have raised the
overall quality of our corporate position, increased diversification, and, in
our view, lowered overall portfolio risk.
Q: What was your strategy with respect to duration and credit quality?
A: We have trimmed duration to 1.85 years from a high of 2.30 in the third
quarter. As a result, portfolio duration is now neutral with respect to both the
two-year Treasury and the universe of short-term bond funds. Our decision to
reduce duration proved beneficial to performance in a period when
longer-duration assets generally underperformed. Looking ahead, we intend to
maintain a neutral stance until such time as it becomes evident to us that the
Fed is approaching the end of its tightening cycle. The fund's average credit
quality stands at A, which reflects a conservative approach that has also held
the fund in good stead in an unfavorable environment.
Q: What is your outlook for the year ahead?
A: We believe that the bond market will remain unsettled in the early part of
2000. Economic reports should continue to have a significant impact on
short-term market movements as investors search for signs of incipient
inflation. Until there is a clearer indication that the Fed will be able to move
away from its current tightening mode, we expect bond market performance to be
choppy and volatile. As a result, we intend to maintain a neutral duration
strategy and a focus on quality until the interest rate outlook stabilizes.
Given the poor performance of the bond market in '99, it's likely that our next
move will be to increase, rather than decrease, duration. In addition, we will
continue to use volatility as an opportunity to take advantage of value in the
corporate and asset-backed sectors. Overall, we are confident that the fund is
well positioned for the environment we see unfolding over the next 3-6 months.
11
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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.
12
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Investment Portfolio as of December 31, 1999
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<TABLE>
<CAPTION>
Principal
Amount($) Value($)
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Repurchase Agreements 3.2%
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<S> <C> <C>
State Street Bank and Trust Company, 2.8%, to be
repurchased at $24,427,698 on 1/3/2000** -----------
(Cost $24,422,000) .......................................... 24,422,000 24,422,000
-----------
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U.S. Treasury Obligations 4.2%
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U.S. Treasury Note, 5%, 2/28/2001 .............................. 31,500,000 31,096,485
U.S. Treasury Note, 6%, 8/15/2009 .............................. 1,600,000 1,550,000
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Total U.S. Treasury Obligations (Cost $32,743,320) 32,646,485
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Government National Mortgage Association 10.0%
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5.55%, 9/20/2024 ............................................... 10,577,899 10,571,287
8.00%, 12/15/2023 .............................................. 40,298,693 40,890,525
8.50%, 11/15/2009 .............................................. 7,756,980 7,951,990
7.50%, 10/01/2014 .............................................. 8,069,730 8,117,644
9.00%, 11/15/2020 .............................................. 71,330 75,075
11.00%, 7/15/2015 .............................................. 34,751 37,977
11.50, 1/1/2029 ................................................ 8,072,260 8,937,506
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Total Government National Mortgage Association (Cost $78,019,060) 76,582,004
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U. S. Government Agency Pass-thrus 11.4%
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Federal Home Loan Bank, 5.5%, 4/14/2000 ........................ 10,000,000 9,965,600
Federal Home Loan Mortgage Corp. 5.75%, 3/15/2009 .............. 6,000,000 5,480,460
Federal Home Loan Mortgage Corp., 5.758%, 11/15/2029 ........... 17,410,629 17,410,629
Federal Home Loan Mortgage Corp. 9.50%, 8/1/2016 ............... 3,283,769 3,465,887
Federal National Mortgage Association 7.50% with various
maturities to 12/01/2014 .................................... 631,139 634,886
Federal National Mortgage Association 8.00%, 12/1/2012 ......... 6,061,994 6,159,531
Federal National Mortgage Association, 8.50%, 2/1/2005 ......... 44,540,000 44,630,474
