SCUDDER
INVESTMENTS(SM)
[LOGO]
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MONEY MARKET
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Scudder Cash
Investment Trust
Fund #065
Semiannual Report
November 30, 1999
The fund seeks to maintain stability of
capital and, consistent with that, to
maintain liquidity of capital and to provide
current income.
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 Portfolio Management Discussion
10 Glossary of Investment Terms
12 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
22 Officers and Trustees
23 Investment Products and Services
25 Scudder Solutions
2
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Scudder Cash Investment Trust
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ticker symbol SCTXX fund number 065
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Date of o Reflecting the rising interest rate environment, the
Inception: total return of the Scudder Cash Investment Trust
7/23/76 exceeded the return of the average taxable money
market fund for the six- and 12-month periods ended
November 30, 1999 according to Lipper Analytical
Services, Inc.
Total Net
Assets as o As of the close of the six-month fiscal period, the
of 11/30/99: fund was providing a 5.02% 7-day yield and a 5.15%
$1.1 billion 7-day compounded effective yield.
o Management pursued a defensive investment strategy by
keeping a relatively short portfolio maturity for the
fund in anticipation of rising interest rates.
o The fund remained diversified across a range of
securities, including high quality commercial paper,
short-and medium-term notes, certificates of deposit,
and repurchase agreements.
3
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Letter from the Fund's President
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Dear Shareholders,
In 1999 we witnessed another year of strong performance for the equity markets
as large-cap growth, especially technology stocks, recorded impressive returns.
Against the current backdrop of high consumer confidence, robust economic
growth, and low inflation, these generous returns have had the potential to make
other asset classes seem less important to an investor's overall portfolio.
However, we believe the role of a highly liquid and high quality holding has, in
fact, taken on renewed importance after such a prolonged rise for selected
equities. While we believe that the economy remains healthy overall, strong
gains in certain sectors can have the effect of unintentionally increasing one's
exposure to a particular asset class or industry sector. Given this potential,
we encourage shareholders to carefully review their holdings to ensure
appropriate allocations.
As a shareholder in Scudder Cash Investment Trust we believe you already hold a
key element of a well-diversified portfolio. The fund's conservative, high
quality, and very liquid investments can provide relative stability, current
income, and a short-term parking place for a portion of your investment
portfolio. With short-term interest rates rising and inflation still relatively
low, investors are seeing some of the best real yields for money market funds in
years. For a detailed discussion of the fund's investment strategy and portfolio
positioning, I encourage you to read the
4
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Portfolio Management Discussion with Frank Rachwalski and Dean Meddaugh
beginning on page 6.
For current information on the fund and your account, visit our Internet Web
site at www.scudder.com. There you'll find a wealth of information, including
the most recent performance of the fund, the latest news on Scudder products and
services, and the opportunity to perform account transactions. You can also
speak with one of our representatives by calling 1-800-SCUDDER (1-800-728-3337).
In closing, I would like to inform you that Daniel Pierce, president of the
fund, retired in June. At that time I assumed his role and responsibilities. We
are fortunate that Dan's long-standing affiliation with Scudder is ongoing, and
that we will continue to benefit from his counsel. I am pleased to join the
trust's team in this capacity, and look forward to serving your interests.
Thank you for your continued investment in Scudder Cash Investment Trust.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder Cash Investment Trust
5
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Portfolio Management Discussion
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November 30, 1999
In the following interview, portfolio managers Frank Rachwalski and Dean
Meddaugh discuss the market environment and their approach to managing the fund.
Q: The Federal Open Market Committee (FOMC), the Federal Reserve Bank's
implementer of economic policy, raised interest rates three times over the
six-month fiscal period ended November 30, 1999. How did this affect money
market securities?
A: The Fed's rate hikes have resulted in significant increases in the yields for
money market securities, and have contributed to the rise of the fund's yield.
Over the last six months the Fed effectively reversed its three rate cuts of
1998 with three quarter-point rate hikes (see "Changes in the Federal Funds
Rate" below). The reversal primarily reflects the effectiveness of the original
rate cuts, which were intended to stabilize the financial markets in the wake of
the Asian financial market crisis in the third quarter of 1998.
With U.S. economic growth continually exceeding expectations throughout most of
1999 and the financial markets rebounding strongly, Fed policy appeared
successful -- perhaps more successful than anticipated. Gross domestic product,
a measure of U.S. economic growth, grew a strong 4.27% for the 12-month period
ended September 30, 1999. Such strong growth can spark inflation but,
impressively, inflation has remained benign, increasing only 2.32% for the same
12-month period. However, there have been signs that inflationary pressures are
building, including the low levels of unemployment, rising oil prices, and
rising asset prices for real estate and
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Changes in the Federal Funds Rate
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Federal Funds Old rate New rate Change
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June 30 4.75% 5.00% +0.25%
August 24 5.00% 5.25% +0.25%
November 16 5.25% 5.50% +0.25%
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6
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selected stocks. As of November 30, 1999, interest rates have returned to -- and
exceeded -- levels existing prior to the Asian crisis.
Q: How did you manage the fund in this environment?
A: Our primary focus has been on maintaining a sufficient level of liquidity
while taking advantage of what the market is offering. As a result, we
maintained a shorter average portfolio maturity for the fund than the average
peer fund. For example, at November 30, 1999 the portfolio's average maturity
was 34 days as measured by 60 days for the average first tier money market fund.
Compared to the portfolio's average maturity of 36 days at the beginning of the
period, the portfolio's average maturity remained little changed. By maintaining
a shorter maturity in the rising interest rate environment, the fund's existing
holdings matured more quickly, which enabled the fund to invest in higher
yielding securities sooner than if we had maintained a longer average portfolio
maturity. A limitation of this strategy is that we gave up a small amount of
current yield by maintaining a shorter maturity.
Q: How did the fund perform?
A: Reflecting the rising interest rate environment, the Scudder Cash Investment
Trust's 7-day yield rose over the period from 4.14% to 5.02%, which translate
into compound effective yields of 4.23% and 5.15%, respectively. From a total
return standpoint, the fund exceeded the average return of taxable money market
funds for both the six- and 12-month periods ended November 30, 1999, according
to Lipper Analytical Services, Inc.^1 The fund returned 2.31% for the six months
and 4.48% for the 12 months, which compares to average taxable money market fund
returns of 2.26% for 357 funds and 4.43% for 337 funds for the same periods,
respectively.
^1 Lipper is an independent analyst of investment performance. Performance
includes reinvestment of dividends and capital gains. Past performance
is no guarantee of future results.
7
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Q: What is the quality of the short-term securities that you buy for the fund?
A: The fund only invests in first tier instruments. By that we mean issues that
are rated in the top two rating categories according to major credit rating
agencies, such as Fitch Investors Service, Moody's Investors Service, or
Standard and Poor's. The top two ratings have the lowest risk of default and,
while not insured by the FDIC or government guaranteed, these securities are
among the safest available outside of U.S. Treasury bills. Basically, our
philosophy is that we are not paid to take credit risk. In the case of lower
rated securities, we believe the risk of default is not worth the few additional
tenths-of-a-percentage point yield advantage.
Q: You are able to allocate the fund's assets across a variety of money market
instruments. How did you manage diversification?
A: The fund's allocation of investments remained essentially unchanged from six
months ago. Typically, we maintain the fund's exposure to a broad selection of
money market securities, including high quality commercial paper, variable- and
floating-rate securities, certificates of deposit, and repurchase agreements.
The fund's emphasis remained in commercial paper (61% of assets) because we
believe that this sector provides some of the most attractive values and highest
relative yields.
The fund's next largest area of emphasis was floating-rate securities.
"Floaters," as we call them, are highly correlated to short-term interest rates
because their yields are indexed to current short-term rates, such as the prime
rate -- the key lending rate charged by commercial banks to its best customers.
In the rising interest rate environment, the yield on these securities adjusts
upward sooner than traditional fixed-rate money market securities. Since selling
lower yielding money market securities to buy higher yielding ones is
impractical due to high transaction costs, floaters allow the fund to
participate in the higher yielding environment quickly. In addition, floaters
typically
8
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provide slightly higher yields than fixed-rate money market securities with
maturities of greater than 30 days.
The fund also held 1% of assets in repurchase agreements (repos). These very
short-term loans (usually seven days or less) are collateralized by U.S.
government notes and provide a private sector yield, or a yield that is
comparable to non-government issued money market securities. These securities
tend to trade more cheaply than comparable Treasury bills and often represent
good value from our standpoint. Because these securities are collateralized by
Treasuries and have relatively short maturities, repos tend to react quickly
when interest rates change. The fund's holdings of repos benefited the fund as
rates rose over the period.
Q: What is your outlook for interest rates?