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Total U. S. Government Agency Pass-thrus (Cost $88,223,746) 87,747,467
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</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value($)
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- ------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations 15.7%
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<S> <C> <C>
Fannie Mae, Series 1998-44 QC, 6%, 1/18/2014 ................ 6,600,000 6,476,250
Fannie Mae, Series 1999-51 PB, 6%, 7/25/2017 ................ 16,210,700 15,876,354
Fannie Mae, Series 1999-51 LB, 6.5%, 3/25/2014 .............. 11,224,000 11,094,223
Fannie Mae, Series 1999-54 LB, 6.5%, 4/25/2014 .............. 12,556,000 12,406,898
Federal Home Loan Mortgage Corp. Structured pass-thru
Securities, Series T-20 A2, 7.06%, 6/25/2016 ............. 8,400,000 8,400,000
First Bank System Inc. Series 1993-F, 7.136%, 11/25/2024 .... 3,205,424 3,193,404
Freddie Mac, Series 2175 TC, 6%, 2/15/2017 .................. 19,800,000 19,317,276
Freddie Mac, Series 2131 BA, 6%, 11/15/2017 ................. 15,631,012 15,274,312
Freddie Mac, Series 2066 PQ, 6.15%, 3/15/2021 ............... 6,600,000 6,488,592
Freddie Mac, Series 2198 PA, 6.75%, 12/1/2029 ............... 10,000,000 9,945,313
General Electric Capital Mortgage Services, Inc.,
Series 1992-E, 7%, 1/25/2008 ............................. 2,601,417 2,589,216
Residential Funding Mortgage Securities Series 1993-A5,
7.112%, 10/25/2023 ....................................... 1,392,210 1,385,681
Residential Funding Mortgage Securities I Inc.,
Series 1997-S19 A6, 6.5%, 12/25/2012 ..................... 4,987,273 4,993,507
Residential Funding Mortgage Security, Series 1992-J9 B2,
7.81%, 4/28/2022 ......................................... 3,478,179 3,468,953
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Total Collateralized Mortgage Obligations (Cost $121,983,570) 120,909,979
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Foreign Bonds - Non U. S.$ Denominated 1.3%
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Province of Ontario, 7.375%, 1/27/2003 ------------
(Cost $10,139,500) ....................................... 10,000,000 10,104,000
------------
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Asset Backed 23.3%
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Miscellaneous 1.1%
Coast-Plymouth Tax Lien Capital, LLC, Series 1999-A,
6.76%, 11/15/2004 ........................................ 8,376,221 8,329,105
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Automobile Receivables 7.2%
BMW Vehicle Owner Trust, Series 1999 A A4, 6.54%,
4/25/2004 ................................................ 7,000,000 6,941,211
Capital Automobile Receivable Asset Trust, Series 1999-1
A2, 5.58%, 6/15/2002 ..................................... 10,000,000 9,865,625
Ford Credit Auto Owner Trust, Series 1998-C A5,
5.86%, 10/15/2002 ........................................ 10,915,000 10,775,152
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
MMCA Automobile Trust, Series 1999-1 A2,
<S> <C> <C>
6.8%, 8/15/2003 ....................................... 10,000,000 9,962,500
Premier Auto Trust, Series 1999-2 A4, 5.59%, 2/9/2004 .... 11,900,000 11,548,578
World Omni Automobile Lease Securitization Trust
1996-Series B, 6.85%, 11/15/2002 ...................... 6,481,673 6,478,635
------------
55,571,701
------------
Credit Card Receivables 4.5%
Citibank Credit Card Master Trust I, Series 1999-1 A,
5.50%, 2/15/2006 ...................................... 10,000,000 9,437,500
Discover Card Master Trust I, Series 1997-1 A,
6.55%, 2/16/2005 ...................................... 7,000,000 6,982,500
MBNA Master Credit Card Trust, Series 1996-C B,
6.74%, 8/15/2003 ...................................... 10,000,000 9,990,600
Sears Credit Account Master Trust, Series 1999-3 A,
6.45%, 11/15/2005 ..................................... 8,500,000 8,255,625
------------
34,666,225
------------
Home Equity Loans 6.9%
Contimortgage Net Interest Margin Notes, Series 1997-3,
7.23%, 7/16/2028 ...................................... 4,819,485 963,897
EQCC Home Equity Loan Trust, Series 1996-4 A6,
6.88%, 7/15/2004 ...................................... 4,000,000 3,988,125
Equity Credit Corp. Home Equity Loan Trust, Series 1999-2,
6.22%, 6/25/2011 ...................................... 14,800,000 14,561,234
Greenpoint Home Equity Loan Trust, Series 1999-2 A2,
6.84%, 12/15/2025 ..................................... 7,000,000 7,000,000