A: While we did not expect the Fed to raise interest rates again in 1999 (the
Fed left rates unchanged at its December 21 meeting), we are expecting the trend
toward higher short-term rates to continue in early 2000. We think the Fed and
many investors remain concerned about the strong growth of the U.S. economy.
With an acceleration of growth in selected foreign countries and the Fed poised
to snuff out the first hint of higher inflation, we think there is a greater
likelihood of rate increases than not. From a credit quality standpoint, we have
no concerns right now. Treasury bill yields are proportional to those of longer
maturity securities and the market appears to be very liquid. Based on this
outlook, we expect to maintain the fund's slightly defensive positioning while
seeking to capitalize on attractive opportunities as they arise.
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Trust Yields
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7-day 7-day
average compounded
yield effective yield
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May 31, 1999 4.14% 4.23%
November 30, 1999 5.02% 5.15%
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9
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Glossary of Investment Terms
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Commercial Paper Short-term debt obligations with maturities ranging from 2
to 270 days, and issued by banks, corporations and other
borrowers to investors with temporarily idle cash. These
instruments are unsecured and usually discounted from the
face value of the security, although some are
interest-bearing and offer a high level of safety and
liquidity.
Federal Open The committee that sets interest rate and credit policies
Market Committee for the Federal Reserve System. The committee decides
(FOMC) whether to increase or decrease interest rates through
open-market operations. The committee's actions are closely
watched and interpreted by economists and stock and bond
market analysts, who try to predict whether the Fed is
seeking to tighten credit to reduce inflation or to loosen
credit to stimulate the economy.
Federal Reserve The governing board of the Federal Reserve System, the
Board United States' central bank. The Board establishes policies
on such key matters as reserve requirements (the amount of
cash banks must have on hand) and other bank regulations,
sets the discount rate, tightens or loosens credit (raises
or lowers rates), and regulates the purchase of securities
on margin.
Gross Domestic Gross domestic product is a commonly referenced measure of
Product (GDP) the health of the U.S. economy and refers to the market
value of the goods and services produced by labor and
property in the United States. Economic growth that is
overly strong can lead to accelerating inflation; weakening
growth can lead to a recession.
Inflation An overall increase in prices usually measured by the
Consumer Price Index (CPI) and the Producer Price Index
(PPI). CPI is calculated by the U.S. Bureau of Labor
Statistics and measures the cost of a basket of goods and
services over time. The PPI is calculated by the U.S.
Department of Labor and measures the wholesale cost of goods
over a specified period.
10
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Liquidity A characteristic of an investment or an asset referring to
the ease of convertibility into cash within a reasonably
short period of time.
Maturity The date a debt instrument is due and payable. For money
market securities, a short maturity provides better
investment flexibility, but tends to provide a lower yield;
a long maturity provides a higher yield, but requires the
investor to tie up money for a longer period (less
flexibility).
Money Market Short-term debt instruments, including banker's acceptances,
Securities commercial paper, negotiable certificates of deposit,
repurchase agreements, and Treasury bills. Most money market
instruments mature in less than one year and money market
funds typically have average maturities of less than 90
days. These securities have a high level of safety and
liquidity.
(Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
Additional glossary terms are available at our Internet Web site --
www.scudder.com.
11
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Investment Portfolio as of November 30, 1999 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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Repurchase Agreements 1.0%
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<S> <C> <C>
State Street Bank & Trust Company, 5.63%, 12/1/1999, to ------------
be repurchased at $10,434,632** (Cost $10,433,000) . 10,433,000 10,433,000
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Commercial Paper 60.7%
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Alpine Securitization Corp., 6.16%, 1/21/2000 ......... 15,000,000 14,871,438
Alpine Securitization Corp., 6.00%, 2/10/2000 ......... 15,000,000 14,826,938
Alpine Securitization Corp., 6.00%, 2/25/2000 ......... 15,000,000 14,790,375
Baxter International Inc., 6.01%, 2/08/2000 ........... 40,000,000 39,550,733
Centric Capital Corp., 6.08%, 1/19/2000 ............... 4,000,000 3,967,442
China Merchants, 5.47%, 12/8/1999 ..................... 14,000,000 13,985,246
Coca-Cola Enterprises, 5.95%, 1/28/2000 ............... 30,000,000 29,719,183
Duke Capital Corp., 5.90%, 1/25/2000 .................. 30,000,000 29,736,458
Fairway Finance Corp., 5.03%, 12/15/1999 .............. 23,719,000 23,673,987
Falcon Asset Sercuitization Corp., 6.21%, 1/18/2000 ... 50,000,000 49,592,000
Fortis Finance Corp., 6.00%, 2/14/2000 ................ 40,000,000 39,506,667
Four Winds Funding Corp., 5.36%, 12/6/1999 ............ 22,000,000 21,983,683
GMAC Mortgage Corporation of Pennsylvania, 5.49%,
12/1/1999 .......................................... 25,000,000 25,000,000
Galaxy Funding Corp., 5.39%, 12/7/1999 ................ 30,000,000 29,973,150
Giro Funding Corp., 6.15%, 2/1/2000 ................... 20,800,000 20,582,917
International Securitization Corp., 5.52%, 12/2/1999 .. 15,000,000 14,997,721
Intrepid Funding Master Trust, 5.91%, 1/27/2000 ....... 14,000,000 13,872,542
Lexington Parker Capital Corp., 6.12%, 1/26/2000 ...... 50,000,000 49,532,556
Moat Funding LLC, 6.05%, 2/10/2000 .................... 50,000,000 49,415,236
Park Avenue Receivables, 5.39%, 1/14/2000 ............. 35,000,000 35,000,000
Sheffield Receivables Corp., 6.15%, 1/21/2000 ......... 50,000,000 49,571,458
Thunder Bay Funding Corp., 6.03%, 1/31/2000 ........... 31,168,000 30,856,407
Variable Funding Corp., 6.11%, 1/14/2000 .............. 50,000,000 49,632,111
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Total Commercial Paper (Cost $664,638,248) 664,638,248
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</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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Certificates of Deposit 17.6%
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<S> <C> <C>
Finova Capital Corp., 5.56%*, 6/12/2000 ..................... 20,000,000 20,000,000
Credit Suisse First Boston Corp., 5.72%*, 6/9/2000 .......... 39,000,000 39,000,000
Goldman Sachs Group, 6.21%*, 2/3/2000 ....................... 25,000,000 25,000,000
American Express Centurian Bank, 5.37%*, 2/14/2000 .......... 25,000,000 25,000,000
Dresdner Bank, 5.56%*, 7/24/2000 ............................ 49,000,000 48,987,686
First Union National Bank, 5.61%*, 7/26/2000 ................ 35,000,000 35,000,000
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Total Certificates of Deposit (Cost $192,987,686) 192,987,686
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Short-Term Notes 20.7%
Bank of America, 5.75%*, 3/21/2000 .......................... 50,000,000 50,000,000
CIT Group Holdings Corp., 5.63%*, 5/15/2000 ................. 30,000,000 29,991,098
Comerica Bank, 5.34%*, 6/13/2000 ............................ 30,000,000 29,992,118
Comerica Inc., 5.65%*, 3/15/2000 ............................ 11,500,000 11,498,431
Heller Financial, Inc., 5.63%*, 6/7/2000 .................... 15,000,000 15,007,161
Heller Financial Inc., 6.35%*, 7/7/2000 ..................... 10,000,000 10,006,815
Heller Financial, Inc., 5.52%*, 8/11/2000 ................... 25,000,000 25,000,000
MBNA Bank, 5.68%*, 6/23/2000 ................................ 5,000,000 4,996,919
Skandinaviska Enskilda, 5.61%*, 8/29/2000 ................... 25,000,000 24,992,688
Transamerica Finance Corp., 6.26%*, 12/1/2000 ............... 25,000,000 25,000,000
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Total Short-Term Notes (Cost $226,485,230) 226,485,230
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Total Investment Portfolio -- 100.0% (Cost $1,094,544,164) (a) 1,094,544,164
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</TABLE>
(a) The cost for federal income tax purposes was $1,094,544,164.
* Floating rate notes are securities whose yields vary with a designated
market index or market rate, such as the coupon-equivalent of the
Treasury bill rate. These securities are shown at their rate as of
November 30, 1999.
** Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities.
The accompanying notes are an integral part of the financial statements.