HFC Home Equity Loan, Asset Backed Certificate,
Series 1999-1 A2, 6.95%, 10/23/2023 ................... 5,600,000 5,565,000
Residential Asset Securities Corp., Series 1998-KS 3 AI 3,
5.91%, 8/25/2022 ...................................... 10,000,000 9,762,500
Residential Asset Securities Corp., Series 1999-KS 3 AI 3,
7.18%, 1/25/2025 ...................................... 11,000,000 10,934,688
------------
52,775,444
------------
Manufactured Housing Receivables 3.6%
GE Capital Mortgage Services, Inc., Series 1999-HE3 A2,
7%, 8/25/2013 ......................................... 10,000,000 9,950,000
Green Tree Financial Corp., Series 1995-8 B1, 7.3%,
12/15/2026 ............................................ 9,500,000 7,801,875
Green Tree Financial Corp. Series 1996-5 B2, 8.45%,
7/15/2027 ............................................. 9,970,670 8,244,498
Merrill Lynch Mortgage Investors Inc., Series 1992-B,
8.5%, 4/15/2012 ....................................... 1,518,871 1,516,016
------------
27,512,389
------------
- ---------------------------------------------------------------------------------------
Total Asset Backed (Cost $188,280,384) 178,854,864
- ---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Principal
Amount ($) Value ($)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Bonds 30.9%
- --------------------------------------------------------------------------------
Consumer Discretionary 1.9%
Wal-Mart Stores Inc., 5.85%, 6/1/2000 ............ 15,000,000 14,979,750
------------
Consumer Staples 4.8%
Gillette Company, 5.75%, 8/3/2001 ................ 10,000,000 9,826,300
Pepsi Bottling Holdings Inc., 5.375%, 2/17/2004 .. 10,000,000 9,373,100
Racers-Kellogg, 5.75%, 2/2/2001 .................. 10,000,000 9,937,500
Safeway Inc., 5.875%, 11/15/2001 ................. 8,000,000 7,813,360
------------
36,950,260
------------
Communications 3.9%
AT&T Capital Corp., 6.25%, 5/15/2001 ............. 11,000,000 10,894,730
Sprint Capital Corp., 5.875%, 5/1/2004 ........... 10,000,000 9,596,000
US West Communications, 6.375%, 10/15/2002 ....... 10,000,000 9,784,600
------------
30,275,330
------------
Financial 13.8%
BANC ONE CORP., 6.25%, 10/1/2001 ................. 10,000,000 9,886,500
Bank of America Corp., 6.625%, 6/15/2004 ......... 10,000,000 9,785,100
CIT Group Inc., 5.625%, 2/2/2001 ................. 10,000,000 9,866,200
CNL Funding, 7.295%, 3/18/2010 ................... 5,800,000 5,713,000
Capital One Bank, 6.57%, 1/27/2003 ............... 7,000,000 6,785,800
Citicorp, 8.03%, 2/15/2000 ....................... 10,000,000 10,019,800
Commercial Credit Co., 6.375%, 9/15/2002 ......... 8,000,000 7,858,160
Ford Motor Credit Corp., 5.75%, 2/23/2004 ........ 10,000,000 9,493,700
General Electric Capital Corp., 6.02%, 5/4/2001 .. 10,000,000 9,925,000
Heller Financial Inc., 5.48%, 2/5/2001 ........... 10,000,000 9,839,600
NBD Bank NA Michigan, 6.25%, 8/15/2003 ........... 6,500,000 6,292,260
Wells Fargo Co., 6.5%, 9/3/2002 .................. 10,000,000 9,896,300
------------
105,361,420
------------
Media 0.8%
Tele-Communications, Inc., 7.375%, 2/15/2000 ..... 6,000,000 6,010,080
------------
Durables 2.6%
DaimlerChrysler NA Holdings, 6.84%, 10/15/2002 ... 10,000,000 9,955,200
General Motors Acceptance Corp., 6.75%, 12/10/2002 10,000,000 9,810,000
------------
19,765,200
------------
Technology 1.3%
Raytheon Co., 6.45%, 8/15/2002 ................... 10,000,000 9,728,100
------------
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
- ---------------------------------------------------------------------------------------
Energy 1.2%
<S> <C> <C>
Atlantic Richfield Co., 5.55%, 4/15/2003 ................. 10,000,000 9,550,000
-----------
Utilities 0.6%
Detroit Edison Co., 5.93%, 2/1/2001 ...................... 5,000,000 4,950,100
-----------
- ---------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $242,314,275) 237,570,240
- ---------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $786,125,855) (a) 768,837,039
- ---------------------------------------------------------------------------------------
</TABLE>
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
(a) The cost for federal income tax purposes was $786,137,574. At December
31, 1999, net unrealized depreciation for all securities based on tax
cost was $17,300,535. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of value
over tax cost of $20,668 and aggregate gross unrealized depreciation
for all securities in which there was an excess of tax cost over value
of $17,321,203.