13
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Financial Statements
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<TABLE>
<CAPTION>
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Statement of Assets and Liabilities as of November 30, 1999 (Unaudited)
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Assets
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<S> <C>
Investments in securities, at value (cost $1,094,544,164) ................. $ 1,094,544,164
Cash ...................................................................... 2,977,447
Receivable for Fund shares sold ........................................... 21,595,484
Interest receivable ....................................................... 2,167,379
Other assets .............................................................. 29,256
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Total assets .............................................................. 1,121,313,730
Liabilities
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Payable for Fund shares redeemed .......................................... 6,568,067
Dividends payable ......................................................... 164,356
Accrued management fee .................................................... 581,555
Other accrued expenses .................................................... 1,181,317
---------------
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Total liabilities ......................................................... 8,495,295
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Net assets, at value ...................................................... $ 1,112,818,435
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Net Assets
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Net assets consist of:
Accumulated net realized gain (loss) ...................................... (473,380)
Paid-in capital ........................................................... 1,113,291,815
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Net assets, at value ...................................................... $ 1,112,818,435
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Net Asset Value
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Net Asset Value, offering and redemption price per share ($1,112,818,435 /
1,112,576,025 outstanding shares of beneficial interest, $.01 par value, ----------------
unlimited number of shares authorized) ................................. $ 1.00
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
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Statement of Operations for the six months ended November 30, 1999 (Unaudited)
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Investment Income
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Interest ...................................................... $ 30,463,165
------------
Expenses:
Management fee ................................................ 2,407,260
Services to shareholders ...................................... 2,790,328
Custodian and accounting fees ................................. 96,336
Trustees' fees and expenses ................................... 29,572
Reports to shareholders ....................................... 96,671
Registration fees ............................................. 27,658
Auditing ...................................................... 17,921
Legal ......................................................... 17,030
Other ......................................................... 21,960
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Total expenses, before expense reductions ..................... 5,504,736
Expense reductions ............................................ (723,006)
------------
Total expenses, after expense reductions ...................... 4,781,730
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Net investment income 25,681,435
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Realized and unrealized gain (loss) on investment transactions
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Net realized gain (loss) from:
Investments ................................................... (9,458)
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Net gain (loss) on investment transactions (9,458)
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Net increase (decrease) in net assets resulting from operations $ 25,671,977
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The accompanying notes are an integral part of the financial statements.
15
<PAGE>
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Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
Six Months
Ended November Eleven Months
30, 1999 Ended May 31, Year Ended
Increase (Decrease) in Net Assets (Unaudited) 1999 June 30, 1998
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Operations:
<S> <C> <C> <C>
Net investment income ............ $ 25,681,435 $ 48,233,930 $ 60,342,332
Net realized gain (loss) ......... (9,458) -- (17,463)
Net unrealized appreciation
(depreciation) on investment
transactions during the period -- 419,553 (94,354)
--------------- --------------- ---------------
Net increase (decrease) in net
assets resulting from
operations .................... 25,671,977 48,653,483 60,230,515
--------------- --------------- ---------------
Distributions to shareholders
from net investment income .... (25,681,435) (48,233,930) (60,324,869)
--------------- --------------- ---------------
Fund share transactions at net
asset value of $1.00 per share:
Proceeds from shares sold ........ 1,084,946,709 2,183,832,499 1,976,992,854
Reinvestment of distributions .... 24,341,110 45,455,859 56,773,631
Cost of shares redeemed .......... (1,143,480,203) (2,264,700,201) (2,282,283,081)
--------------- --------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions .................. (34,192,384) (35,411,843) (248,516,596)
--------------- --------------- ---------------
Increase (decrease) in net assets (34,201,842) (34,992,290) (248,610,950)
Net assets at beginning of period 1,147,020,277 1,182,012,567 1,430,623,517
--------------- --------------- ---------------
Net assets at end of period ...... $ 1,112,818,435 $ 1,147,020,277 $ 1,182,012,567
--------------- --------------- ---------------
</TABLE>
16
<PAGE>
Financial Highlights
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The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999(a) 1998(b) 1998(c) 1997(c) 1996(c) 1995(c) 1994(c)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
-------------------------------------------------------------
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Income from investment
operations:
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Net investment
income .023 .041 .048 .046 .048 .048 .027
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Less distributions from:
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Net investment
income and net
realized gains on
investment
transactions (d) (.023) (.041) (.048) (.046) (.048) (.048) (.027)
- ------------------------------------------------------------------------------------
Net asset value, end
of period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
-------------------------------------------------------------
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Total Return (%) 2.31(e)** 4.15(e)** 4.92(e) 4.73 4.89 4.90 2.77
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Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 1,113 1,147 1,182 1,431 1,387 1,520 1,430
- ------------------------------------------------------------------------------------
Ratio of expenses
before expense
reductions (%) .98* 1.02* .95 .86 .83 .78 .82
- ------------------------------------------------------------------------------------
Ratio of expenses
after expense
reductions (%) .85* .85* .85 .86 .83 .78 .82
- ------------------------------------------------------------------------------------
Ratio of net
investment income (%) 4.58* 4.44* 4.82 4.63 4.79 4.84 2.78
- ------------------------------------------------------------------------------------
</TABLE>
(a) For the six months ended November 30, 1999 (Unaudited).