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.
17
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------
<S> <C>
Investments, at market value (identified cost $786,125,855) ............ $ 768,837,039
Cash ................................................................... 358,178
Interest receivable .................................................... 8,709,555
Receivable for Fund shares sold ........................................ 417,002
Other assets and receivables ........................................... 16,197
-------------
Total assets ........................................................... 778,337,971
Liabilities
- ----------------------------------------------------------------------------------------
Dividends payable ...................................................... 875,785
Payable for Fund shares redeemed ....................................... 1,318,553
Accrued management fee ................................................. 670,150
Other accrued expenses ................................................. 1,041,228
Other payables and accrued expenses .................................... 250,744
-------------
Total liabilities ...................................................... 4,156,460
- ----------------------------------------------------------------------------------------
Net assets, at value $ 774,181,511
- ----------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income .................................... 1,751,472
Net unrealized appreciation (depreciation) on investments .............. (17,288,816)
Accumulated net realized gain (loss) ................................... (164,259,192)
Paid-in capital ........................................................ 953,978,047
- ----------------------------------------------------------------------------------------
Net assets, at value $ 774,181,511
- ----------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($774,181,511 /
74,130,248 outstanding shares of beneficial interest, $.01 par value, -------------
unlimited number of shares authorized) .............................. $ 10.44
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
- ------------------------------------------------------------------------------
Statement of Operations for the year ended December 31, 1999
- ------------------------------------------------------------------------------
Investment Income
- ------------------------------------------------------------------------------
Interest ...................................................... $ 57,932,597
------------
Expenses:
Management fee ................................................ 4,991,294
Services to shareholders ...................................... 2,313,956
Custodian and accounting fees ................................. 137,188
Trustees' fees and expenses ................................... 36,403
Reports to shareholders ....................................... 110,970
Auditing ...................................................... 76,504
Legal ......................................................... 93,457
Registration fees ............................................. 42,071
Other ......................................................... 51,504
------------
Total expenses before expense reductions ...................... 7,853,347
Expense reductions ............................................ (220,358)
------------
Total expenses after expense reductions ....................... 7,632,989
- ------------------------------------------------------------------------------
Net investment income 50,299,608
- ------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------
Net realized gain (loss) from investments ..................... (23,781,107)
Net unrealized appreciation (depreciation) during the period on (13,156,530)
investments
- ------------------------------------------------------------------------------
Net gain (loss) on investment transactions (36,937,637)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 13,361,971
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
Increase (Decrease) in Net Assets 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................... $ 50,299,608 $ 65,426,101
Net realized gain (loss) from investment
transactions ................................. (23,781,107) (3,844,223)
Net unrealized appreciation (depreciation) on
investment transactions during the period .... (13,156,530) (16,197,280)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations .............................. 13,361,971 45,384,598
--------------- ---------------
Distributions to shareholders from net investment
income ....................................... (49,964,406) (62,427,806)
--------------- ---------------
Fund share transactions:
Proceeds from shares issued in tax-free
reorganization ............................... 17,782,383 --
Proceeds from shares sold ....................... 790,459,825 425,742,760
Net asset value of shares issued to shareholders
in reinvestment of distributions ............. 38,144,688 47,687,597
Cost of shares redeemed ......................... (1,027,543,228) (629,978,033)
--------------- ---------------
Net increase (decrease) in net assets from Fund
share transactions ........................... (181,156,332) (156,547,676)
--------------- ---------------
Increase (decrease) in net assets ............... (217,758,767) (173,590,884)
Net assets at beginning of period ............... 991,940,278 1,165,531,162
Net assets at end of period (including
undistributed net investment income of --------------- ---------------
$1,751,472 and $1,651,041, respectively) ..... $ 774,181,511 $ 991,940,278
--------------- ---------------
Other Information
- --------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ....... 91,279,720 105,576,081
--------------- ---------------
Shares issued in tax-free reorganization ........ 1,643,474 --
Shares sold ..................................... 73,357,835 38,872,025
Shares issued to shareholders in reinvestment of
distributions ................................ 3,589,874 4,362,339
Shares redeemed ................................. (95,740,655) (57,530,725)
--------------- ---------------
Net increase (decrease) in Fund shares .......... (17,149,472) (14,296,361)
--------------- ---------------
Shares outstanding at end of period ............. 74,130,248 91,279,720
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<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, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.87 $11.04 $11.05 $11.35 $10.91
------------------------------------------