(b) For the eleven months ended May 31, 1999. On August 10, 1998, the Board
of Trustees of the Trust changed the fiscal year end of the Fund from
June 30 to May 31.
(c) For the years ended June 30.
(d) Net realized gains were less than 6/10 of $.01 per share. (e) Total
returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
17
<PAGE>
Notes to Financial Statements
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(Unaudited)
A. Significant Accounting Policies
Scudder Cash Investment Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified
management investment company organized as a Massachusetts business trust. On
August 10, 1998, the Board of Trustees of the Fund changed the fiscal year end
of the Fund from June 30 to May 31.
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. The Fund values all portfolio securities utilizing the
amortized cost method permitted in accordance with Rule 2a-7 under the 1940 Act
and pursuant to which the Fund must adhere to certain conditions. Under this
method, which does not take into account unrealized gains or losses on
securities, an instrument is initially valued at its cost and thereafter assumes
a constant accretion/amortization to maturity of any discount/premium.
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.
At May 31, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $465,000, which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until May 31, 2004
($279,000), May 31, 2005 ($180,000), May 31, 2006 ($4,000), and May 31, 2007
($2,000), the respective expiration dates, whichever occurs first.
18
<PAGE>
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.
B. 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 0.50% of the first
$250,000,000 of the Fund's average daily net assets, 0.45% of the next
$250,000,000 of such net assets, 0.40% of the next $500,000,000 of such net
assets, and 0.35% of such net assets in excess of $1,000,000,000, computed and
accrued daily and payable monthly. In addition, the Adviser has agreed to
maintain the annualized expenses of the Fund at not more than 0.85% of average
daily net assets until September 30, 2000. For the six months ended November 30,
1999, the Adviser did not impose a portion of its fee, amounting to $716,885,
and the portion imposed amounted to $1,690,375, which was equivalent to an
annualized effective rate of 0.30% of the Fund's average daily net assets.
19
<PAGE>
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 November 30, 1999, the amount charged to the Fund by SSC
aggregated $1,589,429 of which $520,036 is unpaid at November 30, 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 six months ended November
30, 1999, the amount charged to the Fund by STC aggregated $896,426 of which
$297,158 is unpaid at November 30, 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 six months
ended November 30, 1999, the amount charged to the Fund by SFAC aggregated
$45,572 of which $15,169 is unpaid at November 30, 1999.
The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
the potential to be invested in the Underlying Funds. For the six months ended
November 30, 1999, the Special Servicing Agreement expense charged to the Fund
aggregated to $39,668.
The Fund pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the six
months ended November 30, 1999, Trustees' fees and expenses aggregated $29,572.
C. 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 six months ended \
20
<PAGE>
November 30, 1999, the Fund's custodian and transfer agent fees were reduced by
$83 and $6,038, respectively, under these arrangements.
D. 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 a maximum of 33 percent of its net assets under the agreement.
21
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong* Kathryn L. Quirk*
o President and Trustee o Trustee, Vice President and
Assistant Secretary
Henry P. Becton, Jr.
o Trustee; President and General Jean C. Tempel
Manager, WGBH Educational o Trustee; Venture Partner,
Foundation Internet Capital Group
Dawn-Marie Driscoll Ann M. McCreary*
o Trustee; Executive Fellow, Center o Vice President
for Business Ethics, Bentley
College; President, Driscoll Frank J. Rachwalski, Jr.*
Associates o Vice President
Peter B. Freeman John Millette*
o Trustee; Corporate Director o Vice President and Secretary
and Trustee
John R. Hebble*
George M. Lovejoy, Jr. o Treasurer
o Trustee; President and Director,
Fifty Associates; Chairman Caroline Pearson*
Emeritus, Meredith and Grew, Inc. o Assistant Secretary
Wesley W. Marple, Jr. *Scudder Kemper Investments, Inc.
o Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
22
<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>
23
<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.
24
<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.
25
<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
26
<PAGE>
Notes
- --------------------------------------------------------------------------------
<PAGE>
About the Fund's Adviser
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
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.