- ----------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------
Net investment income .60(a) .66(a) .73(a) .74(a) .71
- ----------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment transactions (.44) (.19) (.07) (.32) .44
------------------------------------------
- ----------------------------------------------------------------------------------
Total from investment operations .16 .47 .66 .42 1.15
- ----------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------
Investment income (.59) (.64) (.67) (.72) (.43)
- ----------------------------------------------------------------------------------
Tax return of capital -- -- -- -- (.28)
------------------------------------------
- ----------------------------------------------------------------------------------
Total distributions (.59) (.64) (.67) (.72) (.71)
- ----------------------------------------------------------------------------------
Net asset value, end of period $10.44 $10.87 $11.04 $11.05 $11.35
------------------------------------------
- ----------------------------------------------------------------------------------
Total Return (%) 1.57(c) 4.34(b) 6.17 3.86 10.74
- ----------------------------------------------------------------------------------
Ratios to Average Net Assets and Supplemental Data
- ----------------------------------------------------------------------------------
Net assets, end of period ($ millions) 774 992 1,166 1,468 1,823
- ----------------------------------------------------------------------------------
Ratio of expenses before expense
reductions (%) .87 .86 .86 .80 .75
- ----------------------------------------------------------------------------------
Ratio of expenses, after expense
reductions (%) .85 .86 .86 .80 .75
- ----------------------------------------------------------------------------------
Ratio of net investment income (%) 5.60 6.07 6.64 6.66 6.37
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 256 95 39 62 101
- ----------------------------------------------------------------------------------
</TABLE>
(a) Per share amounts have been calculated using weighted average shares
outstanding.
(b) If the Adviser had not reimbursed the Fund, the total return for the
year ended December 31, 1998 would have been lower (Note C).
(c) Total return would have been lower had certain expenses not been
reduced.
21
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
December 31, 1999
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 generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities purchased with an original
maturity greater than sixty days are valued by pricing agents approved by the
officers of the 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.
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,
22
<PAGE>
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 date.
In addition, the Fund inherited approximately $1,094,000 of capital losses from
its merger with Scudders 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 generally accepted accounting principles. 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.
B. Purchases and Sales of Securities
During the year ended December 31, 1999, purchases and sales of investment
securities (excluding short-term investments and U.S. Government obligations)
aggregated $1,155,508,585 and $1,267,234,028, respectively. Purchases and sales
of U.S. Government obligations aggregated $1,000,954,389 and $1,070,711,616,
respectively.
23
<PAGE>
C. Related Parties
Under the 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, 2000 in order to maintain the annualized expenses of the Fund at not more
than 0.85% of average daily net assets. For the year ended December 31, 1999,
the Adviser did not impose a portion of its management fee aggregating $192,586,
and the amount imposed aggregated $4,798,708. This was equivalent to an
annualized effective rate of 0.53% of the Fund's daily net assets. During the
year ended December 31, 1998, the Adviser reimbursed the Fund $12,808,543 for
losses incurred in connection with certain portfolio transactions.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended December 31, 1999, the amount charged to the Fund by SSC aggregated
$1,406,214, of which $210,423 is unpaid at December 31, 1999.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended December 31,
1999, the amount charged to the Fund by STC aggregated $489,252, of which
$111,782 is unpaid at December 31, 1999.
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, 1999, the amount charged to the Fund by SFAC aggregated $112,820,
of which $8,614 is unpaid at December 31, 1999.
24
<PAGE>
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 year ended December 31, 1999,
Trustees' fees and expenses aggregated $36,403.
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 $5,383 and $22,389, 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 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.
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.
25
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of Scudder Funds Trust and the Shareholders of Scudder Short
Term Bond 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 Short Term Bond Fund (the
"Fund") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States 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, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 11, 2000
26
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. BIrdsong* 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; Venture Partner,
Internet Capital Group
27
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
28
<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
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
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.
</TABLE>
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 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.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold 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.
29
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
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- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.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 your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
30
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who 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 after
withdrawal 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 Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
31
<PAGE>
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
